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SB 489 is the Clean Energy Catalyst New Mexico Needs

, Senior Energy analyst | February 22, 2019, 9:09 am EDT
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In New Mexico, out of the crucible of power-sector transformation, economic vision, and climate imperative comes SB 489, the Energy Transition Act, a bold proposal to set a predominantly coal-fired state down a clean energy path.

Critically, SB 489 balances the urgent hunger for what could be—clear skies, bright futures, good jobs that are built to last—with the inescapable reality of that which is—more than half a century of dependence on coal—by ambitiously committing the state to a forward course while simultaneously reckoning with its past.

With the arrival of a new governor, New Mexico’s clean energy potential has swiftly snapped into focus after long seeming just out of reach. But vision is one thing, reality is another, and it takes a plan to navigate the liminal space.

SB 489 offers that response.

It’s big and it’s bold, setting a power-sector target of 100 percent carbon-free electricity by midcentury, but it’s also careful and considered, looking out for the jobs and economies that were, and shaping for the better the jobs and economies that will be.

SB 489 is supported by environmental, community, labor, and conservation groups, and has the full backing of the governor. It is the right plan, at the right time, for a state on the precipice of change.

Coal

As recently as two years ago, PNM, the state’s largest utility, was fighting to keep coal-fired San Juan Generating Station (SJGS) running through 2053. Now PNM is planning to close SJGS by 2022, and leave coal entirely by 2031.

The fact is, SJGS costs more to keep running than building new resources to take its place. PNM estimates that were it to keep SJGS running for another 20 years, it could cost its customers tens to hundreds of millions of dollars more.

But an exit from coal is not as straightforward as simply snuffing out the stacks. The legacy of coal runs deep. Investments have been made, careers have been built, economies have been centered—and the transition at hand upends all of that.

The departure from coal demands real leadership; officials willing to wrestle with hard truths rather than ducking reality and pretending change won’t come. And that takes leadership now—before plants and mines have closed, before that opportunity has passed.

That takes supporting a proposal like SB 489.

SB 489 begins with the recognition that coal plants are closing and then determines how best to act. It does this by tackling two major fronts: first, how best to protect ratepayers while retiring coal, and second, how best to address the needs of workers and communities at risk of being left behind.

Moving Coal Off the Ledger

As it currently stands, PNM, a regulated utility, earns a profit of approximately $16 million a year on $320 million in outstanding investments at SJGS, paid by utility customers. When these investments were approved, the intention was that the plant would operate well into the future, and thus those costs could be recovered over a long period of time. Now, even abandoned, those debts must still be paid.

Traditionally, the utility would go to the Public Regulation Commission (PRC) and seek cost recovery, which would allow them to continue to earn a return on investment for the amount approved. This would likely result in a lengthy legal battle over just how much should be borne by ratepayers, and just how much by shareholders.

SB 489 provides an alternative to that by adding a new tool to the PRC’s regulatory toolbox: securitization.

Securitization works like refinancing a loan; by gaining access to AAA-rated bonds, PNM would be able to secure much lower-cost financing to cover outstanding plant, worker, and facility debts. In the process, the utility avoids taking a write-off but also forgoes earning returns.

Customers could stand to save as much as 40 percent via this form of plant closure, which frees up capital to advance workforce transition and economic development efforts. Of course, that “could” is crucial: baked into SB 489 is a requirement that the PRC only approve such a proposal if it guarantees ratepayers a certain amount of savings—and the bill provides funding for them to hire an expert to ensure such savings are the case.

At the end of the day, this approach embraces compromise as a means of moving forward; it looks to unite state, customer, and utility interests under single cover, working to navigate a viable path out of the deep and tangled morass.

Supporting Coal Workers and Coal Communities

Concurrently, SB 489 works to support the transition ahead for those coal threatens to leave behind.

SB 489 dispenses with the myth that the only way to shift from coal is to forsake jobs and local economies. That false choice, which dishonestly perpetuates hope for a commodity teetering on the brink of collapse, has done nothing to ready those at risk. It has done nothing to tackle severance, retraining, reclamation, or economic development. It has done nothing to tackle reality.

SB 489 does.

