The San Juan Generating Station, seen here in September, could be demolished in the spring after the city of Farmington abandoned plans to turn it into a carbon capture facility. (Chancey Bush/Albuquerque Journal)

Copyright © 2022 Albuquerque Journal

Wrecking crews could start demolishing the coal-fired San Juan Generating Station next spring now that the city of Farmington has discarded its plan to turn the plant into the world’s largest carbon-capture facility.

The city announced its decision late Tuesday to end all efforts to acquire the plant from Public Service Company of New Mexico and other co-owners after an arbitration panel for transfer negotiations refused to block PNM and the other utilities from moving forward on decommissioning and demolition preparations. The city said the arbitration panel’s position struck a “catastrophic blow” to the plant conversion effort, which Farmington has pursued for more than four years with private development partner Enchant Energy Corp.

“Given PNM’s and the other co-owners’ actions to quickly dismantle SJGS, and the (arbitration) panel’s recent decision to allow them to do so, we have arrived at a point where those actions directly undermine the viability of successful implementation of the carbon capture project,” Farmington Mayor Nate Duckett said in a statement.

Farmington owns a 5% stake in San Juan, which ceased operations on Sept. 30. But under a previous agreement among the plant’s nine original owners, any individual utility could opt to take over full ownership for free to keep running the facility following successful transfer negotiations with the departing utilities.

Despite four years of negotiations, however, all the other co-owners declined to transfer the plant to Farmington because neither the city nor Enchant provided needed financial guarantees to protect them against future liabilities, according to PNM.

That led to a brief effort by Farmington in early October to legally force the other co-owners to transfer the plant through the courts. But the city later dropped its lawsuit to instead seek facility acquisition through mediation by the American Arbitration Association, which the other utilities had already requested in late September.

From the start, however, the arbitrators refused requests by Farmington to block the other co-owners from auctioning off tools and equipment while mediation was underway.

Arbitrators rejected Farmington’s initial petition for “emergency relief” in late October to cease all dismantling activities. Then, on Dec. 14, they rejected another request by Farmington to stop the planned auction of more critical operating equipment and components, such as plant transformers.

The arbitration panel ruled that the equipment for auction was replaceable if Farmington succeeded in acquiring the plant through mediation. And, perhaps more important, the panel said Farmington had so far failed to show a “probability for success” to force plant transfer based on the merits of its case.

Now, Farmington and Enchant say that the ongoing plant dismantling activities make pursuing the carbon conversion project futile.

“Even if the arbitration eventually was successfully completed by the City of Farmington, the timing of the sell-off and dismantling of the plant assets make it impossible to successfully complete the carbon capture project,” Enchant CEO Cindy Crane said in a statement.

Demolition next spring

The departing co-owners couldn’t postpone dismantling activities because of rapidly rising costs for plant decommissioning, said PNM Vice President of Generation Tom Fallgren.

“There are big costs associated with delays, given today’s dramatic inflation rates, and we can’t just pass those costs onto our customers,” Fallgren told the Journal. “We calculate up to $10 million in additional decommissioning expenses if we delayed the process by just six months.”

In addition, San Juan County previously ordered the facility co-owners to submit a demolition plan within three months of plant closure, meaning the final plan must be filed by Dec. 31.

“We’re in the final stages now,” Fallgren said. “We expect to file it by mid-next week.”

Assuming the county approves the plan, demolition work will likely begin next spring and last two to three years, Fallgren said.

“The site won’t be fully leveled until likely the end of 2025, but from our experience at other facilities – and depending on the contractor’s schedule – the stacks and towers will start coming down quickly, likely in the first three months,” Fallgren said. “Work crews would pave everything in and sort through all the remains to sell for scrap, although some equipment would be maintained for environmental monitoring.”

End of a long dispute

Farmington’s decision to abandon the project caps four years of intense controversy over the city’s and Enchant Energy’s plan to convert San Juan to carbon-capture.

Farmington wanted to keep San Juan running to save hundreds of jobs connected to the plant and the nearby San Juan Coal Mine that supplied it, while preserving local taxes from those operations.

“For a region already facing economic challenges, we have worked diligently to keep SJGS open with carbon capture,” Duckett said. “… It is with a heavy heart that we withdraw from the arbitration efforts.”

But environmental groups have opposed the project from the start, instead advocating for the complete replacement of coal generation with renewable energy in the Four Corners, which PNM is now pursuing through four new planned solar plants and back-up battery storage.

With the San Juan project discarded, the city should now reconsider its economic development strategies going forward, said Mike Eisenfeld, energy and climate program manager with the San Juan Citizens Alliance.

“The city needs to reevaluate its perspective on energy development and focus on renewable energy to create jobs and improve the environment,” Eisenfeld told the Journal. “If it’s serious about diversifying the economy, it needs to start thinking more progressively.”