Letter To The Editor: San Juan Generating Station Context

By Andrew M. Fraser and David Izraelevitz
Los Alamos

At its regular meeting Wednesday July 15, the Los Alamos County Board of Public Utilities voted unanimously to approve and forward to the County Council for its approval the following five agreements related to the San Juan Generating Station (SJGS):

  • The San Juan Project Restructuring Agreement;
  • The Amended and Restated Mine Reclamation and Trust Funds Agreement;
  • The San Juan Decommissioning and Trust Funds Agreement;
  • The Restructuring Amendment Amending and Restating the Amended and Restated San Juan Project Participation Agreement;
  • The Exit Amendment Amending and Restating Amended and Restated San Juan Project Participation Agreement.

The County Council will be reviewing these documents for possible approval at its July 28 regular meeting. The documents are agreements among the nine entities that currently participate in the SJGS and concern many issues. In particular, the agreements provide conditions for exiting from the plant in 2022, or how a decision for remaining in the plant post-2022 would be handled. Other topics include federal and state regulatory requirements, fuel supply sources, site and mine reclamation arrangements.

Here, rather than attempt to summarize the documents, we provide some information about the context of the negotiations that led to these agreements, specifically, the contractual constraints faced by County leaders as the agreements were being negotiated. In particular because of the arrangement between LAC and DOE described below, LAC would have faced severe financial penalties should it have negotiated to stop participating in the plant. We know that some citizens of the County believe that reducing our use of coal for electrical power would have been worth those penalties.

In 1984 a citizen review committee recommended to the Board and Council that the County purchase a share in the San Juan Generating Station. Board and Council then voted in 1985 to buy a 7.2 percent share of PNMs San Juan Unit 4 coal red generating plant and signed a contract to participate until 2022.

In 2011, the EPA issued a proposed Federal Implementation Plan to reduce regional haze, which would have required installing Selective Catalytic Reduction (SCR) technology at the plant at a cost of approximately $750 million, payable proportionately by plant participants, including Los Alamos County. As an alternative to installing SCR technology on all four units, a proposal was developed to install cheaper selective non-catalytic reduction (SNCR) technology on units 1 and 4 and to shut down units 2 and 3. The alternative achieves the same haze reduction as installing SCR technology on all four units. It reduces both the power capacity and the CO2 emissions of the plant by a factor of 2.

In 2014, the EPA approved this alternative which is called the New Mexico State Implementation Plan (SIP). Three of the plant participants are subject to California laws, taxes and regulations. They state that they are subject to prohibitions against investing in upgrades to coal plants which prevents them from participating in the upgrade. They are also subject to a California tax on carbon emissions that makes participating in the plant less attractive.

During negotiations over the SIP, the three California participants and the Tri-State Generation and Transmission Association decided it was in their interests to request they be allowed to break
their contract and withdraw from participation in the plant, even in the face of additional financial penalties for doing so. This decision required them to negotiate with the remaining participants the terms of their exit, which indeed included additional financial costs.

Los Alamos County does not share much of the motivation of the California participants to negotiate an early exit from the plant, and our Electric Coordination Agreement (ECA) with DOE, which runs until 2025, provides incentives to continue participating. Under this agreement, DOE does not pay a rate per kWh, as regular utility customers do; rather, DOE and LAC electrical supply resources are pooled, and DOE pays their proportionate share of expenses of those approved assets that provide electricity to DOE and LAC. It is almost certain that an asset that is not delivering power would drop o from the power pool, relieving DOE from an obligation to share in its expenses.

Thus, if LAC had chosen to join in leaving the plant, the negotiations would have been different. Almost certainly, we would have been required to pay an exit price like the one that the four other participants are paying to get out early. Also almost certainly, DOE would not continue to pay for our ongoing obligations related to the SJGS once it was not contributing to the power pool.

Those costs include bonds issued to pay for the SNCRs and contributing to the trust funds that will pay for our share of the cost of eventually closing the plant. We would have been left alone to pay for obligations that we undertook in order to provide DOE with electric power at competitive prices.

Approving the five agreements under consideration does not preclude the possibility of LAC negotiating changes in our participation in the SJGS later. There are many issues relevant to such a choice including the costs of the negotiations, the cost of alternative energy supplies and the need for energy supplied on an as-needed basis.

It is in the fundamental best interests of our County to assure that both LANL and the community have a stable, long-term power supply at an affordable and predictable price. Beyond reducing rates paid by residents, such a supply assists LANL in building and operating energy intensive projects like LANSCE and the super computer facility and it also supports the creation of other business in the County.

For more information on these issues, see the agenda packet for the July 15, 2015 BPU meeting at http://losalamos.legistar.com/Calendar.aspx. From http://www.losalamosnm.us/utilities/Pages/Electricity.aspx one can fetch the actual agreements. The DPU Power Point Presentation to the Board by Steve Cummins, Tim Glasco and Richard Virtue also at that site provides some dollar figures for costs and benefits of the agreements.

Editor’s note: David Izraelevitz is the Los Alamos County Council Vice-Chair and Liaison to the Board of Public Utilities. Andrew Fraser is Chair of the Board of Public Utilities. However, this letter represents only their positions as citizens of the County, and not of the Los Alamos County Council or the Board of Public Utilities.