## Facts

- Public Service Company of New Mexico (PNM) co-owned and operated the coal-fired San Juan Generating Station (SJGS) under a multi-party participation agreement.
- Federal air-quality obligations increased compliance costs, prompting multiple co-owners to exit the project rather than fund additional controls.
- PNM reached a path for closing two units and later sought to abandon Units 1 and 4 as other co-owners announced they would exit the agreement by July 2022; the City of Farmington was the primary remaining proponent of continued operations.
- Farmington proposed continuing Units 1 and 4 by acquiring other owners’ interests and retrofitting the units with carbon capture, utilization, and storage (CCUS), working with Enchant Energy and other developers.
- PNM applied to the New Mexico Public Regulation Commission (PRC) for (1) approval to abandon Units 1 and 4, (2) approval of replacement resources, and (3) authorization to issue about $361 million in Energy Transition Act (ETA) securitized “energy transition bonds” supported by customer charges.
- The evidentiary record included modeling comparing costs of abandonment and replacement versus continued coal operation and a CCUS retrofit; the modeling supported lower expected ratepayer costs under PNM’s proposal.

## Issues

1. Whether PNM’s abandonment of SJGS Units 1 and 4 was reasonable, prudent, and in the public interest under New Mexico law and the ETA.
2. Whether PNM’s proposed replacement resource portfolio appropriately addressed cost, reliability, and statutory/environmental considerations.
3. Whether the PRC should authorize roughly $361 million in ETA energy transition bonds, and under what conditions.
4. Whether Farmington’s proposed CCUS retrofit was a feasible, superior alternative that should prevent or delay abandonment.

## Decision

- The PRC approved PNM’s abandonment of SJGS Units 1 and 4 as consistent with the ETA and the public interest.
- The PRC approved PNM’s replacement-resource approach (subject to conditions and adjustments) as more cost-effective and environmentally favorable than continued coal operations or CCUS retrofit.
- The PRC authorized issuance of ETA energy transition bonds in an amount on the order of $361 million, subject to regulatory conditions.
- The PRC declined to adopt the Farmington/Enchant CCUS alternative, finding it more expensive and too uncertain on the record presented.

## Legal Principles

- A regulated utility’s abandonment of generation assets may be approved when supported by record evidence showing prudence and consistency with the public interest, including ratepayer cost impacts and reliability.
- Under the ETA, securitized transition bonds may be approved to finance qualified abandonment/transition costs when the financing structure is expected to mitigate rate impacts and otherwise satisfies statutory requirements.
- In comparing resource alternatives, the Commission may credit modeled cost and reliability evidence and may reject an alternative that is materially more costly or dependent on unresolved technical, financing, or implementation assumptions.
- Ownership/participation constraints affecting practical ability to operate a jointly owned plant are relevant to prudence and feasibility determinations.

## Conclusion

The PRC permitted PNM to retire SJGS Units 1 and 4, approved a replacement resource portfolio, and authorized ETA securitization financing, concluding that abandonment and replacement would better serve ratepayers and statutory energy-transition goals than continued coal operations or a proposed CCUS retrofit.


In re Pub. Serv. Co. of N.M.'s Abandonment of San Juan Generating Station Units 1 & 4, 2020 WL 1667396 (N.M. Pub. Regul. Comm'n 2020)