Under a rate settlement agreement pending approval by state regulators, Xcel Energy Inc. subsidiary Southwestern Public Service Co. will retire the two steam turbines that make up the 1,067-MW Tolk coal-fired plant in Texas by the end of 2032. However, the deal also provides for the parties to come back to the table and request a different retirement date depending on the findings of a required independent analysis.
Staff with the New Mexico Public Regulation Commission, several environmental groups and the state attorney general signed onto the agreement. The independent analysis to be conducted under the settlement will evaluate capacity replacement, "economically optimal [...] abandonment dates" and the rate implications of various closure scenarios, including whether Southwestern Public Service retires or replaces all of its coal-fired units before 2030.
The company serves customers in both Texas and New Mexico.
Although the agreement sets a retirement date for Tolk of Dec. 31, 2032, it states that depreciation rates will "be calculated based on a remaining useful life through Dec. 31, 2037." That adds $8 million to the total depreciation expense, according to a Form 8-K filed with the U.S. Securities and Exchange Commission, but Xcel spokesperson Wes Reeves said it would help reduce the rate impact of a shorter depreciation period.
According to Reeves, the accelerated retirement is necessary because the generation station no longer can depend on the Ogallala Aquifer for its groundwater needs beyond 2032. Southwestern began reducing operations to minimum load at Tolk in 2019 during off-peak months to conserve water, and the utility plans to continue doing so through 2020, Reeves noted. From 2021-2032, he continued, the plant will be idled during off-peak months.
In a statement, the Sierra Club said "this settlement is an important step toward getting off dirty, polluting coal in both New Mexico and Texas, and conserving the panhandle's precious water supply."
"A rapid transition away from coal and towards renewable energy, storage technologies, and efficiency is essential to solving the global climate crisis and ensuring a sustainable water supply for the arid west," the Sierra Club said. And a still earlier retirement would help conserve even more fiscal and water resources, the group added.
In its New Mexico service area, Southwestern Public Service will receive a base rate revenue increase of $31 million under the agreement, with a 9.45% return on equity, or ROE. The utility initially sought a $51 million base rate increase with a 10.35% ROE. In the Form 8-K, Southwestern Public Service noted that it "anticipates final rates will go into effect in the second or third quarter of 2020."