PNM’s plan to close San Juan Generating Station Examined

Higher Electricity Rates, Job Losses, Solar

PNM’s “rationale” for seeking to close San Juan Generating Station was thoroughly examined during the company’s Integrated Resource Plan filing with the New Mexico Public Regulatory Commission. The company’s justification for its plan were severely lacking. In fact, even today on PNM’s website, the following statements regarding its plan are presented:

The benefits of PNM eliminating the use of coal are:
• Cleaner environment and a significant reduction in carbon emissions.
• Lower costs and more energy options for customers over the long run because it fits better with future energy needs.
• Improve New Mexico’s leadership in the transition to cleaner, more sustainable energy resources. New Mexico is ideally suited this, given our wealth of sun, wind and technological/research talent based in the state.

That said there are some downsides as well:
• It would mean job losses, and these good-paying positions will not be easily replaced.
• It would likely increase customer electricity costs in the short-term.

Let’s look at these points one by one along with a more detailed analysis than what is presented in these shallow talking points.

1. “Cleaner environment and a significant reduction in carbon emissions”

It is likely, there will be slight reductions in carbon emissions by PNM’s plan to dramatically accelerate closure of its entire fleet of coal generation. However, this is not a forgone conclusion. The switch to a high renewable, coal free future is proving to be far more difficult in the places that are many years ahead of the United States in pursuing this path.

Germany, for example has had to reintroduce coal fired generation to provide the necessary grid stability to keep the lights on. In addition, since the ability of renewables to provide round the clock energy is untenable, other sources of reliable energy whether from coal, nuclear or natural gas are necessary in large amounts to provide reliable electric service.

In addition, since the renewable fuel standard approach to electric energy production planning has been implemented. The cost of renewables is dramatically understated and the cost of other more reliable sources is dramatically overstated.

2. “Lower costs and more energy options for customers over the long run because it fits better with future energy needs.”

Advocates of ever- increasing amounts of renewable energy are quick to point out the “low cost” nature of renewable energy. For example, PNM testified during the hearing on its Integrated Resource Plan that the cost of solar is $.03/kilowatt. But this so called low-cost option is rife with additional costs. The sun obviously does not shine at night, and since there is relatively small amounts of energy produced from solar panels in the early morning and late afternoon, without cost effective storage technologies, solar energy is currently at best a condiment source of electricity.

It is also interesting to note that in PNM’s Integrated Resource Plan, $0.05/kW coal generation was going to be largely replaced with $0.11kW natural gas generation. Depending on how long it takes cost-effective electricity storage solutions to emerge, the long run may not come for a very long time.

Without cost effective battery storage which is the holy grail of renewable energy becoming core technology for the United States, the current path of more and more renewables is simply a state sanctioned way for utilities to make more profits at the expense of their customers.

The lower cost that is promised in the long term only comes with dramatically more cost-effective battery storage. The big question is when will this cost-effective battery storage emerge, maybe in years, maybe in decades, maybe even. As things now stand, higher and higher levels of renewable energy implemented by renewable portfolio standards look a lot Spaceport New Mexico, an expensive idea based on the wishful thinking of a few that costs the rest of us lots of money.

It is very telling that increased renewable portfolio standard percentages are constantly called for by advocates of renewable electricity generation. These advocates and their utility partners cite the “low cost” of renewables, but at the same time call for higher levels of mandated use of renewable power. If the true cost of renewables was indeed as low as is stated, utilities would put such generation into its portfolio for purely economic reasons.

The real answer is that while solar powered electricity may be $.03/kilowatt when the sun is shining at noon, the cost of having such a limited use source of energy makes the cost of everything else go up. From a cost perspective, the closest analogy is low cost inkjet printers. The printers cost say $75, but the replacement ink cartridges are many times the cost of the printer over just a few years.

With solar, the price of electricity when the sun is shining is low, but the amount of additional generating capacity that must be available when solar output is not at its peak (most of the time) is significant. In addition, the amount of solar energy available when the sunshine is strong is already greater that what is necessary for cost efficient operation of PNM system much of the time.

The ever-increasing renewable portfolio standard is the only thing that makes PNM’s risky plan to close San Juan Generating Station early (and soon to follow Four Corners Generating Station) even appear to be a good idea. Requiring more renewable power regardless of total costs to customers may benefit the environment some, but the real benefit will be that PNM will be able to join the California utilities by making otherwise unneeded investments in new generating capacity, and in the process, make far higher profits for their shareholders, and have all of it paid for by much higher rates by PNM’s customers.

Were such a plan not wrapped in the politically correct position that it is worth it to get rid of coal as soon as possible, there would be calls for PNM to be run out of New Mexico. But as it is, PNM and the advocates of early closure of San Juan Generating Station, seek to put New Mexico on the coal must go as fast as possible regardless of the cost to ordinary New Mexicans.

PNM’s claim of low costs and more energy choices over the long-term is dubious and misleading. First, depending on the definition of short term and long term, it is very possible that New Mexico’s economy will literally not make it to the long term if short term electricity cost increase by as much as is projected.

PNM’s rates will rise for many reasons including: a) potential recovery of the “stranded costs” related to San Juan Generating Station because of PNM’s plan to accelerate the closure date, b) replacing partially depreciated (lower cost) generating capacity with new generating capacity, c) having to have a far higher amount of installed but not fully utilized generating capacity (more power plants of every kind) whether it be coal, gas, nuclear to be available when renewables are not effective nor sufficient (much of the time).

You better believe that when renewables are the effective and efficient source of power (energy over time) that it now pretends to be, you won’t need an increased renewable portfolio standard to drive coal, natural gas or even nuclear out of utility portfolio mixes. The engineering and economics will drive investment, not the heavy-handed politics.

