New Mexico coal-fired plant closure causes financing dispute

March 25, 2022 GMT

ALBUQUERQUE, N.M. (AP) — The upcoming closure of one of the few remaining coal-fired power plants in the southwestern U.S. has generated a dispute over financing and customers rates.

Environmentalists and consumer advocates argue in regulatory filings made Thursday that Public Service Co. of New Mexico plans to continue collecting from customers the costs of running the San Juan Generating Station after it closes. That could amount to as much as $125 million.

The groups also are concerned that New Mexico’s largest electric provider plans to delay the use of bonds to recover lost investments in the power plant.

Customers will pay back the bonds through their bills over 25 years, but the amount will be less due to lower interest rates on the bonds and because the utility will forego profit on its investments.

Pat O’Connell, a senior clean energy policy analyst with Western Resource Advocates, said Friday that customers won’t benefit from any savings until the bonds are issued.

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“Gas is expensive too and we’re in a state where people are paying their last dollar for a tank of gas. It would help them to get a reduction in their electric bill now,” he said. “Savings delayed is savings denied, so let’s have the savings.”

The utility denied that its plans amount to double dipping or that customers will miss out on savings.

The $8 million in monthly cost-recovery charges collected through customers’ bills after the plant closes will be used as a credit when rates are reconsidered next year as part of a lengthy process before the state Public Regulation Commission.

The revenues collected through rates that covered San Juan will offset the $2.4 billion in investments that Public Service Co. of New Mexico has made in infrastructure, said utility spokesman Ray Sandoval.

He noted that the company agreed to delay asking for a rate increase in 2020 given the economic fallout of the coronavirus pandemic and again in 2021 as part of merger negotiations that are now the focus of a legal battle before the state Supreme Court.

The environmental and consumer advocacy groups want regulators to order an immediate reduction in consumer rates after the utility abandons the coal plant later this year.

They argued in the regulatory filings that the utility’s interpretation of the state’s Energy Transition Act — which sets renewable energy mandates and governs financing related to the San Juan power plant’s closure — is “absurd and self-serving.”

The groups estimate the withheld savings to typical residential electricity customers would be about $9.50 per month.

By holding off on giving that money back, Sandoval said Public Service Co. of New Mexico is preventing customers from having to endure “a rollercoaster of rates.”

“There’s no ability to double dip by PNM because the rates are set by the PRC,” he said.

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The other issue is whether interest rates will be as favorable by the time the utility issues the bonds. Consumer advocates have said customers will lose out on some anticipated savings if interest rates climb.

Mariel Nanasi, executive director of the group New Energy Economy, said another option would be for the commission to establish a regulatory liability account that would continue to track costs after the San Juan power plant closes so the amount can be returned to ratepayers when costs are adjusted in the next rate case.

“Requiring PNM to either issue a rate credit or establish a regulatory account will serve to protect ratepayers from PNM’s over-collection, is an efficient way of doing so, and is consistent with the commission’s ratemaking authority to protect ratepayers,” she said.

It’s unclear how soon regulators could take up the case.

One unit at the power plant is scheduled to close by July 1 and the other is set to close at the end of September, which will help the utility meet peak demands this summer.

The utility had to ask for an extension because solar and battery projects that were meant to replace the lost capacity have been delayed.