At PNM Resources, we are committed to strengthening the communities we serve by helping others and making a difference in the lives of our customers. Our employees live, work and raise their families in these communities and we are proud to give back through investments that include grants, charitable contributions and employee volunteer time focused on supporting education, economic development and the environment.
We serve electricity to more than 781,000 homes and businesses in New Mexico and Texas through our regulated utilities, PNM and TNMP. PNM Resources currently has a generation portfolio creating more than 2,671 megawatts through the use of traditional and cutting edge generation methods. In the coming years, PNM Resources has committed to revolutionizing our generation capabilities, developing a plan for the integration of ever-larger portions of emissions-free energy and renewable resources.
Climate Change Report
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Real Change | Real Results
Climate change continues to pose risk and demand answers. We hear the voices of our stakeholders, from investors and businesses to our customers and employees who are conscientious about reducing their own impact on the environment and are concerned about the greenhouse gas emissions associated with generating electricity. We agree, and at PNM Resources we are taking action to protect our environment and conserve our natural resources while building a clean, secure and sustainable energy future.
PNM Resources has a long history of environmental stewardship, balanced with cost conscientiousness. We advance the use of cleaner sources of energy as well as promote responsible conservation measures, including energy efficiency. We have made, and continue to make, significant investments to reduce the environmental impact of delivering power while minimizing the cost to our customers.
PNM, our New Mexico utility, previously announced its plan to completely exit coal generation by 2031 and has already significantly reduced overall power plant emissions:
- In 2018, after the shutdown of Units 2 and 3 at San Juan Generating Station, we reduced CO2 emissions at this plant by 54% below 2005 levels (CO2 comprises the vast majority of PNM greenhouse gas emissions) and
- As of December 31, 2018, about 34% of PNM generating capacity is carbon-free, including resources owned, leased and under purchase power agreements;
The Energy Transition Act, passed in the 2019 New Mexico legislative session, demonstrates the state’s commitment to the further integration of cleaner energy sources. The new law sets more aggressive renewable standards and introduces a mandate of 100% carbon-free energy by 2045, while also protecting customers and workers in the transition to clean energy. Energy Transition Bonds are permitted to securitize the unrecovered costs on qualifying coal-fired generation facilities, reducing the cost to customers to retire these facilities earlier and allowing the utility to reinvest in cleaner energy resources.
Aided by the Energy Transition Act, PNM will continue down the path of transitioning existing energy resources to emissions-free resources. Going forward, our resource planning will achieve dramatic reductions in carbon emissions and lead us to a zero-emission clean portfolio of electricity generation:
- By 2023, PNM expects to far exceed the United States' voluntary commitment to the Paris Agreement(1) of a 26% to 28% reduction in carbon emissions below 2005 levels by 2025;
- PNM plans to exit all coal generation by the end of 2031 and reach 70% emissions-free energy by 2032; and
- PNM has set a new goal for its electricity generation to reach 100% emissions-free by 2040, five years ahead of the state mandate.
In July 2019, PNM took the next step in the transition to emissions-free resources by filing its application to close the San Juan Generating Station and including different scenarios for the replacement resources necessary to provide New Mexico with affordable, reliable energy as we transition away from coal. The recommended replacement scenario reflects customer savings while maintaining reliability, reducing carbon emissions and giving preference to resources that provide property tax base for the San Juan school district, consistent with the Energy Transition Act. The filing also requested securitization financing treatment of the projected undepreciated investment in San Juan and approval of the recommended replacement power resources. PNM requested a decision on the consolidated application by the end of 2019.
The following figure shows PNM's current and planned emissions-free generation and its anticipated CO2 emissions reduction in 2040.
The roadmap for these important decisions is developed through a comprehensive research and planning process known as the Integrated Resource Plan (IRP).
The IRP is updated every three years and is filed with the New Mexico Public Regulation Commission (NMPRC). Our most recent IRP, filed in 2017, is available at www.pnm.com/irp. The plan examines many scenarios with the purpose of defining the optimal portfolio for generating and transmitting electricity from the perspectives of reliability, customer cost and environmental impact.
The 2017 IRP outlines the responsible and cost-effective actions PNM is proposing to further reduce emissions and increase the use of cleaner energy resources. The PNM 2017 IRP considered, among many other things, the impact of exiting San Juan Generating Station when the ownership agreements and coal supply contract expire in 2022. If the actions in the plan are approved by the NMPRC, PNM will continue on the path to significantly reducing carbon emissions and other environmental impacts and will completely exit coal generation by the end of 2031. The plan in the 2017 IRP, which includes maintaining the existing carbon-free nuclear capacity in our resource portfolio, has the lowest carbon emission projections (in addition to being the most cost-effective) of the many scenarios considered.
PNM will continue its collaborative work with customers, environmental organizations, businesses, and other stakeholders to develop the next long-term plan as part of the 2020 IRP. Public participation workshops are scheduled to begin June 2019. The filing will ultimately provide the least cost plan, as mandated by law, but also include the consideration of alternatives that will include options for geographic placement of renewable energy resources, choices between emissions-free technologies and lower cost next generation natural gas.
PNM will utilize the IRP planning process to evaluate multiple pathways to reach its goal of 100% emissions-free energy by 2040. With passage of the Energy Transition Act, the State of New Mexico has put forth new mandates for all utilities to be 100% carbon free by 2045. As wind and solar generation costs have significantly decreased and the newer energy storage and other advanced technologies continue to progress, PNM can phase out natural gas emissions entirely and complete the transition to 100% emissions-free generation earlier than 2045 – by 2040.
