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Editor’s note: This story has been updated with the correct title for Victor Reyes as the governor’s legislative director.

Copyright © 2019 Albuquerque Journal

A protracted, complicated and messy legal battle could soon flare over the Public Regulation Commission’s decision to review terms and conditions for closing the coal-fired San Juan Generating Station under old statutes, rather than under the state’s new Energy Transition Act.

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Public Service Company of New Mexico on July 1 filed for PRC approval to finance the coal plant shutdown with bonds that would be paid off by utility customers, something explicitly authorized under the ETA, which became law on June 14. The filing also included PNM proposals on how to replace San Juan electricity with renewables, and possibly natural gas and battery storage systems, in compliance with the ETA’s mandate to create a carbon-free grid over the next 25 years.

But at the PRC’s open public meeting July 10, the commission ordered the plant shutdown to be reviewed under an existing docket that predates the ETA, raising widespread concern that the commission might ignore the new law and impose different conditions on PNM that exclude the use of ratepayer-backed bonds to finance the plant closure.

Groundwork for litigation?

The PRC could still abide by the ETA. But by placing its review under old statutes, the commission is potentially laying the groundwork for an acrimonious legal fight that’s already provoking broad criticism from government leaders and environmental groups who worked to get the energy act passed this year.

Hanging in the balance is $40 million that would be paid for through bond financing to mitigate the shutdown’s impact on San Juan County and the Navajo Nation. That includes severance pay, retraining, and job placement assistance for affected coal miners and plant workers, plus economic development programs to help local communities.

ETA mandates to make up for lost property tax income by locating most coal replacement power in San Juan County are also endangered.

“The ETA was designed carefully with a lot of input from so many people to do this transition away from coal in a way that protects the local community and workers as best we can,” Energy, Minerals and Natural Resources Secretary Sarah Cottrell Propst told the Journal. “It’s disappointing when other agendas interfere with that.”

Sen. Jacob Candelaria, an Albuquerque Democrat who cosponsored the initial ETA legislation, said commissioners are jeopardizing tens of millions of dollars in assistance for San Juan workers and local communities.

Asking to reconsider

“I hope the PRC will take a moment and reconsider before it causes so much harm to so many families,” Candelaria said after the PRC meeting. “Otherwise, our state’s energy transition will get bogged down in years of litigation.”

PRC commissioners, however, who voted 4-1 to place San Juan’s shutdown under old case law, say the commission needs to do its job free from outside constraints, allowing it to hold PNM accountable for past decisions on coal investments without unfairly strapping ratepayers with those costs.

Apart from the $40 million that the bonds would provide for worker and community assistance, the bonds would also allow PNM to recover more than $300 million in past investments and plant decommissioning costs, which would help the company pay for some San Juan replacement power.

Without the ETA, the PRC could deny bond financing, forcing PNM to absorb a lot of those costs.

Commissioner Theresa Becenti-Aguilar said the commission needs to review those issues without a “guideline” imposed on it.

PRC has authority

“This case was opened prior to the ETA,” Becenti-Aguilar told the Journal. “It’s fortunate that we now have the authority to ask all the questions and make sure every penny is accounted for.”

Commissioner Valerie Espinoza said upholding the existing case law allows commissioners to better balance the interests of ratepayers and PNM.

“We have the authority within the PRC to make these decisions and set these parameters,” Espinoza told the Journal. “… I don’t see this as about economic development or protecting workers. It’s about ratepayers having to pay the cost for potentially bad investments.”

The commissioners themselves, however, appear uncertain about whether they can legally sidestep the ETA. In fact, the issue came to a head even before the Legislature approved the new law.

The PRC opened its docket to review San Juan’s closure in January, after PNM told the commission that four of the plant’s five co-owners intended to abandon San Juan in 2022.

In response, the commission immediately opened a docket to hold hearings on the shutdown and on replacement power, despite PNM’s contention that it was not ready to do that.

Debating the ETA

At the time, PNM said it was still reviewing bids by power companies offering replacement power and would submit a full filing on how to move forward in mid-2019. It also said the Legislature had already begun debate on the ETA and decisions on San Juan should await the outcome of legislative deliberation.

In the end, PNM filed with the state Supreme Court for an emergency stay on the PRC’s San Juan proceedings, which the court granted in March. Then, on June 28, after the ETA had already become law, the Supreme Court revoked its stay and dismissed the case.

The Supreme Court did not explain its action, but many parties interpreted it as a response to the ETA becoming law.

With the ETA in effect, PNM’s July 1 filing called for reviewing San Juan abandonment, financing of plant closure with ETA-approved bonds, and proposals for replacement power in a single, new case docket.

The PRC did agree to open a new docket to review replacement power under ETA guidelines, separating that from the review of abandonment and financing issues under old case law.

Commissioners divided

Despite the 4-1 approval, commissioners remain divided on the final order.

Commissioner Stephen Fischmann, who voted in opposition, warned that using old case law would bog proceedings down in extensive legal battles.

“I can imagine a million arguments from lawyers on all sides about which law applies, and I’m afraid we’re just going into a sink hole,” Fischmann told commissioners.

Commissioner Cynthia Hall voted for the PRC order. But she actually opposes reviewing San Juan in the existing case docket and only voted in favor to retain her right under PRC rules to later ask the commission to reconsider its vote, something she couldn’t do had she voted in opposition.

“That was a strategic decision to vote ‘yes,’ although I don’t support it,” Hall told the Journal.

Now, even the commissioners who voted to review San Juan under existing case law question whether they can ignore the ETA.

“Attorneys will have to figure out the laws that need to be followed,” Commissioner Jefferson Byrd told the Journal. “… A lot of legal wrangling will take place over the next six to nine months.”

‘Law of the land’

Apart from the San Juan abandonment and financing issues, PNM is concerned that lengthy legal battles will interfere with cost savings for replacement resources, some of which must be approved by next April for energy suppliers to take advantage of tax incentives for wind and solar development.

“The timelines are important because it represents real savings for customers that would be at risk if we can’t access the tax credits,” said PNM Vice President of Public Policy Ron Darnell.

Victor Reyes, Gov. Michelle Lujan Grisham’s legislative director, said the ETA is now the “law of the land.”

“The commission needs to act within the law,” Reyes told the Journal. “They’re trying to go against the extensive work done by energy experts, environmental groups, and Republicans and Democrats alike, who all came together knowing it (the ETA) would apply to this specific case. For the PRC to say differently is frankly ridiculous.”