Securitization: What it means for Farmington, PNM, and New Mexico

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This is the second in a series focusing on the long-term economic and social issues facing Farmington, New Mexico, and surrounding areas. As a region that has rich and diverse opportunities but generally relies on extractive industries economically, the whole area is facing uncertainty as the coal-burning San Juan Coal Generating Station closes its doors and oil jobs are moving to the southeast part of the state to capitalize on the Permian boom happening right now.

Last week we looked at how Farmington and surrounding areas are facing real-time issues when it comes to their future. The San Juan Generating Plant is scheduled to close in just the next few years, which will likely mean a loss of jobs for many workers there. That, of course, will impact the economy of the whole region. But this issue is something we can see looming in the not-to-distant future and so there are a number of policies at the state level that are important to enact NOW to alleviate those potential economic woes and create an environment for areas like Farmington to surge forward and become a model for the rest of the state in the future.

These issues are already being discussed at the highest levels of the state and have even become campaign issues for candidates like Steve Pearce, who has said publicly that he’ll fight to keep the plant open, despite the fact that even PNM, and all the other owners but the city of Farmington, have said it’s not economically viable to do so. Last month, at an interim committee meeting of the Water and Natural Resources Committee, a bulk of the agenda was dedicated to the issue of the long-term impacts of the closing of the San Juan Generating Plant. Over the scheduled two days of meetings, related issues, like the future of transmitting energy from renewable energy sources and creating a forward-thinking Renewable Energy Portfolio Standard for the state that looks at the future of how much energy from renewable sources utility companies will be required to provide their customers.

One such issue on the docket is the somewhat oblique term “securitization.” In a nutshell, this term applies to the ability of a utility company, and from here on out we’re mostly talking about PNM, to issue customer-backed bonds to recoup costs associated with closing the coal plant that has up until now provided a significant portion of the energy they sell around the state PNM invested hundreds of millions of dollars at San Juan with approval of the state. If they are going to provide cheaper and cleaner energy, they want to recoup that capital to reinvest.

For PNM to reap the benefits of securitization, they should give something in return.

As reported by the Farmington Daily Times in their coverage of the WNRC meeting, “The bonds would be sold on the public market, and PNM would be required to show that the company’s customers would save at least 40 percent on their utility rates if the company used the bonds rather than traditional methods for recovering its investment money. Those methods could include passing on the costs to customers… A percentage of those bonds also would help with local economic diversification efforts, and up to $30 million could be used for reclamation and decommissioning once the plant closes.”

If this sounds familiar it’s because securitization came up in the legislature earlier this year. And clean energy advocates worked hard to extract important concessions in exchange for securitization. Unfortunately, negotiations on those bills, Senate Bill 47 and House Bill 80, started late and the bills weren’t ready for passage last year.

But, as the Union of Concerned Scientists put it, “Securitization presents an incredible opportunity to intentionally shape the state’s energy future, and squandering that opportunity (or worse, using it to point the state down a bad path) is too serious to let slide.”

New Mexico is on the brink of becoming a leader in renewable energy production but that will not happen without the longstanding partnerships of utility companies within the state, especially PNM, the largest utility in the state. Indeed, that same article from the UCS pointed out these key bullet points as reasons we should have all be in favor of a good securitization bill:

  • Securitization can offer meaningful support to ensure Farmington and San Juan County are provided a viable opportunity to diversify, develop, and ultimately transition their economy away from the dwindling coal sector.
  • A good bill should commit PNM to a future energy mix that would supply customers with 40 percent renewable energy by 2025 and 50 percent renewable energy by 2030—strong and critical waypoints that would keep the utility moving toward an ever-cleaner (and more cost-effective) energy future.
  • A good bill should allow competition for the renewable energy resources that replace coal.
  • Finally, a good securitization bill should ensure customers save a significant amount of money in closing the plant, that the Public Regulation Commission (PRC) has full authority to review the bonding proposal and PNM’s proposed closure costs.

These kinds of transitions take time and real people in San Juan County need access to opportunities for success if they’re going to continue to be make ends meet. We need a clear vision forward and it starts with working toward progress with tools like securitization, but also with the knowledge that we have more tools in the toolbox and we will need to bring all of those to bear as we move into the future.

If securitization returns in the 2019 session, it will take a lot of hard work to negotiate a deal that works for San Juan County, PNM, customers, and ensures clean energy for our state. It could well be worth it though. Here’s to hoping those conversations create a workable deal.