PNM Energy Mix - 2017 IRP
Another important and effective focus of our efforts is energy efficiency, which is included in the IRP and embedded in our overall strategy for the future. Reducing energy usage through organic technological evolution and as a result of strong and effective energy efficiency programs at both PNM and TNMP (our Texas utility) is perhaps the best way to avoid emissions and reduce the need for new generation resources.
PNM began its energy efficiency programs in 2007. Since then, the programs have provided more than $88 million in customer rebates and helped save nearly 3.8 billion kilowatt hours of electricity – enough to power over 560,000 homes for a year. These programs have kept an estimated 2.0 million metric tons of CO2 out of the air and saved 1.1 billion gallons of water.
“TNMP has been honored by Energy Star four consecutive years for successful energy efficiency programs. In April 2019, TNMP was honored with its second consecutive Partner of the Year Sustained Excellence Award for its High-Performance Homes Program.”
TNMP energy efficiency programs began in 2002, and have helped save more than 194 million kilowatt hours of electricity – enough to power approximately 21,850 homes for a year. These programs have also provided $29 million in customer incentives and kept an estimated 125,300 metric tons of CO2 out of the air.
Working Together to Effect Real Change
Real change is possible. But, it is not easy. In order to accomplish meaningful results, we will be working to partner even more closely with our stakeholders. We have many things to accomplish to reach these important goals, including obtaining regulatory approval for each significant element of our plan. By working together, we can achieve real change and transition to 70% emissions-free energy by 2032, 100% emissions-free energy by 2040, and implement an energy mix that will benefit our customers and our communities for generations to come.
(1) The Paris Agreement's goal is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.
Statements made in this Report that relate to future events or our expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates. We assume no obligation to update this information.
Because actual results may differ materially from those expressed or implied by these forward-looking statements, we caution readers not to place undue reliance on these statements. Our business, financial condition, cash flows, and operating results are influenced by many factors, which are often beyond our control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include the risks and uncertainties described in the "Risk Factors," "Quantitative and Qualitative Disclosures about Market Risk," and "Management's Discussion and Analysis" sections of our Forms 10-K and 10-Q filed with the SEC.
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PNM Resources is committed to the responsible use and protection of our natural resources. We have a long-standing record of environmental stewardship. The focus of our efforts to provide environmentally responsible power centers on four key areas:
- Continuing to develop strategies to provide reliable and affordable power;
- Transforming the PNM generation portfolio to 100% emissions-free resources by 2040. (see our Climate Change Report);
- Preparing PNM's system to meet New Mexico's increasing renewable energy resources as cost-effectively as possible; and
- Increasing energy efficiency participation.
New Energy Policy in New Mexico - Energy Transition Act
In March 2019, New Mexico’s Governor signed the Energy Transition Act into law. This was a result of two years’ worth of thoughtful and realistic planning by diverse stakeholders. As we move forward into 2019, the Energy Transition Act supports the PNM long-term strategic plan and provides new tools and benchmarks to help us achieve success.
This landmark legislation received broad support from stakeholders across the state including environmentalists, labor, tribal, community, and business leaders. The Energy Transition Act gives PNM a new financial tool to allow for the responsible closure of the San Juan Generating Station (SJGS) in June of 2022 and the exit of the Four Corners Power Plant in 2031.
Equally as important, the Energy Transition Act sets mandates for utilities to achieve 100% emissions-free generation by 2045. It also establishes a new and aggressive Renewable Portfolio Standard (RPS), requiring 40% renewable energy by 2025, 50% by 2030 and 80% by 2040. While at first a 100% emissions-free target might appear an overwhelming task, PNM is well positioned to be an industry leader in this transition - and in fact, is setting a goal to be 100% emissions-free by 2040, five years ahead of the state mandate. Our strategic planning already had us over 70% emission-free resources by 2032, without the Energy Transition Act.
PNM took the next step in achieving a 100% emission-free portfolio by filing its Consolidated Application for San Juan Generating Station requesting the abandonment of the San Juan coal plant and approval of recommended replacement power resources on July 1, 2019. In its application, PNM considered various resource scenarios to balance the cost to customers, reliability and environmental impacts. In the recommended plan, PNM includes 280 megawatts of owned natural gas-fired peaking units at San Juan, 350 megawatts of solar capacity under purchase power agreements, and 130 megawatts of battery storage capacity (both owned and through energy storage agreements). The recommended scenario for replacement power results in the lowest cost to customers and achieves significant reductions to carbon emissions, meets reliability standards and brings significant investment to New Mexico. PNM requested a decision from the New Mexico Public Regulation Commission on the consolidated application by the end of 2019.
We are fully engaged and monitoring these technology advancements and are well positioned to implement them in the most cost-effective way for our customers.
PNM and TNMP are dedicated to protecting our environment and complying with all regulations. We recognize and believe in the importance of protecting human health and preserving the environment. We accomplish this through careful planning, strong policies, robust controls and excellent operations. Read more from our Environmental Policy.
