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BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION
IN THE MATTER OF THE APPLICATION ) OF PUBLIC SERVICE COMPANY OF NEW ) MEXICO FOR APPROVAL TO ABANDON ) SAN JUAN GENERATING STATION UNITS ) 2 AND 3, ISSUANCE OF CERTIFICATES OF PUBLIC CONVENIENCE AND NECESSITY FOR REPLACEMENT POWER ) RESOURCES, ISSUANCE OF ACCOUNTING ) ORDERS AND DETERMINATION OF RELATED RATEMAKING PRINCIPLES AND) TREATMENT,
) )
Case No. 13-00390-UT )
) )
PUBLIC SERVICE COMPANY OF NEW MEXICO,
) )
Applicant )
CONFIDENTIAL
CONFIDENTIAL POST-HEARING BRIEF OF PUBLIC SERVICE COMPANY OF NEW MEXICO
Public Service Company of New Mexico ("PNM") submits this Confidential Post-
Hearing Brief in furtherance of its request that the New Mexico Public Regulation Commission
("Commission") approve the Stipulation filed on October 1, 2014, in this proceeding.
I. INTRODUCTION
The factual and pertinent procedural backgrounds underlying this case are set forth in
The matters contained in this Confidential Post-Hearing Brief PNM's Post-Hearing Brief.
address the confidential portions of the pre-filed testimony, exhibits and hearing transcript in this
proceeding that are subject to the Protective Order and orders of the Hearing Examiner on
confidentiality. This Confidential Brief deals primarily with the issue of a post-2017 fuel supply
for the San Juan Generating Station ("San Juan") as it relates to PNM's request for a certificate
of public convenience and necessity ("CCN") for an additional 132 MW in San Juan Unit 4.
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II. THERE IS SUFFICIENT CERTAINTY CONCERNING A FUTURE FUEL SUPPLY FOR THE COMMISSION TO APPROVE
PNM'S REQUEST FOR THE 132 MW OF SAN JUAN UNIT 4
Section V.D.3 of PNM's Post-Hearing Brief addresses the non-confidential evidence
concerning the efforts of PNM and the other remaining San Juan owners to secure a post-2017
fuel supply for San Juan. To summarize, there are nearly three years left under the current
Underground Coal Sales Agreement ("UG-CSA") so there is no immediate issue with respect to
a fuel supply for San Juan. PNM Ex. 51, Rebuttal Testimony in Support of Stipulation and
Response Testimony on Reserved Issue of Chris M. Olson ("Olson Rebuttal"), p. 17. PNM and
the other remaining owners of San Juan recognize the importance of having sufficient certainty
concerning a cost-effective and reliable post-2017 fuel supply and they are in the process of
negotiating with the San Juan Coal Company ("SJCC") and BHP Billiton ("BHP") for a post-
2017 fuel supply. Id., p. 50. Due diligence has been undertaken with respect to the SJCC
underground coal mine and a solicitation was issued to qualified miners requesting an expression
of interest and indicative pricing for a coal supply. Id. p. 13; WRA Ex.4 (Confidential).
PNM and the other remaining San Juan owners have undertaken a thorough evaluation of
PNM Ex. 41 (Confidential), Confidential Response options for a post-2027 fuel supply.
Testimony on Reserved Issue of Gary Vicinus ("Vicinus Response"), p. 5. Potential fuel supply
options include: (1) the existing San Juan underground mine; (2) a proposed new surface mine
on the Ute Mountain Ute Tribe reservation; and (3) expansion of the existing Navajo Mine. Id.
pp. 5-6. One of the goals of pursuing these three options is to create competition among mines
and suppliers to ensure the most competitive, flexible and reliable source of coal supply given
San Juan's status as a mine mouth power plant. Id. p. 5
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The San Juan Coal Mine has been the exclusive supplier for San Juan since operations
commenced in 1971. PNM Ex. 50, Direct Testimony and Exhibits in Support of Stipulation of
Chris M. Olson ("Olson Direct"), p. 51. The existing SJCC underground mine has recoverable
coal reserves under its existing coal lease of some 58 million tons. 14 Tr. 3250-51 (1/23/15)
(Olson). There are also an additional 99 million tons available under what is known as the Twin
Peaks Extension. 14 Tr. 3251 (1/23/15) (Olson). The majority of the capital expended at the
SJCC underground coal mine has been depreciated and future capital expenditures are
anticipated to be lower than in the past. Vicinus Response, p. 6. So long as future capital
requirements can be amortized over a sufficient period of time, forecasted coal supply prices
could drop significantly. Id.
