Delays in building new solar plants to replace coal-based electricity are pushing Public Service Company of New Mexico deeper into wholesale energy markets to secure power.
That forced reliance on wholesale markets comes at a difficult time, because natural gas prices have reached 15-year highs, substantially increasing the cost for gas-fired power. In addition, utilities across the West are also competing for more energy on the open market in the face of intense summer heat waves, pushing energy costs in general much higher.
PNM says it’s managed to mitigate the impact of higher fuel costs on ratepayers through internal utility savings from shutting down the coal-fired San Juan Generating Station this summer, and through increased revenue PNM has earned from sales of New Mexico-produced energy to other states, which gets delivered through PNM transmission lines.
In addition, the company says fuel costs for customers will decrease significantly starting in January, as PNM factors in reduced expenses for no longer purchasing coal for San Juan when it calculates fuel charges included on customers’ monthly bills.
But environmental and consumer advocacy groups say customers have yet to see any real benefits from PNM’s exit from San Juan, which was expected to generate an immediate, $8 per month savings on the average monthly bill for residential customers. That’s because PNM plans to roll those customer savings into a new rate case, which it expects to file on Monday, to offset any increase in rates that it seeks to pay for new investments made in the grid since 2019.
That issue is now under review at the New Mexico Supreme Court, which is considering a PNM appeal to dismiss a state Public Regulation Commission decision in June to force PNM to immediately credit San Juan savings back to customers upon closing down the coal plant.
As part of the appeal, the Supreme Court issued a stay in September on the PRC-ordered rebate while the court reviews the case.
In November, environmental and consumer groups requested that the court reconsider its stay, something the justices will rule on in the coming weeks, said Cydney Beadles, Western Resource Advocates’ clean energy program manager.
“A court decision is pending on our motion for a re-hearing,” Beadles told the Journal. “… Our fingers are crossed.”
But apart from the debate over direct savings for ratepayers from the San Juan shutdown, customers also have yet to see any expected savings from switching from high-cost coal generation to less expensive solar electricity, thanks to prolonged delays in the construction of four new solar facilities that are supposed to replace San Juan.
The PRC approved the solar replacement plants in 2020 with the expectation that they would come online in June of this year, when San Juan’s two generating units were scheduled for closure. But pandemic-induced supply chain disruptions delayed construction on all four facilities, forcing PNM to keep one of San Juan’s generating units open until Sept. 30 to meet critical summer requirements, when electricity demand peaks as consumers crank up their air conditioners.
Now, only two plants are projected to begin operating in the first half of 2023, with the other two pushed out until 2024, or possibly later, according to PNM’s latest monthly update to the PRC on its electric supply resources. That means, of the total 950 megawatts of combined power expected from the four plants to replace San Juan, only 520 MW will become available next year in advance of peak summer demand.
And that, in turn, is forcing PNM back to wholesale markets to make up the other 430 MW it needs for next summer.
To date, the company has secured about 310 MW under new power purchase agreements for summer 2023, and it expects to issue a new request for supply proposals early next year to acquire the additional energy needed, said PNM Vice President for Generation Tom Fallgren.
“We’re still short,” Fallgren told the Journal. “We think we can secure the rest of the resources we need, but that could end up being a bit pricier for customers.”
Still, the elimination of San Juan-related coal purchases – which will be factored into customer fuel charges in January – should substantially offset the increased costs, said E.J. Lopez, PNM assistant controller for utility accounts.
“Even considering the new power purchase contracts, we do expect a decrease in customer fuel rates next year,” Lopez told the Journal.
Assuming PNM secures all needed power through wholesale markets, it should be able to meet peak summer demand, diminishing concerns about potential rolling blackouts during intense summer heat. But full resource adequacy through internal PNM generation won’t be achieved until all planned solar plants come online, and customers won’t see the full cost-reduction benefits of switching from coal to solar until then, Fallgren said.
In the meantime, all eyes are focused on what PNM will seek in its new rate case to be unveiled Monday afternoon, whether San Juan savings will indeed offset any requested rate hike as PNM contends, or whether the Supreme Court will maintain or lift its stay on San Juan rebates to customers.