We are actively transforming PNM's generation portfolio to cleaner resources. A key part of this effort is achieved through compliance with New Mexico's Renewable Portfolio Standard (RPS). The RPS requires no less than 15% by 2015, and no less than 20% by 2020, of total retail sales to New Mexico customers to be from renewable energy. The 2015 and 2020 RPS also establishes diversity requiresments that include wind, solar and geothermal resources as well as distributed (customer-owned) solar resources.
Under the Energy Transition Act, the RPS will require 40% renewable energy by 2025, 50% by 2030 and 80% by 2040, while removing the diversity requirements. PNM files annual updates on its procurement plans to achieve these goals. Read more about our RPS compliance in our regulatory information. PNM's generation portfolio is described in more detail in Generation Portfolio.
Through the Integrated Resource Plan (IRP) process that will commence in June 2019, PNM will develop its renewable procurement strategy to meet the 100% emissions-free goal by 2040. PNM will continue to procure renewable resources while balancing the impact to customer's electricity costs in order to meet New Mexico's RPS requirements.
PNM also uses renewable energy credits from customer-owned solar generation to meet the RPS requirements. For nearly a decade, PNM has supported customer-owned solar generation, which has helped drive solar industry growth and consumer choice in New Mexico. The PNM Customer Solar Energy Program helps customers save money and supports their commitment to renewable energy. The program is available to any PNM residential or business customer that installs a qualified solar energy system and has it interconnected to the PNM power grid.
PNM Resources recognizes that electric vehicles provide an opportunity to reduce the environmental impact of transportation. As we transform PNM's generation resources to a cleaner energy portfolio, customers can feel good about charging their vehicles on the PNM system. Both PNM and TNMP consider the potential impact of greater electric vehicle adoption in planning for grid reliability and resiliency.
PNM Resources is leading by example on electric vehicles. By the end of January 2019, our fleet will consist of 44 electrified vehicles, including hybrids, ranging from passenger cars to heavy duty trucks.
PNM provides support to customers wanting to make the switch to cleaner vehicles. Read more here.
Energy efficiency plays a significant role in helping to keep customers' electricity costs low while meeting their energy needs. It is one of the Company's approaches to supporting environmentally responsible power. PNM's and TNMP's energy efficiency and load management portfolios continue to achieve robust results. In 2017, incremental energy saved as a result of new participation in PNM's portfolio of energy efficiency programs was approximately 74 GWh. This is equivalent to the annual consumption of approximately 11,000 homes in PNM's service territory. PNM's load management and annual energy efficiency programs also help lower peak demand requirements. In 2017, TNMP's incremental energy saved as a result of new participation in TNMP's energy efficiency programs was approximately 21 GWh. This is equivalent to the annual consumption of approximately 2,300 homes in TNMP's service territory. TNMP has been honored by Energy Star four consecutive years for successful energy efficiency programs. ENERGY STAR In April 2019, TNMP was honored with its second consecutive Partner of the Year Sustained Excellence Award for its High-Performance Homes Program.
TNMP's and PNM's energy efficiency programs help customers reduce their electric bills and make a positive impact on the environment. TNMP energy efficiency programs started in 2002 and PNM began offering energy efficiency and load management programs to residential and commercial customers in 2007. Read more about PNM's programs on PNM's website, or in PNM's annual energy efficiency regulatory reports. Read more about TNMP's programs at TNMP's efficiency website.
Environmental Management System
PNM and TNMP are leaders in the utility industry for minimizing and mitigating the environmental impacts of utility work by having a strong Environmental Management System (EMS) which is rooted in our Environmental Policy and the international ISO 14001 standard for Environmental Management Systems.
The overall goal of the EMS is to ensure continuous improvement in the Company's environmental performance and foster a Company-wide environmental stewardship ethic.
Our EMS tools ensure that all Company employees incorporate environmental stewardship in their daily activities. The foundation of the EMS is the Environmental Screening Process. Before field work or new projects begin, PNM and TNMP employees screen their activities to identify potential issues associated with compliance requirements and resource protection. These issues include:
- habitat and threatened and endangered species,
- water and riparian area sensitivities,
- cultural resources,
- and federal, state and local jurisdictional requirements and permitting.
When an issue is identified, work does not proceed until environmental clearance containing adequate and appropriate precautions, stipulations and permits has been issued. This system has allowed the company to establish a significant database of environmental and culturally sensitive areas in New Mexico and Texas, using existing government resources as well as data which the Company has specifically collected or funded.
The Company also requires regular comprehensive environmental training for operational employees and some contractors at least every two years.
Although PNM uses less than one-third of 1% of New Mexico's freshwater resources, our water conservation, energy efficiency and renewable programs over the last decade have reduced our use by over 37% and saved 4.6 billion gallons of freshwater.
As part of the transformation of PNM's generation portfolio, PNM is focused on reducing its water use. Innovative technologies such as air-cooling, energy efficiency programs and using renewable energy that does not consume water are very effective ways of reducing our water usage. The shutdown of San Juan Generating Station Units 2 and 3 in December 2017 reduced surface water usage by nearly one-half. The graph below shows that as PNM has added resources to its generation portfolio that require less (or no) water to produce electricity, the intensity rate of our water use, in gallons per MWh, has fallen by 22% since 2007. The chart below includes water use intensity for both PNM owned and purchased resources.