First, the proposal would set aside $20 million for severance and job training for employees losing their jobs. Importantly, this covers not just plant workers, but mine workers, too; the mine serving SJGS only serves SJGS, and its owner is presently in bankruptcy—these workers need significant and dedicated support. SB 489 would put approximately $15 million more into an Energy Transition Displaced Worker Assistance Fund, to be administered by the state’s Workforce Solutions Department, to further assist in workforce training. In addition, SB 489 requires that starting in 2020, a growing share of electricity generation projects host apprenticeships, thereby driving the development of a skilled workforce trained for good jobs that are built to last.

Second, SB 489 would set aside $30 million for plant decommissioning and mine reclamation costs. This is not a limit; it simply secures the first $30 million via the securitization mechanism. Careful and thorough decommissioning and reclamation are essential for enabling the area to move beyond its coal-fired past. At the same time, these activities have the potential to create good jobs, with overlapping skillsets, for many years to come. Thoughtful planning for how to leverage this critical undertaking can further benefit the local economy.

Finally, SB 489 relieves the community of being backed into the untenable position of fighting for something they know won’t last simply because it’s the only option they’ve got.

SB 489 approaches this in two ways. First, it allocates over $5 million to an Energy Transition Economic Development Assistance Fund, to be administered by the state’s Economic Development Department in concert with community input, to foster economic development in the area. Second, by leveraging the area’s existing energy infrastructure, SB 489 directly addresses the expected erosion of the local tax base by directing replacement power to be located in the affected school district. This action could be significant; a recent analysis found that building a 450 MW solar plant in the area could replace all lost property tax revenue, as well as generate thousands of construction jobs and generate tens of millions more in additional state and local taxes.

Renewables

Facilitating the transition away from coal is only part of the story; it does not address what comes in to take coal’s place. And that affects everything that comes next for the state, because as goes coal today, so goes natural gas tomorrow.

New Mexico cannot allow for its shift from coal to become a shift to gas. The risks of natural gas overreliance are significant, and largely borne on the backs of ratepayers. What’s more, a portfolio dominated by renewables has been repeatedly shown to be the most cost-effective option for the state.

And that makes SB 489’s concomitant strengthening of the state’s Renewable Portfolio Standard (RPS) so critically important. By building from existing policy, SB 489 steadily strengthens renewable resource requirements from 20 percent by 2020 to 50 percent by 2030 and 80 percent by 2040 for large utilities, and 80 percent by 2050 for co-ops.

But SB 489 doesn’t stop there. It further commits to a power sector 100 percent carbon-free come 2045 for the utilities, and 2050 for the co-ops.

Which means that every investment decision that gets made from here on out will now be evaluated in the context of this carbon-free energy course. It makes clear where the state is headed, and requires utilities to fall in line.

This is a major achievement, made all the more remarkable by the fact that it’s supported by utilities and co-ops alike.

SB 489 as energy transition guide

SB 489 offers a clear and convincing roadmap to navigating the transition ahead.

Critically, essentially, it begins not by leaping to where the state is going, but instead by reckoning with where it’s been. It is considerate of those the transition away from coal risks leaving behind, and works to ensure that they’re readied to be a part of what’s to come.

And with SB 489, the state’s future looks bright.

SB 489 boldly commits New Mexico to a rapid power transition, positioning the state as a renewable energy leader and signaling to forward-looking companies that this is a place to invest.

SB 489 doesn’t solve it all. The transition to a clean energy economy will take efforts large and small, ground-up solutions alongside top-down guidance and everything in-between. But SB 489 is a powerful place to start, and with major long-lasting investment decisions looming on the horizon, now is the time to begin.

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  • Greg Sonnenfeld

    I am extremely concerned about SB 489 offloading 100% of the cost of the San Juan closure onto rate-payers. This is a regressive tax of the worst kind.

    The working class, those who renters who have poorly insulated homes, electric heaters, inefficient appliance, they will be paying most of this tax. The upper class, with their solar panels, their efficiency HVAC systems, they are literally insulated from the tax.

    This is robbing from the poor to bail out bad investments and ease the tax burden on the upper class. This is a deal to give state institutions $70 million on the backs of the poor.

    There is good stuff in this “logroll” bill, so is there an alternative? Go with precedent, a 50/50 split between investors and rate payers. Securitize it to lock in great interest rates. Senator Candelaria dodges this approach because reveals what a bad deal this is for rate payers.

    Additionally the $70 million for the state can come from taxes from across New Mexico, not the sacrifice of a selected group.