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NM town pursues carbon capture at 847-MW coal-fired plant despite warnings

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The New Mexico Public Regulation Commission is considering proposals that outline closure options for the San Juan coal-fired power plant near Farmington, N.M.
Source: Associated Press

The city of Farmington, N.M., is doubling down on a long-shot bid to keep the 847-MW San Juan coal-fired power plant running past its planned retirement date in 2022.

Farmington officials signed an agreement with Enchant Energy on Aug. 16 that effectively transfers the city's right to receive exiting parties' ownership stakes for the 46-year-old facility. Enchant Energy is registered in New Mexico but run by two New York-based Wall Street investors, and it is seeking to retrofit the aging generating station with carbon capture and storage equipment to take advantage of the 45Q federal tax credit aimed at boosting the technology.

The agreement allows Enchant Energy to negotiate with four exiting parties PNM Resources Inc. subsidiary Public Service Co. of New Mexico, Tucson Electric Power Co., Los Alamos County, and Utah Associated Municipal Power Systems for a combined 95% ownership stake, with Farmington retaining its original 5% ownership stake beyond 2022.

PNM spokesperson Raymond Sandoval said Aug. 19 that the utility, which holds a majority stake in the San Juan facility, has only had "cursory" talks with Farmington and Enchant representatives to date. He characterized the Aug. 16 agreement as "a baby step on a journey of a million miles."

"At least for us, the barriers that we saw to carbon sequestration still exist and although we wish the city of Farmington well, we just think it's going to be a very long and challenging journey," Sandoval said.

Enchant Energy CEO Jason Selch estimated that outfitting the San Juan facility with carbon capture technology would require $1.2 billion in capital costs that would be more than offset by $2.5 billion in 45Q tax credits, according to a June presentation Selch gave in Washington, D.C.

Sandoval said no formal negotiations with any of the ownership interests, including PNM, have occurred so far. Any transfer agreement would require a third party such as Enchant Energy to demonstrate financial viability so as not to create additional liability for PNM customers, he added.

The city of Farmington said in an Aug. 16 news release that keeping the San Juan facility operating past 2022 would save nearly 1,600 direct and indirect jobs while keeping utility bills low.

But an August report from the Institute for Energy Economics and Financial Analysis concluded that pursuing a carbon capture project at the facility would not be in the city's best interest. Doing so "would leave Farmington exposed to long-term plant-ownership liabilities and brand it a potential credit risk, as well as turning it into an outlier on local, regional, and national trends in electricity generation," the report said.

Among numerous potential roadblocks, the institute noted that Enchant Energy's proposal would require the construction of a feeder pipeline stretching about 20 miles or more from the plant to the existing Cortez CO2 pipeline running from southwestern Colorado down into Texas. Captured carbon from the pipeline is used for enhanced oil recovery in the Permian Basin.

Under New Mexico's sweeping Energy Transition Act, which calls for 100% carbon-free power by 2045, coal-fired generating units with nameplate capacities greater than 300 MW must effectively install carbon capture technology or cease operating by January 2023. A key part of that clean power law allows PNM and other owners of the San Juan generating station to recover plant investments and decommissioning costs by selling bonds backed by utility customers.

The utility is now engaged in messy proceedings before the New Mexico Public Regulation Commission that recently prompted New Mexico Gov. Lujan Grisham to announce her intent to propose reforms to the voter-elected body to ensure the state's clean energy goals are met.

Sandoval stressed that PNM does not expect the proposed carbon capture project at the San Juan facility to impact the outcome of those proceedings. "If for some reason Farmington and Enchant were able to pull this off, it doesn't change PNM's plans and it doesn't change our ability to securitize under the Energy Transition Act."