The steps we are taking to achieve 100% emissions-free generation by 2040 will also result in significant water savings. With the proposed shutdown of San Juan Generating Station in 2022 and PNM’s plan to exit Four Corners Power Plant in 2031, we anticipate that we will save over 40-billion gallons of fresh water through 2040 based upon the amount of fresh water used by these plants in 2018.
Team Green is an employee-led program, in place since 2007, which has focused on waste diversion at all our facilities. Waste diversion is the practice of diverting waste from landfills, either through recycling or reducing use. Employees at each facility develop programs and practices that make sense for each location. Members meet regularly to share successes, tips and tools with other teams. Team Green has ensured that we have met annual solid waste reduction goals for over a decade. In fact, PNM received recognition from the New Mexico Recycling Coalition twice for its recycling efforts, once for its overall corporate recycling program as Business Recycler of the Year, and once for recycling efforts at its Ruidoso operations office. PNM Resources met the 2018 Corporate Waste Goal with over 15 facilities meeting or achieving a waste diversion rate of 65%.
Both PNM and TNMP have developed Avian Protection Plans (APP) in accordance with the guidelines established by the Avian Powerline Interaction Committee, which includes representation from the U.S. Fish and Wildlife Service. Each APP includes commitments to both reactive and proactive avian protection efforts.
One method of protection is "bird guarding." PNM and TNMP track and manage avian interactions with aerial electrical equipment and ensure that distribution poles that lead to avian electrocutions and outages are retrofitted with appropriate bird guarding material in a timely manner. Bird guarding material makes distribution poles more avian-safe and less prone to future outages. PNM and TNMP have retrofitted (or bird guarded) thousands of poles on the electrical distribution system. These retrofits are related to both reactionary (bird-caused and tracked outage) and proactive (bird guarding on a systematic basis) efforts.
Since 2014 the Company has spent over $6.9 million to make distribution poles avian-safe. The cost to bird guard a structure is dependent upon the location, the necessity to plan an outage to bird guard, the aerial equipment located on the pole, and the pole configuration.
San Juan River Basin Recovery Implementation Program
PNM is an active participant in the San Juan River Basin Recovery Implementation Program. This innovative endeavor was developed through cooperation among federal agencies, the States of New Mexico and Colorado, Native American nations and tribes, water users and conservation interests with the intent to assist in the recovery of the endangered Colorado Pikeminnow and Razorback Sucker in the San Juan River. As part of the program, the San Juan Generating Station partially funded and maintains a fish passage adjacent to its river diversion to allow these native fish access to critical habitat.
Coal Combustion Residuals (CCR)
San Juan Generating Station
PNM works diligently to protect the environment through air and water monitoring activities, maintaining pollution control equipment, proper waste handling and disposal, waste minimization, including recycling and reuse, and water conservation. To identify, evaluate and reduce the environmental impacts associated with burning coal, San Juan Generating Station (SJGS) uses an environmental management system. This system, which is consistent with the International Organization of Standardization (ISO) 14001 standards, is a comprehensive program to plan, implement, review and continually improve processes that impact the environment. This system includes ongoing monitoring of ground and surface waters so that we can identify and eliminate unauthorized water discharges. SJGS operations are regulated by the N.M. Environment Department (NMED) and the U.S. Environmental Protection Agency (EPA).
During coal combustion operations at SJGS to produce electricity, coal combustions residuals (CCR, also known as Coal Combustion By-products or CCB) are generated, which consist of:
- Bottom ash- Larger pieces of ash fall to the bottom of the boiler,
- Fly ash- Lighter ash is carried by the flu gas into baghouses that remove 99% of the ash from the gas to prevent it from being released into the air. The fly ash is treated with a small amount of water for ease of handling.
- Gypsum- During the process used to remove sulfur dioxide (SO2) from the flu gas, gypsum is created, an inert substance often used to make wallboard.
San Juan Mine transports CCR from SJGS back to the mine where they are used for surface mine reclamation and placed as backfill in the former surface mine pits adjacent to the plant. Returning CCR to the mine allows achievement of approximate original contour of the land when reclaiming the area. The New Mexico Mining and Minerals Department currently regulates placement of CCR in the San Juan Mine with federal oversight by the Office of Surface Mining. The EPA's final CCR rule, which became effective on October 19, 2015, does not apply to SJGS or San Juan Mine. The EPA's rule covers coal-fired power plants that manage CCR landfills and surface impoundments which neither SJGS or San Juan Mine have.
The placement or use of CCR on mine sites for reclamation is supported by a 2006 National Academy of Sciences (NAS) study that concluded that putting CCR in coal mines for reclamation is a viable management option as long as placement is properly planned and managed and the permitting process provides for public involvement. CCR from SJGS sent to the mine for reclamation are placed in mine pits and covered with a least 10 feet of soil, which is then covered with topsoil and seed. The process minimizes surface water contact. Monitoring equipment is placed above and below the CCR to detect any movement of water at the site.
In 2008, PNM chose to proactively install a groundwater recovery trench below the plant. This trench is designed to capture any potential release of discharges from SJGS. The trench became operational in January 2010 and regular monitoring data is provided to the NMED.
PNM installed a second groundwater recovery system as part of a 2012 consent decree among PNM, San Juan Mine and the Sierra Club. This groundwater recovery system, consisting of an impermeable, underground concrete-like slurry wall and groundwater recovery trench, is designed to capture groundwater downstream of SJGS and the San Juan Mine. General construction on the system commenced in June 2017 after the complex technical design was completed and all of the proper permits and approvals were acquired from the various regulatory agencies and landowners. The system went into operation in December 2018.
