New Mexico gleanings: Hydrogen and securitization

Securitization an issue in plans regarding coal plant in New Mexico

Public Service Co. of New Mexico, the state’s largest electrical utility, plans to get out of the Four Corners Power Plant near Farmington by the end of 2024. But its plan for doing so is drawing criticism.

Included are questions about the utility’s plans to use securitization, a financial device approved by New Mexico legislators in 2019, the same year that Colorado authorized its use in Colorado. The case in New Mexico in some ways mirrors the dialogue now underway in Colorado about the state’s youngest coal plant, Comanche 3. Securitization is being discussed as a way to retire the Comanche 3 coal-fired power plant decades ahead of its original date of 2070. Xcel Energy, the primary owner and operator, wants to retire it in 2039 after a decade of operating it at about a third of capacity. Others argue for a much earlier retirement.

The Albuquerque Journal reports that the staff of the New Mexico Public Regulation Commission has concluded that PNM, the utility, “has failed to meet the test established by the Commission for approval of abandonment of the Four Corners Power Plant.”

PNM wants to issue $300 million in bonds, as permitted by the 2019 law, in part to cover capital costs at the plant. But many organizations believe that the utility showed poor spending judgement. And the New Mexico Attorney General’s Office said it would only accept $29.3 million in bonds being “securitized, or backed, by customers’ electricity payments.”

The company would also give 13% of its stake in the plan to Navajo Transitional Energy Co., which owns the coal mine that feeds the power plant. That also doesn’t strike the Sierra Club as wise. “In the name of getting PNM out of coal, PNM has signed contracts that require other companies to stay in coal,” the Sierra Club wrote in a filing.

Colorado’s debate about the Comanche 3 coal unit is similar to that underway in New Mexico absent the proposed hand-off to a coal company. Xcel Energy says it plans to use securitization to retire the debt on Comanche 3. The unit, which began operations in 2010, is currently scheduled to retire in 2070.

Xcel proposes to retire it in 2040—although environmental groups would prefer 2035 or even 2030. Some in the environmental community argue that Xcel should gain no benefits whatsoever, as the project was wrong-headed to begin with. It was approved by Colorado regulators in 2004.

The former Escalanate coal-fired power plant has been the focus of interest by companies wanting to explore hydrogen production. Photos: top, 2014 and above 2019/Allen Best

New Mexico governor pushes for framework for hydrogen projects

New Mexico Gov. Michelle Lujan Grisham urged oil and gas executives to get behind a push into hydrogen at a recent industry meeting. She wants legislators when they meet in January to approve a legal framework for hydrogen energy development.

“We believe that being the first state to have a statutory framework (that) … puts us in the driver’s seat when it comes to hydrogen,” said Lujan Grisham, according to a report published by the Albuquerque Journal.

The proposal, explains the newspaper, would create a regulatory framework of the new industry and incentivize public-private sector partnerships that can accelerate development.

Under the governor’s plan, New Mexico wants to have one of the four hydrogen hubs around the country that are part of the President Joe Biden’s proposed $1.2 billion infrastructure bill. Also in the running, she said, are Oklahoma, Texas, Wyoming, and Montana.

Two companies want to convert the former coal-fired Escalante Generating Station into a hydrogen production and generating station. It was closed in 2020 by Tri-State Generation and Transmission. See gleanings from June 22.

The Journal reported a tepid response to Lujan Grisham’s 25-minute speech at the annual meeting of the New Mexico Oil and Gas Association. Her remarks “marked the latest stanza in her delicate two-step with the extractive energy industry, which Lujan has both pushed to adhere to stricter environmental rules and defended as a key producer of revenue.”

New Mexico has become the nation’s second-biggest oil producer, and with natural gas prices surging, economists project the state will take in $8.8 billion in revenue during the coming budget year from the sector, a record.

The newspaper had earlier in October noted reservations of environmentalists, who fear hydrogen based on natural gas could slow deployment of solar, wind, and battery-storage technology.

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