San Juan plant deal hangs in the balance

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DPU > Plan for reducing haze from power plant has tentative EPA nod

By Arin McKenna

The headline on last month’s press release from the New Mexico Environment Department was triumphant. It announced in bold print that “Governor Martinez brokers settlement agreement with PNM and EPA over regional haze.”

But while Department of Public Utilities Manager John Arrowsmith concedes that “all the parties appear to be satisfied with the settlement” for improving air quality at the San Juan Generating Station, he has some trepidation about the non-binding agreement.

Los Alamos County owns a 7.2 percent share of the generating station’s unit 4, which provides approximately 50 percent of the electricity requirements for Los Alamos County.

Martinez directed NMED to negotiate with the Environmental Protection Agency and PNM after the EPA rejected the state’s first proposal to improve air quality at the plant.

The EPA’s Federal Implementation Plan for reducing regional haze required PNM to install select catalytic reduction technology on all four units of the San Juan Generating Station within five years. EPA’s estimate for installing the units was $350 million. PNM insisted the upgrade would cost $750 million. The state’s press release put the cost at $850 million.

NMED backed a PNM alternative proposal to install a less expensive technology developed by PNM, called selective non-catalytic reduction technology, at an estimated cost of $77 million. The EPA rejected that alternative in October 2012.

The current agreement calls for PNM to retire Units 1 and 2 of the SJGP by December 2017 and install SNCR equipment on Units 3 and 4. New Mexico must submit a revised state implementation plan, including a Best Achievable Retrofit Technology determination for nitrogen oxides to the EPA for approval.

“The bottom line for the county is our unit is going to stay operating. We’ll install a lower cost technology that will cost us $4 million instead of $17 million and the plant will be allowed to run indefinitely,” Arrowsmith said. “We anticipate there’s going to be further environmental regulations imposed on coal-powered generating plants, so we understand it’s not over.”

PNM’s agreement with the state requires the company to build a 150 to 200 MW peaking unit at San Juan along with a natural gas pipeline. PNM will purchase additional power from existing gas-fired plants within the state.

The agreement further stipulates there will be no layoffs due to the plant closures, that PNM will facilitate the creation of approximately 350 person years of construction jobs and provide more than $1 million for job re-training and economic development in the Four Corners area.

Pat Vincent-Collawn, PNM chairman, president and CEO praised the agreement.

“With the governor’s framework, the New Mexico Environment Department and the U.S. Environmental Protection Agency demonstrated cooperation and leadership throughout the process of exploring a new alternative,” Vincent-Collawn said.

Arrowsmith’s endorsement was more reserved.

“They did agree, but it’s not binding,” Arrowsmith said. “I think the critical thing is there’s a hard deadline for the current federal implementation plan.”

That deadline is December 2016, and the state’s alternate proposal must be adopted by three agencies, a process likely to run late into 2014.

The plan must first be adopted by the New Mexico Environmental Improvement Board. Arrowsmith expects that board to approve the agreement, but the process of public hearings and deliberation is not expected to be completed until sometime this fall.

The New Mexico Public Regulatory Commission must also approve the agreement before it is submitted to the EPA for approval.

The EPA will also conduct hearings and have a public comment period before making its decision, a process expected to conclude late in 2014.

“So the issue has been, this could fall apart,” Arrowsmith said. “The EPA must agree to accept the new state implementation plan as a substitute for their federal implementation plan. But in 2014, the EPA could say, ‘We’re not going to accept the state implementation plan for whatever reason,’ and then there would not be enough time to implement the federal implementation plan.

“If that happens, we’d have to stop generating there, because there would only be two years left to implement the EPA’s plan, and there’s approximately a four-year construction period.”

Arrowsmith said the state is seeking a stay from the government that would allow PNM time to implement the federal implementation plan if the state’s plan is rejected.

“The owners have to be assured that if this isn’t approved by any of the parties, that we get additional time to move on the federal implementation plan,” Arrowsmith said.

According to Arrowsmith, the EPA has agreed to “consider” a stay, but that is no guarantee it will grant one. The agency considered a stay while a previous proposal was on the table but did not approve it.

Despite his concerns, Arrowsmith believes the state’s proposal has a good chance of overcoming the obstacles in its path.

“I think the EPA is satisfied it balanced the wishes of environmental groups and the owners and the state. So I’m optimistic that the state plan will be approved,” Arrowsmith said.