Multiple studies have been conducted to determine whether the CCR from SJGS have the potential to come in contact with groundwater at the San Juan Mine and affect the underlying groundwater quality. Based on these studies, the rate of re-saturation of the mine spoil is expected to be extremely slow due to New Mexico's arid climate and the low rate of recharge to the aquifer. Studies have found that the very low to no downward flow of groundwater through the unsaturated CCR indicates that the potential for any impact to the underlying regional aquifer at the San Juan Mine is minimal. In addition, assessments have indicated that the low groundwater volume and velocity in the coal seam and the high dilution potential of the San Juan River alluvium (soils and sediment deposited by the river) help lessen the potential impacts if such groundwater migrated into the San Juan River alluvium. Based upon the above considerations, the contribution and impacts of discharges of groundwater from CCR placed in former mine pits to the underlying aquifer and the San Juan River are extremely low.
Four Corners Power Plant
PNM owns 13% capacity of Four Corners Power Plant ("Four Corners"). Arizona Public Service ("APS"), the operator of Four Corners, currently disposes of CCR in surface impoundments and dry storage areas. The disposal of CCR at Four Corners is subject to the EPA's CCR rule. Prior to implementation of the rule, Four Corners was already subject to federal regulatory requirements designed to monitor for potential groundwater and surface water impacts of plant operations.
Four Corners is in compliance with the CCR rule and is meeting all applicable requirements. For facilities like Four Corners, the rule requires ongoing, phased groundwater monitoring. In addition, the rule specifies that, by October 17, 2017, electric utility companies that own or operate CCR disposal units, such as APS, must have collected sufficient groundwater sampling data to initiate a detection monitoring program. To the extent that certain constituents were identified through this initial detection monitoring at levels above thresholds provided in the CCR rule, the rule required the initiation of an assessment monitoring program by April 15, 2018. In 2018, APS completed the statistical analyses for its CCR disposal units that triggered assessment monitoring. APS determined that some of its CCR disposal units at Four Corners will need to undergo corrective action. In addition, to the extent that compliance with the CCR rule did not otherwise trigger the need for these CCR disposal units to close, such units must cease operating and initiate closure by October of 2020. APS initiated an assessment of corrective measures on January 14, 2019, and anticipates completing this assessment during the summer of 2019, during which APS will gather additional groundwater data, solicit input from the public, host a public hearing, and select appropriate remedies.
On January 31, 2019, APS released the Annual Groundwater Monitoring and Corrective Action Report for 2018. This report is the formal regulatory method for releasing annual groundwater monitoring data. See: https://www.aps.com/en/ourcompany/ratesregulationsresources/environmentalcompliance/CCRDocuments/FC_GW_AnRpt_021_20190131.pdf
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A Commitment to Reliable, Affordable, and Environmentally Responsible Power
PNM Resources is focused on safely providing reliable, affordable, and environmentally responsible power. Our Texas utility, TNMP, provides transmission and distribution services, and does not own any generation resources. In New Mexico, PNM Resources provides integrated electricity services that include the generation, transmission, and distribution of electricity for retail electric customers. PNM Resources is developing strategies to provide reliable and affordable power while transforming PNM Resources' generation resources to a cleaner energy portfolio by reducing carbon dioxide emissions.
PNM Resources: Owned Generation Portfolio
PNM Resources has ownership interests in a number of different power generation facilities that provide energy to its New Mexico customers. Because PNM Resources is a regulated electric utility with nearly all of its generation resources dedicated to serving customers in its regulated jurisdictions, it does not have exposure to stranded assets based on the fluctuation of market prices for its products that other energy companies (such as oil and gas producers) may experience. PNM Resources has exposure to impairments from stranded generation assets only if it is not permitted by the New Mexico Public Regulation Commission (NMPRC) to recover its investments. Under certain circumstances, such as described in Note 1 below, the company may agree to forego partial recovery of its investments in a negotiated regulatory settlement. Commissions, such as the NMPRC, approve both the addition of new generation resources to serve customers and the timeframe which those resources should serve customers and be recovered through retail rates, essentially approving both the assets and the associated useful life. Should a commission mandate the stranding of an existing asset without allowing a utility to recover its investment, the utility has the opportunity to appeal that decision to a higher governing body such as the state supreme court.
The table below provides a list of PNM-owned generation resources.
- In December 2017, PNM Resources retired SJGS Units 2 and 3. This retirement was part of an agreement with EPA and the State of New Mexico and the subsequent negotiated regulatory settlement that was approved by the NMPRC. This negotiated regulatory settlement resulted in PNM Resources foregoing recovery of 50% of its undepreciated investment in San Juan Generating Station Units 2 and 3 at December 31, 2017 in exchange for the allocation of its previously unregulated investment in the carbon-free Palo Verde Nuclear Generating Station Unit 3 to its New Mexico retail jurisdiction beginning January 1, 2018. In December 2015, PNM Resources recorded a regulatory disallowance of approximately $128 million that is representative of the portion of the investment in San Juan Generating Station Units 2 and 3 that is not to be recovered from rate payers. In association with the retirement of San Juan Generating Station Units 2 and 3, PNM Resources acquired an additional 197 MW of San Juan Generating Station Unit 4 beginning on January 1, 2018, including 65 MWs that will not be included in PNM Resources's jurisdictional rates.