The Ute Mountain Ute option involves the development of a new surface coal mine. Id.
Negotiations with the Ute Mountain Ute Tribe have resulted in agreement on certain preliminary
terms and conditions such as royalty rates in lieu of taxes, exploratory drilling and development
of mining plans. 13 Tr. 3005 (1/22/15) (Olson); Vicinus Response, p. 6. Based on recent
testing, it is estimated that the Ute Mountain Ute option represents approximately 60 million tons
of coal reserves. 13 Tr. 2998 (1/22/15) (Olson). The coal quality from the Ute Mountain Ute
reservation is as good, or better, than coal from the San Juan underground mine. 13 Tr. 2998-99
(1/22/15) (Olson). This testing suggests that development of the Ute Mountain Ute option may
be a low-cost alternative to the SJCC underground mine and provides leverage in the ongoing
discussion with SJCC. Vicinus Response, p. 7. An in-service date of 2020 is achievable for the
proposed Ute Mountain Ute surface mine. 13 Tr. 3004 (1/22/15) (Olson).
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The potential expansion of the Navajo Mine, which currently supplies the Four Comers
Power Plant, is a third option. Yicinus Response, p. 7. However, this option is the least
desirable and has not been the focus of current efforts to secure a post-2014 fuel supply. Id.
At present, PNM and the other remaining owners are concentrating on negotiations with
SJCC and BHP for the early termination of the UG-CSA and the sale of the underground mine.
PNM and Tucson Electric Power entered into Id. at 8; 13 Tr. 3012 (1/22/15) (Olson).
Amendment No. 6 to the UG-CSA with SJCC and BHP to facilitate these negotiations and the
associated due diligence for the sale of the SJCC underground coal mine. Olson Rebuttal, p. 50.
As noted in PNM's Notice of Status of Fuel Negotiations, on February 12, 2015, the San Juan
owners voted unanimously to extend the period for negotiations with SJCC and BHP to May 1,
2015. The proposed extension contemplates a sale of the SJCC underground coal mine to a
third-party mining company.
PNM and the other remaining owners received indicative pricing for a post-2017 coal
supply in December 2014 from two mining companies, Bowie and Westmoreland. 12 Tr. 2944-
2945 (1/21/15) (Olson); WRA Ex. 3 (Confidential). Bowie provided a cost-plus proposal for
coal and Westmoreland provided an indicative price of $53.64 per ton of coal which is less than
or close to the current price for coal from the SJCC underground mine. 12 Tr. 2957-59 (1/21/15)
Westmoreland also communicated in its bid that following due diligence and (Olson).
negotiation, the price for coal could be reduced further. 12 Tr. 2958 (1/21/15) (Olson).
Phase I of the implementation of the San Juan fuel supply strategy process involved due
diligence by PNM and the other remaining owners and obtaining indicative coal pricing for a
post-2017 fuel supply which has now been completed. 13 Tr. 3025 (1/22/15) (Olson). The next
step in the process involves continued due diligence and site visits by the mining companies and
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the issuance of the Phase 2 bid instructions to the prospective coal mining companies. 14 Tr.
3249 (1/23/15) (Olson). This is to be followed shortly thereafter with the issuance of proposed
form contracts for the transaction including a draft of a purchase and sale agreement for the sale
of the mine and draft fuel supply agreement. Id. These documents spell out the terms and
conditions for going forward in the bidding process. 14 Tr. 3250 (1/23/15) (Olson). Since
submitting their indicative pricing, the mining companies have been conducting due diligence in
connection with their potential purchase of the SJCC underground coal mine and development of
final coal pricing. 12 Tr. 2956 (1/21/15) (Olson). The goal is to have firm coal pricing estimates
in March 2015. 14 Tr. 3249 (1/23/15) (Olson).
Important for the Commission's consideration is that the indicative coal pricing is less
than the coal pricing used in PNM's replacement resource planning analysis. Vicinus Response,
p. 7 and GV-8 Rebuttal Stip. Moreover, even assuming that the final purchase price for the
SJCC underground mine is $180 million as advanced by SJCC, the coal price would still only be
about $2.95/MMBtu which is less than the pricing assumption of $3.25/MMBtu used in Mr.
