Title
Approval of Amendment No. 1 to New Exit Date Amendment Amending and Restating the Amended and Restated San Juan Project Participation Agreement and the Extended Operations Agreement
Recommended Actioa
I move that County Council Approve Amendment No. 1 to the New Exit Date Amendment, Amending and Restating the Amended and Restated San Juan Project Participation Agreement and Approve the Extended Operations Agreement.
I further move that Council authorize the Utilities Manager to execute the final drafts of Amendment No. 1 to New Exit Date Amendment Amending and Restating the Amended and Restated San Juan Project Participation Agreement and the Extended Operations Agreement
Utilities Manager Recommendation
The Utilities Manager recommends that the County Council approve the motion as presented.
Board, Commission or Committee Recommendation
The BPU discussed this topic at their regular meeting of February 16th and recommends that the County Council approve the motion as presented with a board vote of four for and one against the amendment and agreement.
Body
Power Operations is attempting to manage a large gap in generation with the impending San Juan Closure. The market is forecasted to behave much like the prior two years during the third quarter of 2022 (July, August, and September). On-peak futures are trading above $230.00/MWh of Energy for this time period. In addition to market pricing, supply chain issues are plaquing the energy sector by delaying new generation resources throughout the west. These factors have led the current ownership of San Juan Generating Station to request an extension of operations for this three-month period.
A San Juan extension allows Los Alamos County to meet the Power Pool’s energy needs in the most economic fashion. Current projections place a conservative savings value to the Power Pool in the amount of $7,000,000.00. Without this extension LAC can only fill this energy gap in one manor, a short-term market-based energy product that is most likely generated by coal or natural gas. Los Alamos County has entered in a Purchase Power Agreement (PPA) with UNIPER Global for delivery of 25MW around the clock from October 1, 2022 - June 30, 2025, to fill the gap left by San Juan’s retirement. This extension of San Juan Generating Station to shut down on September 30 will match up well with the Uniper PPA beginning on October 1st.
For an extension to occur, all of the remaining participants must agree and seek approval from their respective governing bodies. The approvals must be unanimous for the extension to occur. Tucson Electric Power (TEP) does not wish to take any of the energy output during this time frame. They have agreed to allow an extension, however San Juan Unit 1 will not operate during this three-month period. TEP ownership share is reserved to Unit 1 only. While the continued operation of Unit 4 is not guaranteed, the line of questions from the Public Regulation Commission (PRC) of PNM appear to support three months of continued operations of SJGS. The PRC’s consideration is due to PNM’s replacement resources being delayed due to supply chain issues resulting in these projects not achieving their original commercial operation date. These delays leave PNM short on capacity during the peak summer months when market power is scarce and most expensive. Extending the operation of the SJGS will save PNM native customers tens of millions of dollars and provide more stability to the western interconnect during this high demand period.
The only modifications made to the amendment and agreement that BPU did not review was the addition of the date of February 23, 2022 and the Extended Operations Agreement had some clarifying language added to paragraph 4(d): "only the non-TEP Parties will be responsible, in accordance with their respective ownership interests in Unit 4 or other specific cost allocation methods as set forth in the NEDA, for any Unit 4 and associated plant site costs, including fuel-related costs, solely caused by the extended operation of Unit 4 during the Extension Period."
Alternatives
Replace this capacity with a short-term market power purchase at an estimated additional cost of $7,000,000 during this period based on the energy futures.
Fiscal and Staff Impact
An estimated $7,000,000 savings to the Los Alamos Power Pool. This effort is considered a normal part of operations for Electric Production staff.
Attachments
A - Amendment No. 1 To New Exit Date Amendment
B - Extended Operations Agreement