- The most cost effective portfolio to serve New Mexico customers with affordable, reliable and environmentally responsible power identified in our 2017 Integrated Resource Plan (2017 IRP) shows that PNM Resources should exit the remaining two units at San Juan Generating Station in 2022 and exit Four Corners Power Plant in 2031. Management's assessment of the cost effectiveness of the coal plant retirements in the 2017 IRP assumed full cost recovery of the remaining investments in these plants. These actions would result in PNM Resources's Generation Portfolio being coal-free by 2031.
Our ownership interests in coal-fired power plants totaled 983 MW at the end of 2017, but fell to 762 MW in 2018. PNM Resources has proposed reducing coal-fired resources further, such that by 2023, it would only own 200 MW, and be coal-free in 2032. For more information on our future generation portfolio, see the Resource Planning section below or Integrated Resource Plan at www.pnm.com/irp.
PNM Resources: Purchase Power Agreements
PNM Resources has additional resources it uses to serve jurisdictional needs through power purchase agreements. PNM Resources added solar power purchase agreements in 2018.
PNM Resources: Energy Production and Emissions
Our current generation portfolio generates electricity to reliably meet the needs of our jurisdictional customers, wholesale customers, and for energy market transactions. In 2005, 57% of system energy was from coal-fired resources. In 2018, coal-fired generation made up about 40% of system energy.
PNM Resources has worked to significantly reduce emissions over the past 15 years through the installation of additional pollution control technologies at San Juan Generating Station (SJGS), the increased use of renewable energy, and the use of natural gas, and the development of extensive energy efficiency and conservation programs for customers. The efforts at SJGS include:
- A $320 million environmental upgrade between 2006 and 2009,
- Retirement of Units 2 and 3 the end of 2017, and
- Installation of selective non-catalytic reduction to further reduce nitrogen oxide emissions on Units 1 and 4.
Going forward, our proposed generation portfolio would achieve dramatic reductions in carbon dioxide emissions, as well as other emissions. See our Climate Change Report.
Much of the proposed reductions in emissions, including carbon dioxide emissions, has its origins in a forward-looking plan PNM Resources developed with the State of New Mexico and the Environmental Protection Agency (EPA) for SJGS. This plan was developed to address federal Regional Haze regulations under the Clean Air Act but has significant impact in reducing carbon dioxide emissions and the added benefit of significant reductions in water use. Currently, there is no rule in effect to regulate carbon dioxide emissions from existing fossil-fueled power plants. EPA issued a Notice of Proposed Rulemaking in 2017 to repeal the Clean Power Plan, which would have regulated carbon dioxide emissions by requiring power generators to change their energy portfolios (shifting generation from coal to gas, and from fossil fuels to renewable energy). The Clean Power Plan never went into effect; it was stayed by the U.S. Supreme Court as litigation proceeded. In a separate but related action, EPA proposed a rule in August 2018, informally known as the Affordable Clean Energy rule, which would suggest “candidate technologies” for states to require on existing fossil-fueled plants, which could reduce carbon dioxide emissions. After the rule is finalized, each state would submit a plan to EPA for power plants in its jurisdiction. Regardless of future regulation or legislation to reduce greenhouse gas emissions from existing fossil-fueled power plants, PNM Resources has made major strides in reducing its emissions, and expects to continue on this path.
PNM Resources conducts research and planning activities using a number of different avenues including preparing an Integrated Resource Plan (IRP) once every three years. The IRP identifies portfolios of resources to supply PNM Resources's customers' energy needs over a 20 year period with a specific action plan for the next four years. The IRP is a public process that includes numerous meetings and public inputs to generate the plan. The filing requirements specify that for resources whose costs and services are equivalent PNM Resources should prefer resources that minimize environmental impacts. The IRP results in an investment roadmap for the Company and documents the actions required to achieve the plan's objectives over the next four years.
On July 3, 2017, PNM Resources filed the 2017 IRP with the New Mexico Public Regulation Commission. Analysis in the 2017 IRP shows a most cost effective portfolio that would result in the following changes to PNM Resources's generation resources:
- Retire SJGS coal-fired Units 1 and 4 in 2022 (497 MW retail + 65 MW merchant) after the existing coal-supply agreement expires on June 30, 2022 (Units 2 and 3 were retired at the end of 2017),
- Exit the 13% participation (200 MW) in Four Corners Power Plant when the existing coal-supply agreement expires in 2031,
- Acquire replacement power consisting of renewables, natural gas, and potentially energy storage, and
- Retain existing 114 MW of leases in Palo Verde.
The 2017 IRP presented resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 and for scenarios that assumed SJGS will cease operations after mid-2022. The 2017 IRP data shows that retiring SJGS in 2022 would provide long-term cost benefits to customers, including further significant reductions in carbon dioxide emissions and more clean energy options for customers. PNM Resources plans to propose replacement power for SJGS Units 1 and 4 that include the use of cleaner fuels.
With the recommendations in the 2017 IRP, PNM Resources is on track to reduce GHG emissions by 81% by the year 2032 and by 87% by 2040. The following figure provides the historic and projected carbon dioxide emissions for our owned generation and purchase power agreements.