O'Connell's portfolio analyses. 9 Tr. 1959-60 and 1968-70 (1/15/15) (Vicinus). Therefore, the
additional 138 MW capacity in San Juan Unit 4 is likely to be even more cost-effective than
shown in PNM's portfolio analysis.
As noted in Section Y.D.3 of PNM's Post-Hearing Brief, the Stipulation opponents have
attempted to raise questions about the likelihood of PNM and the other San Juan owners
concluding a fuel supply agreement with SJCC and BHP as a basis to deny the CCN for the
additional 132 MW interest in San Juan Unit 4. Although successful negotiations with SJCC and
BHP are the preferred outcome, if an agreement is not reached, this would not leave San Juan
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without a post-2017 fuel supply. A "Bridge Coal Supply" strategy has been developed to assure
a continued fuel supply for San Juan. Vicinus Response, p. 9; WRA Ex. 5 (Confidential).
The two very viable sources for a post-2017 fuel supply for San Juan in the worst-case
scenario of a failure to reach agreement with SJCC and BHP are the SJCC underground mine
and the proposed surface mine on the Ute Mountain Ute reservation. Vicinus Response, pp. 10-
Under the UG-CSA, SJCC must sell its assets at the greater of market price or the 11.
undepreciated net book value. Id. p. 10. It is estimated that the Ute Mountain Ute surface mine
can be developed and in production by 2020. 13 Tr. 3004 (1/22/15) (Olson). However, under
either of these scenarios there may be a need for an interim or "bridge" supply of coal until the
buyout price is determined for the SJCC underground mine or the Ute Mountain Ute surface
mine commences production. Vicinus Response, p. 9.
The fuel supply options available during any potential bridge period include building up
the coal inventory produced from the SJCC underground mine and obtaining coal from the
Navajo, El Segundo and/or Kayenta Mines. Id. pp. 11-12. Taking into account the cost of coal
from these alternative sources, including transportation, and the cost of building an inventory
from the SJCC mine, the average cost of the bridge supply coal would be approximately
$3.11/MMBtu. Id. p. 14; 8 Tr. 1667 (1/14/15) (Vicinus). Again, even with the higher coal costs
during the temporary bridge period until a permanent supply could be secured from either the
underground mine or the Ute Mountain Ute surface mine, the costs are in line with those used in
PNM's resource portfolio modeling. Vicinus Response, p. 25; Ex. GV-8.
III. CONCLUSION
The foregoing represents a viable and well-executed fuel supply strategy that will allow
the owners of San Juan to timely obtain the necessary certainty concerning coal supply and
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pricing to conclude the final ownership restructuring necessary to implement the Revised SIP.
The strategy introduces elements of market competition and considers the risks of future market
and regulatory conditions. Id. at 27. It also includes a back-up plan that will ensure a reliable
supply of coal at a reasonable cost. Id. The post-2017 fuel supply strategy provides the requisite
certainty for the Commission to issue a CCN for the 132 MW of capacity in San Juan Unit 4
pursuant to the terms of the Stipulation.
Respectfully submitted this 16th day of February 2015,
PUBLIC SERVICE COMPANY OF NEW MEXICO
Benjamin Phillips Associate General Counsel PNM Resources, Inc. Corporate Headquarters - Legal Department Albuquerque, NM 87158-0805 Phone: 505-241-4836 Ren.Philli ps@pnmresources. com
Bradford A. Borman Senior Corporate Counsel PNM Resources, Inc. Corporate Headquarters - Legal Department Albuquerque, NM 87158-0805 Phone: 505-241-4864 Bradford. B orman@pnmresources. com
Richard L. Alvidrez Miller Stratvert P.A. 500 Marquette NW, Suite 1100 P.O. Box 25687 Albuquerque, New Mexico 87125 Phone: (505) 842-1950 Fax: (505)243-4408 ral vidrez@mstlaw. com
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Patrick T. Ortiz Cuddy & McCarthy, LLP 1701 Old Pecos Trail P.O. Box 4160 Santa Fe, New Mexico 87502-4160 Phone: (505)954-7323 Fax: (505)954-7373 portiz@,cuddvmccarthv.com
Attorneys for Public Service Company of New Mexico
#519413
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BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION
IN THE MATTER OF THE APPLICATION ) OF PUBLIC SERVICE COMPANY OF NEW ) MEXICO FOR APPROVAL TO ABANDON ) SAN JUAN GENERATING STATION UNITS ) 2 AND 3, ISSUANCE OF CERTIFICATES OF PUBLIC CONVENIENCE AND NECESSITY FOR REPLACEMENT POWER ) RESOURCES, ISSUANCE OF ACCOUNTING ) ORDERS AND DETERMINATION OF RELATED RATEMAKING PRINCIPLES AND) TREATMENT,
) )
Case No. 13-00390-UT )
) ) ) PUBLIC SERVICE COMPANY OF NEW
MEXICO, ) )
Applicant )
CERTIFICATE OF SERVICE
I hereby certify that the Confidential Post-Hearing Brief of Public Service Company of New Mexico was mailed first-class, postage-paid, or hand-delivered on February 16, 2015 to the following persons whose mailing addresses are listed below and emailed to those persons at the email addresses shown below:
Bradford Borman, Esq. PNM Resources, Inc. Corporate Headquarters - Legal Department
Benjamin Phillips, Esq. PNM Resources, Inc. Corporate Headquarters - Legal Department
Albuquerque, NM 87158-0805 Albuquerque, NM 87158-0805 Bradford.Borman@,pnmresources.com Ben.Phillips@,pnmresources.com
Nann M. Winter, Esq. Stelzner, Winter, Warburton, Flores, Sanchez
Cholla Khoury, Esq. Assistant Attorney General Office of the Attorney General & Dawes, P.A.
