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PNM Files Settlement with New Mexico Regulators on San Juan Generating Station Plan

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PNM Resources’ (NYSE:PNM) New Mexico electric utility, Public Service Co. of New Mexico, yesterday filed with the N.M. Public Regulation Commission (NMPRC) a settlement that – if approved – would settle PNM’s request for approvals of changes at the San Juan Generating Station (SJGS). An approved settlement would allow PNM to implement a revised state plan that is beneficial to customers and to comply with federal visibility regulations under the Clean Air Act.

“We are pleased with this settlement as it provides further support for a plan that cost-effectively protects our environment and encourages continued investment in a balanced generation portfolio to serve our customers in the future,” said Pat Vincent-Collawn, PNM Resources’ chairman, president and CEO. “This is a great demonstration of the value that is created by working together with our stakeholders to find the best solutions that maintain affordability for our customers.”

The settlement was reached with staff of the NMPRC, the N.M. Attorney General, Renewable Energy Industries Association of N.M., N.M. Independent Power Producers and Western Resources Advocates. Other parties have indicated they may support the filing, but have not yet received internal approval to do so. The settlement requires approval from the NMPRC to be implemented. The U.S. Environmental Protection Agency announced its final approval of the revised state plan on Sept. 26.

The settlement identifies the regulatory treatment for the following items:

  • A Certificate of Public Convenience and Necessity (CCN) for PNM’s ownership in Palo Verde Nuclear Generating Station (PVNGS) Unit 3;
  • Approval to include in rates the cost of Selective Non-Catalytic Reduction (SNCR) equipment for SJGS Units 1 and 4;
  • Retirement of SJGS Units 2 and 3; and
  • A CCN for an additional 132 MWs of SJGS Unit 4.

“The inclusion of PVNGS Unit 3 in rate base will complete PNM Resources’ strategic shift to become fully regulated,” said Collawn. “Today, the output is sold on the open market. Under the terms of the settlement, this resource will become dedicated to serving customer needs. Customers will benefit from this carbon-free and reliable nuclear generation source in the future.”

There are two other power resources proposed by the Company that partially make up the power generation lost with the shutdown of SJGS Units 2 and 3. PNM requested that 40 MWs of solar generation be approved in its 2015 Renewable Plan filing. A settlement between the Company, staff of the NMPRC, the N.M. Attorney General, N.M. Industrial Energy Consumers, Western Resources Advocates and the Coalition for Clean Affordable Energy was filed on Sept. 25 that, if approved by the NMPRC, would allow construction of the solar facility with costs up to $79 million for recovery in the general rate case that is expected to be filed by year-end.

The other proposed generation source is a $189 million 177 MW gas peaking generation facility that will be constructed at SJGS. An application for a CCN will likely be filed for this resource next year.

The resulting net rate base from the settlement and the other proposed power resources would be approximately $406 million in 2018. This is in line with the Company’s current capital plan that results in a six to eight percent increase in rate base from 2014 to 2018.

More information related to the settlement and the other proposed power resources is included in Schedule 1.

On Oct. 7, the parties to the proceeding will meet with the Hearing Examiner to discuss a new procedural schedule for this case.

The stipulated settlement and related testimony can be found on the company’s website at www.pnmresources.com/investors/regulatory.cfm.

The closure of SJGS Units 2 and 3 by Dec. 31, 2017 and the installation of the SNCR equipment on the remaining two units would reduce water use and seven different emissions (including carbon) at SJGS by about 50 percent. This puts New Mexico well down the path toward compliance with new carbon regulations that were proposed by the U.S. Environmental Protection Agency in June.

Background:

PNM Resources (NYSE:PNM) is an energy holding company based in Albuquerque, N.M., with 2013 consolidated operating revenues of $1.4 billion. Through its regulated utilities, PNM and TNMP, PNM Resources has approximately 2,572 megawatts of generation capacity and serves electricity to more than 746,000 homes and businesses in New Mexico and Texas. For more information, visit the company’s website at www.PNMResources.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Statements made in this news release that relate to future events or PNM Resources’ (“PNMR”) or Public Service Company of New Mexico’s (“PNM”) (collectively, the “Company”) expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates. PNMR and PNM assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR and PNM caution readers not to place undue reliance on these statements. PNMR’s and PNM’s business, financial condition, cash flow, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. For a discussion of risk factors and other important factors affecting forward-looking statements, please see the Company’s Form 10-K and Form 10-Q filings with the Securities and Exchange Commission, which factors are specifically incorporated by reference herein.

Schedule 1

2018 Incremental
Rate Base(1)
(in millions)

Proposed Settlement:
PVNGS Unit 3 CCN
Approval at a value of $1,650/kW $165
SNCR Equipment on SJGS Units 1 and 4
Approval at an estimated value of $91 million $73

Retirement of SJGS Units 2 and 3 and CCN for Additional 132 MWs of SJGS Unit 4

PNM will have an estimated $257 million undepreciated value in SJGS Units 2 and 3 at Dec. 31, 2017. Of this amount, $26 million will be allocated to the CCN for the additional 132 MWs of SJGS Unit 4. The remaining $231 million will be allocated to SJGS Units 2 and 3. PNM will recover 50% of this value at a full rate of return. The result is a reduction to rate base for the 50% that would be written off.(2) $(69)
2018 Incremental Rate Base Subtotal $169
Other Proposed Power Resources (not included in Proposed Settlement):
40 MW Solar
2015 Renewable Plan Settlement proposes 40 MWs solar approved as a system resources, to be recovered in PNM’s 2016 general rate case at an estimated value of $79 million $53
177 MW Gas Peaker
CCN expected to be filed in 2015 at an estimated value of $189 million $184
2018 Incremental Rate Base Total $406
(1)Rate base amounts include other items such as working capital for PVNGS Unit 3 and are all net of deferred income taxes.

(2)The net after-tax write-off related to the settlement (if approved) would be approximately $35 million. This includes PV3’s write-up, the SJGS Units 2 and 3 unrecovered investment write-off and other regulatory assets that will be written off.

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