The results of the 2017 IRP illustrate that energy needs are changing, and replacing coal-fired generation with renewable energy and more flexible generators will save money for customers in the long run. The 2017 IRP is not a final determination of PNM Resources' future generation portfolio. Retiring PNM Resources' share of SJGS and exiting Four Corners would require approval by the NMPRC.
Palo Verde Nuclear Generating Station
PNM Resources is proud to be a participant in Palo Verde Nuclear Generating Station (Palo Verde), the largest nuclear power plant in the U.S., located near Phoenix, Arizona. Palo Verde is licensed and routinely inspected by the Nuclear Regulatory Commission (NRC). It is a three-unit, 3,810 MW generating station operated by Arizona Public Service Company that serves more than one million homes in the Southwest. It will provide about 33 percent of the power needs of PNM Resources consumers in 2018.
Palo Verde emits no carbon dioxide in the generation process. The plant generates spent nuclear fuel that is stored in an onsite fuel pool until it can be transferred to dry storage casks inside an NRC licensed, on-site storage facility. This facility may be expanded to include all required casks for nuclear fuel used through Palo Verde's NRC Operating License duration of 2047.
Palo Verde is the only nuclear energy facility in the world that uses treated sewage effluent for cooling water. The sewage effluent water is produced from the metropolitan Phoenix area. The wastewater is treated again at the plant's water reclamation facility and then stored in an 80-acre reservoir for use in the plant's nine cooling towers. More than 20 billion gallons of water are recycled each year.
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PNM Resources recognizes that sustainability is an integral part of achieving long-term shareholder value and our strategic goals. Through our regulated utilities, PNM and TNMP, we are dedicated to continuing to serve our customers with reliable, affordable, and environmentally responsible power while transforming to a cleaner energy portfolio and maintaining the reliability and resiliency of the electric grid. Corporate responsibility is embedded in our organization's culture to Do the Right Thing and be the reason everyone goes home safely every day. Our sustainability efforts are managed by our executive leadership team and overseen by the Board of Directors.
Our commitment to governance policies and practices that serve the interests of the Company and our shareholders, customers and communities is underscored by the following corporate governance practices and facts for PNM Resources that are described further on our annual proxy statements:
Our sustainability efforts, developed through research, benchmarking and engagement with our stakeholders, support our five strategic objectives identified by our Board and executive leadership team through our strategic planning process:
- Create an environment where employees can succeed
- Engage and earn the trust of our customers and stakeholders
- Always strive for operational excellence
- Create value for our shareholders
- Transform our portfolio for a sustainable future
In conjunction with these objectives, we remain focused on three financial goals:
- Earning authorized returns on our regulated businesses
- Delivering earnings and dividend growth at or above industry-average
- Maintaining solid investment grade metrics
The executive team (comprised of our CEO, CFO, SVP General Counsel, SVP Public Policy, and SVP Utility Operations) plans and executes on programs designed to achieve PNM Resources' strategic goals, including investing in a clean, secure and sustainable resource portfolio and other corporate responsibility efforts.
Management is also responsible for assessing significant risks, including the multiple risks and opportunities related to climate change matters, executing appropriate responses, and reporting to the Board on the status of risk activities. Management prepared with Board oversight, a Climate Change Report that details PNM's efforts to transition to a coal-free generation portfolio.
Our well-qualified, diverse, and high functioning Board of Directors follows a regular meeting schedule to consider and address key issues, including those related to corporate responsibility and sustainability matters. In addition, the Board conducts an annual strategy session to consider new and emerging trends, consult with outside experts, and assess current strategies and initiatives. In recognition of the importance of sustainability to achieving long-term shareholder value and our strategic goals, seven members of our ten-member Board have environmental/sustainability expertise relevant to the Company's business of providing reliable, affordable and environmentally responsible power to its customers.
As discussed above, our management is responsible for managing risk and bringing to the Board's attention the most significant risks facing the Company. The Board oversees the processes established to identify, assess, mitigate, and monitor risks. Throughout the year, the Board reviews information regarding the potential significant risks facing the Company. Each significant strategic risk is overseen by the full Board to facilitate more effective integrated risk and strategy oversight. Board oversight includes consideration of the various challenges and opportunities presented by these risks, plans to mitigate risks, and the impact these risks may have on our strategy.
For many years, management has identified and reported to the Board on multiple risks and opportunities related to climate change, including potential environmental regulation, transformation of PNM's generation portfolio, technological innovation, and availability of fuel and water for operations. These significant risks are overseen by the full Board. In addition, the Board approves certain Company investments in environmental equipment and grid modernization technologies. In contemplating new investments and against a backdrop of a transforming and increasingly interconnected industry, the Board also considers risk related to cybersecurity. Other significant risks overseen by the full Board include safety, New Mexico stakeholder relationships, and physical security.
The Board is continuously advised of our practices and procedures to assess the impacts of our operations on the environment. The Board carefully considered the multiple risks and opportunities related to climate change in requesting the preparation of the Climate Change Report and approving PNM's plans and strategy to transition to a cleaner energy portfolio, as well as PNM's and TNMP's investments to enhance their grids to support the expansion of renewable energy.
The Board also allocates responsibility for oversight of other risks and sustainability and corporate responsibility matters among the committees of the Board:
- Our Nominating and Governance Committee oversees our Corporate Governance Principles, risks related to succession planning for the Board and non-employee director compensation.