P. O. Box 528 PO Drawer 1508 Albuquerque, NM 87103-0528 Santa Fe, NM 87504-1508 nwmter@ste1 /,nerlaw.com ckhourv@,nmag. gov
Peter J. Gould, Esq. PO Box 34127
Patrick T. Ortiz, Esq. Cuddy & McCarthy, LLP PO Box 4160 Santa Fe,NM 87594-4127
p gouldlaw@. gm ail. com Santa Fe,NM 87502-4160 [email protected]
Lisa Tormoen Hickey Alpern Myers Stuart LLC 14 N. Sierra Madre, Suite A
Steven S. Michel, Esq. Western Resource Advocates 409 E. Palace Ave., Unit 2 Santa Fe,NM 87501 Colorado Springs, CO 80903
[email protected] smichel@westemresources .org
Charles F. Noble, Esq. CCAE
Donald E. Gruenemeyer, P.E. Sawvel & Associates, Inc. 100 East Main Cross Street, Suite 300 409 E. Palace Ave., Unit #2
Santa Fe,NM 87501 Findlay, Ohio 45840-4889 Noble@,energvenvironnientlaw. com [email protected]
Nicholas Schiavo Acting Public Utilities Director City of Santa Fe 801 W. San Mateo
Marcos D. Martinez City Attorney Office City of Santa Fe P. O. Box 909
Santa Fe,NM 87505 Santa Fe,NM 87501 naschiavo@,santafenm. gov mdmartinez@,santafemn. gov
James R. Dittmer Utilitech, Inc. 623 NE Saint Andrews Circle
Rachel Brown Santa Fe County Attorney's Office 102 Grant Avenue
Lee's Summit, MO 64064 Santa Fe,NM 87501 i [email protected] rabrown@santafecountvnm. gov
Daniel R. Dolan Dolan & Associates
Bruce C. Throne, Esq. 1440-B South St. Francis Drive
3321 Candelaria NE #126 Santa Fe,NM 87505 Albuquerque, NM 87107 bthroneattv@,newmexico. com [email protected]
Jeffrey H. Albright, Esq. Michael I. Garcia Lewis Roca Rothgerber LLP Assistant County Attorney, Sr.