In the 2017 New Mexico legislative session, PNM promoted a bill that would provide the company the opportunity to obtain full recovery from rate payers of the “stranded costs” caused by PNM’s own decision to close San Juan Generating Station in 2022. An additional telling provision in PNM’s proposal would have increased the renewable portfolio standard to 50% by 2030. These two provisions in the same piece of legislation highlight the disingenuous game that PNM is attempting to play: increase stranded costs by ever higher renewable portfolio standard requirements, get full recovery of the “stranded costs” that PNM’s own plan created, invest in new generation both renewable and natural gas to increase PNM’s rate base on which the profit to shareholders is determined, and make the utility rate payers of one the nation’s poorest states foot the bill.
What is needed isn’t higher percentages in the renewable portfolio standard. What is needed is caps on rate increases when utilities implement feel good schemes with their customers taking on greater risks and greater costs.

3.”Improve New Mexico’s leadership in the transition to cleaner, more sustainable energy resources. New Mexico is ideally suited this, given our wealth of sun, wind and technological/research talent based in the state.”

PNM’s plan may indeed improve New Mexico’s leadership in the transition to more sustainable energy resources, but the cost of accelerating the timing of this natural progression will be staggering for PNM’s rate payers, just like it was in California. Electric rates in New Mexico that are lower and more predictable than in California are a valuable tool to attract investment and jobs into New Mexico.
New Mexico’s abundant wind and solar potential is a very real resource. However, this resource will be developed with or without PNM implementing its plan to dramatically raise rates. Independent power producers are much better equipped to address new projects without forcing PNM’s customers to foot the bill and shoulder the risks.

4. “It would mean job losses, and these good-paying positions will not be easily replaced.”

I will mean job losses, lot of them, 1,500 direct jobs to be exact at the San Juan Generating Station, Westmoreland Coal Mine and related contractors and supporting businesses. These are jobs that will not be easily replaced. It is also worth noting that members of the Navajo Nation will be especially hard hit. Many of the employees who will lose their job are Navajo and many of the income from their jobs often support large families and even extended families.

As far as replacing these jobs, San Juan County has already fallen on hard times due to persistent low natural gas prices. A 2016 report showed that the Farmington, New Mexico metropolitan statistical area was the fastest-shrinking city in the country. If you lose your job in the great Farmington area, it is not going to be easy to find a new one.

5. “It would likely increase customer electricity costs in the short-term.”

This may be the understatement of the year, but at least PNM acknowledges that electricity costs will go up in the short term. What is meant by the short term is not clear. It may mean years or even decades. And keep in mind that much of PNM’s plan is based on the risky strategy already implemented by California. The California approach has caused rates to rise to such high levels that lawsuits are now being filed by civil rights groups on behalf of the poor.

In fact, California’s current electricity price fiasco is not unprecedented. In 2000 and 2001, California set up an untested market-based generation scheme that regulators in California assured could not be manipulated. A series of blackouts and astronomical wholesale electrical prices caused exorbitant rate increase for consumers. In addition, Pacific Gas and Electric Company was forced to file bankruptcy. After the crisis, it was learned the Enron did indeed manipulate prices, the very thing that California regulators said was not possible.
Despite PNM advocating for 50% renewables in its generation portfolio, the company has admitted that at this level of renewables, 70% of daily customer demand will not be able to be met without building significant additional natural gas facilities.

Another impact of a high level regulatory renewable energy requirement is that you have way too much energy at certain times of the day, midday in the case of solar. This creates what is known as the “duck curve.” The implication of the duck curve is that solar generating assets that customers must pay for are turned off (curtailed) during the middle of the day.

As discussed above, batteries would indeed solve this problem, but at what price. Existing solutions such as the Tesla Powerwall are often cited as the technology that will allow for 80% or even 100% renewable electricity. The math on such a solution is not promising. A recent analysis showed that at the 80% level, 15 Powerwalls would be required for every resident of California, at 100% renewable energy 60 Powerwalls would be required for every man, woman and child in the state.

In New Mexico, 60 Powerwalls per person would cost $750 billion. To put that in perspective, the gross state product (the value of all goods and services produced in New Mexico in 2014 was less than $100 billion and the State of New Mexico’s operating budget was just under $6billion in 2017).

Higher electric rates are a big problem for New Mexicans. First of all, higher electric rates will make businesses in New Mexico less competitive than surrounding states. This creates problems for the businesses and industries that are already here by increasing their operating costs. This makes it harder for existing businesses to expand and grow.

Second, higher electric costs make it harder to attract new businesses to New Mexico. When businesses look at where to relocate, there are many factors that hurts New Mexico like crime rate, education and workforce readiness. We don’t need to have electric rates be moved from the “good column” to the “bad column” for businesses looking to relocate.

Oil and gas revenues appear to once again have saved the day for the fiscal health of the State of New Mexico’s upcoming budget. But if diversifying and growing our economy are going to be real and not just lip service, we need affordable electricity rates.

California, in particular, is seeing an exodus of businesses that are fleeing that state because of policies hostile to business, including high electric rates. We need these businesses to seriously consider relocating to New Mexico to help diversify our economy. The prospect of high electric rates in New Mexico that will be created by policies like those they are fleeing in California, will make companies much less likely to make New Mexico their new home.

The cost of PNM’s existing plans to raise rates will be felt most directly by the poorest New Mexicans in their service territory. Higher utility rates that can be avoided are essentially a regressive tax on the poor. When electric costs eat away at the incomes of the poor, their ability to pay for food, shelter, clothing and health care all suffer. It heartless to not take into account those in poverty when making utility policy, especially when rate increases are likely as even PNM admits.