BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION IN THE MATTER OF PUBLIC SERVICE ) COMPANY OF NEW MEXICO’S ) CONSOLIDATED APPLICATION FOR ) APPROVALS FOR THE ABANDONMENT, ) Case No. 19-00195-UT FINANCING, AND RESOURCE REPLACEMENT ) FOR SAN JUAN GENERATING STATION ) PURSUANT TO THE ENERGY TRANSITION ACT ) ) RECOMMENDED DECISION ON REPLACEMENT RESOURCES, PART II June 24, 2020 TABLE OF CONTENTS I. STATEMENT OF THE CASE .................................................................................................... 1 II. BACKGROUND ......................................................................................................................... 8 A. The Four Units of the San Juan Generating Station and Farmington’s Efforts to Use Carbon Capture Technology to Continue Operating the Plant ........................................ 8 B. Senate Bill 489 and the Energy Transition Act ............................................................... 10 C. Evidentiary Standards ..................................................................................................... 12 III. SUMMARY .............................................................................................................................. 13 A. Recommended replacement resources ............................................................................ 13 B. Other Issues: Carbon Capture Technology and Fairness of PNM’s RFP Process ......... 16 C. Implementation ............................................................................................................... 18 IV. DISCUSSION .......................................................................................................................... 19 A. PNM’s RFP Processes ..................................................................................................... 19 1. Background .............................................................................................................. 19 2. PNM’s initial RFP ................................................................................................... 21 a. Initial Screening ............................................................................................. 22 b. Phase One evaluation ..................................................................................... 22 c. Phase Two evaluation ..................................................................................... 24 3. PNM’s Supplemental RFP ...................................................................................... 26 4. Resource Modeling .................................................................................................. 28 a. Costs and reliability ....................................................................................... 28 b. EnCompass ..................................................................................................... 32 c. SERVM .......................................................................................................... 33 d. PowerSimm .................................................................................................... 34 e. The models’ similarities and differences ....................................................... 35 f. PNM’s use of the models and Mr. Kemp’s battery limits to justify abandonment and its preferred replacement resource portfolio .................... 36 g. Other parties’ use of the models to support alternative replacement resource portfolios .......................................................................................... 41 RECOMMENDED DECISION ON - i - REPLACEMENT RESOURCES, PART II Case No. 19-00195-UT B. PNM’s Proposed Replacement Resource Portfolios ...................................................... 42 C. Other Parties’ Proposals .................................................................................................. 45 D. Extension of Bids ............................................................................................................ 53 V. RECOMMENDATIONS ......................................................................................................... 53 A. Legal Standard ................................................................................................................. 53 1. “Up to” 450 MW of replacement resources to be located in the CCSD ................ 54 2. Legal Standards to approve resources located inside and outside the CCSD ........ 59 B. Gas versus no gas portfolios ........................................................................................... 66 1. Choice of resources to back up renewables ............................................................ 66 2. Backup resources – natural gas and battery storage vs. battery storage only ........... 67 a. Location in the CCSD .................................................................................... 67 b. Economic development opportunity and ability to provide jobs with comparable pay and benefits to those lost due to the abandonment of a qualifying generating facility ......................................................................... 70 c. Cost ................................................................................................................. 74 d. Environmental Impacts .................................................................................. 81 e. Fixed costs vs. fuel costs favor batteries ....................................................... 88 f. Reclamation costs .......................................................................................... 88 g. Reliability ....................................................................................................... 88 i. Quantitative evaluations ....................................................................... 89 ii. PNM’s qualitative analysis of battery storage ...................................... 94 (a) Limits on initial battery deployments ......................................... 94 (b) Safety ........................................................................................... 98 (c) Technological evolution .............................................................. 99 (d) Cost ............................................................................................ 100 (e) Location ..................................................................................... 101 (f) Ownership .................................................................................. 102 (g) PNM’s inexperience with battery storage ................................. 105 iii. Responses to PNM’s qualitative analysis ........................................... 106 RECOMMENDED DECISION ON - ii - REPLACEMENT RESOURCES, PART II Case No. 19-00195-UT (a) Limits on initial battery deployments ....................................... 106 (b) Safety ......................................................................................... 110 (c) Technological evolution ............................................................ 112 (d) Cost ............................................................................................ 113 (e) Location ..................................................................................... 114 (f) Ownership .................................................................................. 115 (g) PNM’s inexperience with battery storage ................................. 117 h. Public interest ............................................................................................... 118 C. Recommended Resource Portfolios Based on Analyses of Relevant Balancing Factors ........................................................................................................................... 119 1. Balancing the preferences in the ETA ................................................................... 120 2. Balancing under the least cost preference in traditional resource decision- making ................................................................................................................... 125 D. Carbon capture .............................................................................................................. 127 E. Issues with PNM’s RFP Process ................................................................................... 137 1. Manipulation of the timing of the RFP process to favor utility-owned resources ................................................................................................................ 137 2. Manipulation of the RFP process to favor utility-owned resources ..................... 140 3. Requests to re-bid the utility-owned Sandia and Zamora projects ....................... 145 4. Recommendations ................................................................................................. 147 F. PNM’s failure to rank the proposals received in the RFP ............................................ 155 G. Waiver of Modified Stipulation, Case No. 13-00390-UT, Paragraph 40 ..................... 158 H. Ratemaking Treatments ................................................................................................ 166 I. Further Proceedings ...................................................................................................... 168 J. Other Issues ................................................................................................................... 170 VI. FINDINGS OF FACT AND CONCLUSIONS OF LAW ..................................................... 172 VII. DECRETAL