Bernalillo County Legal Department 201 Third Street NW, Suite 1950 Albuquerque, NM 87102 i albright@,lrlaw. com
520 Lomas Blvd. NW, 4th Floor Albuquerque, NM 87102 mikgarcia@bemco. gov
Hand Deliver To: Elisha Leyba-Tercero New Mexico Public Regulation Commission 1120 Paseo De Peralta
Hand Deliver To: Dwight Lamberson New Mexico Public Regulation Commission 1120 Paseo De Peralta
Santa Fe,NM 87501 Santa Fe,NM 87501 Elisha.levba-tercero@,state.nm.us Dwight.Lamberson@,state.nm.us
2 GCG# 519407
Hand Deliver To: Charles Gunter New Mexico Public Regulation Commission 1120 Paseo De Peralta
Hand Deliver To: Patrick L. Lopez New Mexico Public Regulation Commission 1120 Paseo De Peralta
Santa Fe,NM 87501 Santa Fe,NM 87501 Charles. Gunter @.state .nm.us Patrick.lopez@,state.mn.us
Hand Deliver To: Ashley Schannauer New Mexico Public Regulation Commission 1120 Paseo De Peralta
Hand Deliver To: Cydney Beadles New Mexico Public Regulation Commission 1120 Paseo De Peralta
Santa Fe,NM 87501 Santa Fe,NM 87501 Ashley. [email protected] [email protected]
Hand Deliver To: Commissioner Patrick H. Lyons New Mexico Public Regulation Commission 1120 Paseo De Peralta
Hand Deliver To: Commissioner Karen L. Montoya New Mexico Public Regulation Commission 1120 Paseo De Peralta
Santa Fe,NM 87501 Santa Fe,NM 87501 Patrick.Lvons@,state.nm.us Karen.Montova@,state.mn.us
Hand Deliver To: Commissioner Linda Lovejoy New Mexico Public Regulation Commission 1120 Paseo De Peralta
Hand Deliver To: Commissioner Valerie Espinoza New Mexico Public Regulation Commission 1120 Paseo De Peralta
Santa Fe,NM 87501 Santa Fe,NM 87501 Lmda.Loveiov@,state.nm.us Valerie.Espinoza@,state.nm.us
Hand Deliver To: Commissioner Sandy Jones New Mexico Public Regulation Commission 1120 Paseo De Peralta Santa Fe,NM 87501 Sandy. Jones@,state.nm.us
Email Only:
Robb Hirsch Susan C. Kery sck@,sheehansheehan. com [email protected]
Mark Fenton Mar 1c. F ento n @ n mn .com
Anthony Sisneros Anthony. [email protected]
David Van Winkle david@,vw7 7. com
Thomas Wander Thomas. W ander@pnmresources. com
3 GCG# 519407
Mariel Nanasi, Esq. Mariel@,seedsbeneaththesnow.com
Noah Long [email protected]
Josh Ewing, Esq. John W. Boyd, Esq. [email protected] [email protected]
Joseph A. Herz i aherz@,sawvel. com
Bruno Carrara Bruno.carrara@,state.nm.us
James Cotton Andrea Crane ctcolumbia@aol. com
Glenda Murphy gmurphy@,westemresources. org
Vincent DeCesare Vincent.decesare@,state.nm.us
Michael Dirmeier mdirmeie@gmail. com
John M. Stomp III Dahl Harris dah 1 h arri s @hotmail .com i stomp@,abcwua.org
Maurice Brubaker [email protected]
Jack Sidler Jack.sidler@,state.nm.us
Adam Baker [email protected]
James Dauphinais jdauphinais@,consultbai.com
David Rode drode@daimc. com
Jay Kumar ikumar@,etcinc.biz
Antonio Paez apaez@,daimc. com
Pete Lewis [email protected]
Douglas Gegax [email protected]
Alex Dreisbach adreisbach@,daimc.com
Erin Overturf, Esq. Erin. overturf@,westernresources. org
Dated this 16th day of February, 2015.
By: Mark Fenton, Director Regulatory Policy & Case Management Public Service Company of New Mexico
4 GCG# 519407
Mariel Nanasi, Esq. Mariel@,seedsbeneaththesnow.com
Noah Long [email protected]
Josh Ewing, Esq. ie@, fbdlaw.com
John W. Boyd, Esq. iwb@,fbdlaw.com
Joseph A. Herz i aherz@sawvel. com
Bruno Carrara Bruno. carrara@,state .nm.us
James Cotton Andrea Crane ctcolumbia@,aol.com
Glenda Murphy [email protected]
Vincent DeCesare Y incent.decesare@,state.nm.us
Michael Dirmeier mdirmeie@gmail. com
John M. Stomp III Dahl Harris dah 1 h arris @hotmail .com i [email protected]
Maurice Brubaker mbrubaker@,consultbai.com
Jack Sidler Jack.sidler@,state.nm.us
Adam Baker [email protected]
James Dauphinais i dauphinais@,consultbai. com
David Rode [email protected]
Jay Kumar [email protected]
Antonio Paez [email protected]
Pete Lewis plewis@,daimc. com
Douglas Gegax [email protected]
Alex Dreisbach adreisbach@daimc. com
Erin Overturf, Esq. Erin. overturf@westernresources. org
Dated this 16th day of February, 2015.
J 7 By: Mark Fenton, Director Regulatory Policy & Case Management Public Service Company of New Mexico
4 GCG# 519407