N.M. city reaches deal that may extend life of San Juan plant

The city of Farmington, N.M., has agreed to turn over control of the San Juan generating station to Enchant Energy, a move needed to keep the 847-megawatt power plant operating past 2022.

The agreement allows Enchant Energy to continue exploring the possibility of retrofitting the coal-fired plant with carbon capture and sequestration equipment.

The San Juan plant, which is located in New Mexico, has five owners: Public Service Co. of New Mexico, Tucson Electric Power, Los Alamos County, N.M, Utah Associated Municipal Power Systems and Farmington Electric Utility System. The owners, except for FEUS, intend to exit the project in mid-2022, which could lead to its retirement.

FEUS, however, has the right to acquire the ownership shares of the other entities for free. Farmington has been searching for a company that could continue operating the plant.

Under an agreement approved Aug. 15 by the Farmington city council, FEUS will transfer the other owners’ shares to Enchant Energy. The Farmington public power utility will keep its 5 percent stake in the power plant.

“This is a very significant event for the City of Farmington, customers of Farmington Electric Utility System and San Juan County,” said Farmington Mayor Nate Duckett. “Successfully completing carbon capture retrofitting at SJGS [San Juan generating station] will keep the plant operating, retain hundreds of power plant and mine workers’ jobs, maintain the tax base and revenues for local schools and ensure that electric rates remain among the lowest in New Mexico for FEUS customers.”

The agreement paves the way for Enchant Energy to negotiate with the exiting owners and with Westmoreland Coal, which owns a nearby mine that supplies fuel for the power plant, according to Larry Selch, Enchant Energy chairman of the board.

Other immediate tasks include talking with PNM about land, water and transmission rights and getting a right-of-way from the plant to a nearby carbon dioxide pipeline, Selch told the city council.

Enchant Energy says the San Juan power plant can become a low-cost source of electricity in the Southwest once there is a new coal contract for the facility.

Enchant Energy expects to be able to capture 6 million tons a year of carbon dioxide, compress it and transfer it on a planned 20-mile pipeline to the existing Kinder Morgan Cortez carbon dioxide pipeline. The carbon dioxide would be sent to the Permian Basin where it would be injected underground to boost natural gas production.

The facility would use 210 MW to compress and transport the carbon dioxide, with the rest of the plant available to supply customers under power purchase agreements and for sale at the Palo Verde trading hub in Arizona, according to Enchant Energy.

While the plan has advantages, such as the nearby Kinder Morgan pipeline, there are also challenges, according to Enchant Energy.

Tax equity financing at more than $1 billion has never been done before, Enchant Energy said in a public presentation in July.

Also, the economics of the project is affected by “45Q” tax credits for storing carbon dioxide underground, according to the company. The type of credit is new and the Treasury Department is still writing regulations for the credits.

Also, while Enchant Energy expects to line up long-term contracts with oil and natural gas companies for the plant’s carbon dioxide, Western utilities haven’t typically entered into power purchase agreements for non-renewable power, according to the company.

FEUS would continue to receive electricity from the plant if it continues operating. The public power utility will not be involved financially in the carbon capture project.

Enchant Energy contends the large-scale project may spur the use of carbon capture technology at other U.S. sites and the export of the technology to markets where coal-fired generation is still growing.

In March, New Mexico Gov. Michelle Lujan Grisham signed into law a bill that sets a statewide renewable energy standard of 50 percent by 2030 for New Mexico investor-owned utilities and rural electric cooperatives and a goal of 80 percent by 2040, in addition to setting zero-carbon resources standards for investor-owned utilities by 2045 and rural electric cooperatives by 2050.