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Farmington Spotlight

Posted on: March 1, 2019

San Juan Generating Station Q&A

FARMINGTON CITY MANAGER PROVIDES AN UPDATE AND STATUS REPORT ON THE SAN JUAN GENERATING STATION ACQUISITION THROUGH A QUESTION & ANSWER FORMAT

1.  Why are the City of Farmington and San Juan County working so hard to extend the life of SJGS and Mine?

An economic impact study conducted in 2017 indicates that approximately 1,600 direct and indirect jobs, representing a $117 million in annual payroll to real families, annual production and import taxes of over $53 million, (not including local and state indirect GRT) are dependent on SJGS and Mine. Countless families and local businesses will be negatively affected if we are not successful. Additionally, the property tax base of Central Consolidated Schools, San Juan College, and San Juan County will be enormously diminished.

2. How is the City Farmington able to sell SJGS when PNM is the majority owner and wants to close it down?

The City has been a minority owner of SJGS for over 37 years. The owner’s agreement originally established in 1981, provides that in November of 2018, all owners must proclaim their post 2022 intentions. All ownership shares of any departing owners convey to the remaining owners at no cost. Farmington will be the only remaining owner after 2022, thereby has obtained the rights to market 100% of SJGS. PNM and the other owners have a contractual obligation to cooperate in good faith to convey their interest in the plant for operations beyond 2022.

3. Why did Farmington choose ACME Equities LLC to enter an initial agreement to negotiate for potential acquisition of the SJGS?

The City of Farmington hired a law firm in Washington DC that specializes in energy transactions to market the plant. ACME Equities LLC was chosen after being vetted by our firm, because of their passion for the project, ability to successfully perform in the short timetable required, and because of their vision to install proven carbon capture technology (CCS) that would reduce CO2 emissions by 90%, thereby allowing the plant to operate potentially for decades to come. The next contractual step will be the signing of an Agency Agreement, followed by the completion of the ongoing negotiations for a formal Purchase Agreement.

4. What is Carbon sequestration or capture technology (CCS) and what would be done with the captured CO2?

The core science of CCS technology has been implemented commercially for decades. Application on large scale coal fired power plants is a proven technology already operational in two locations in North America alone. The CO2 would be transported to market on an existing pipeline.

5. How will the New Mexico Energy Transition Act (SB 489) currently being considered by the State Legislature affect this opportunity?

SB 489, potentially singles out SJGS, by imposing a unique emission standard only being applied to SJGS. The proposed standard is 800 pounds of CO2/MWh or a 60% reduction from the current emission levels. This bill if passed attempts to effectively render the operation of SJGS illegal by 2023 through a potentially unlawful governmental taking of private property rights. However, based on the proposed carbon capture equipment our buyers intend to install at SJGS which accomplishes a 90% CO2 reduction, the plant can easily meet this requirement, and in fact, achieve an additional reduction of 30% beyond the legislation’s requirement. The City of Farmington would support SB 489 with only one minor proposed amendment allowing the time necessary to actually construct and install the equipment with a guarantee to start construction by December 31, 2023.

6. Is the plant environmentally sound now?

Over the past 10 years, the owners of SJGS have invested over $300 million dollars in pollution control equipment. Combined with closing 2 of the 4 units, it has achieved a 60% reduction in pollutants, bringing the plant into compliance with President Obama’s 2015 proposed Clean Power Plan. The remaining problem is the CO2 which generates approximately 2,000 pounds of CO2/MWh. We do not believe that is a sustainably acceptable level for long term operation. The installation of carbon capture technology will reduce the CO2 level by 90% to an incredibly low estimated 218 CO2/MWh.

7. How is the plant economically viable if PNM determined they want out of the ownership for economic reasons?

The City of Farmington and a third party merchant operation have a different business model and different business concerns than PNM. The plant is a lowest cost supplier of electric and is economically viable with many years of useful life remaining. The revenue stream created by the sale of the captured CO2 increases the economic viability, as well as creates significant new capital investment and additional employment in our community.

8. Will PNM need to purchase any of the power from the plant in a merchant operation scenario beyond 2022?

No. The economics of the transaction are not dependent and do not contemplate any purchase of power by PNM.

9. Who will buy electricity produced by fossil fuel?

According to the US Energy Information Administration, in 2017, 62.9% of all electricity consumed in the U.S. was produced by fossil fuels. Only 17% was produced by renewables. Additionally, without scalable cost-effective storage, most renewable sources of electricity, such as wind and solar, still have to be backed up by a fossil fuel resource to cover the approximately 70% of time on average these sources are unable to produce electricity.

10. Will the City consider offering any tax breaks or “tax holiday” that would diminish the existing property tax base?

No such thing has been requested and the City would not consider if it were.

11. Will the City of Farmington incur any disproportional additional liabilities for environmental or reclamation costs for the plant?

 No. The past and any future owner’s agreements will require all parties to bear their share of the costs for environmental and reclamation liabilities prorated to their percentage and time of ownership.

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