- Our Compensation and Human Resources Committee is responsible for establishing our executive compensation program to align with our strategic goals and objectives and encourage our highly qualified executive team to operate our business in a sustainable manner, while overseeing succession planning risks for our executives and risks related to the compensation program. Our executive compensation programs are described in our annual proxy statements filed with the SEC.
- Our Audit and Ethics Committee oversees our Do the Right Thing: Principles of Business Conduct and plays a central role in overseeing the integrity of our financial statements and reviewing and approving the performance of our internal audit function and independent auditors and is regularly briefed on our North American Electric Reliability Corporation risks and risk mitigation programs.
- Our Finance Committee oversees our capital expenditures and financial health, including the capital programs supporting PNM's transformation to a cleaner energy portfolio and enhancements to PNM's and TNMP's grid. The Finance Committee also oversees the Company's management of risks associated with capital availability, liquidity and costs thereof; and monitors the execution of the Company's energy supply, sales, and hedging programs.
In executing its risk oversight duties, the Board accesses extensive internal and external expertise regarding the Company's challenges and opportunities, including those related to climate change. For example, in addition to extensive leadership experience at public utilities, the Board's Chairman, Ms. Collawn, was past chairman and serves on the board of the Electric Power and Research Institute ("EPRI"), an independent non-profit research institute engaged in researching innovative climate change-related technology and policy matters for the power industry. During 2017-2018, Ms. Collawn was chairman of Edison Electric Institute ("EEI"), an association representing all investor-owned electric companies in the U.S. that has been an active participant in the United Nations Framework Convention on Climate Change. The Board is also informed about the Company's active involvement in multiple EPRI programs and participation on various EEI committees focused on environmental risks, including climate-related, and technological innovation to address these risks.
Furthermore, the Board has always demonstrated leadership on climate change matters. Ms. Collawn personally attended climate meetings in Paris and led the Company through the shutdown of two of the four coal-fired generation units at SJGS, which resulted in significant reductions in carbon dioxide emissions that would have led to New Mexico's attainment of the requirements set forth in the now stayed Clean Power Plan. Additionally, under Ms. Collawn's leadership and during the previous Chairman's leadership, the Company was one of the founding members of the U.S. Climate Action Partnership formed in 2006 and endorsed the 2009 Waxman-Markey climate change bill, aimed at significantly reducing CO2 emissions and increasing renewable energy across the U.S.
In addition to our Chairman, six independent members of our current 10-member board have the following environmental and sustainability expertise relevant to our regulated electric utility businesses: (i) director Alan J. Fohrer is a former chairman and CEO of Southern California Edison while it was a leader in both renewable energy purchases and energy efficiency and he also has co-chaired EEI's energy delivery and reliability committees and served on the boards of directors of the Institute of Nuclear Power Operations, (ii) director E. Renae Conley's has CEO experience at an energy consulting firm and directorships and executive officer positions at public energy companies, (iii) director Sidney Gutierrez served as director of Environmental, Safety and Health Programs of Sandia National Laboratories, (iv) director Maureen Mullarkey served as a director of another public energy company and served as an Entrepreneur in Residence with the Nevada Institute for Renewable Energy Commercialization, and (v) as discussed below, Vicky A. Bailey and James A. Hughes, who joined the Board on January 1, 2019 bring additional significant environmental, climate change and sustainability expertise that the Board determined to be highly relevant to transforming to a cleaner energy portfolio and enhancing the reliability and resiliency of the grid.
Ms. Bailey has over thirty years of high level, national and international experience in energy and regulated industries, including as a current director of two public energy companies. Ms. Bailey also serves as a director of Battelle Memorial Institute, a non-profit applied science and technology organization that manages several of the National labs across the country for the United States Department of Energy, and was a trustee of the North American Electric Reliability Corporation (2010-2013), the not-for-profit international regulatory authority whose mission is to assure the effective and efficient reduction of risks to the reliability and security of the grid. She was appointed as Assistant Secretary at the United States Department of Energy (2001-2004) for both International Affairs and Domestic Policy, was appointed to the Blue Ribbon Commission on America's Nuclear Future (2010) and was the first female to be elected chairman of the Board of the United States Energy Association (2013).
Mr. Hughes also has extensive experience in the energy industry, particularly with respect to the renewable energy sector, which gives him important financial, regulatory, sustainability and environmental insights relevant in the transition to cleaner, more sustainable energy at PNM. Mr. Hughes is CEO and managing director of an energy storage company and is the former CEO and director of a NASDAQ listed solar company and a private company that owned and operated power distribution, power generation (both thermal and renewable) and natural gas transportation and distribution businesses.
We continually evaluate whether our governance processes are appropriate to our size and complexity and effective in promoting holistic and long-term approaches to managing environmental, social and governance matters as well as whether our disclosures on this topic are transparent and helpful to our stakeholders. For example, we are currently evaluating different transparency frameworks, including the framework created by the Task Force on Climate-Related Financial Disclosures and a framework created by EEI. The Company is also participating in an EPRI project that is evaluating potential climate change policy scenario analysis and GHG goal setting.
Our Sustainability Mission
At PNM Resources, our Vision and our Values create a compass which guides our company and our employees:
- Vision: Create a clean and bright energy future.
- Values: Safety for ourselves, our co-workers, our customers and our communities depends on every employee, every day; Caring about the welfare of others is a company tradition. It fosters a positive workplace, a focus on customers and dedicated community service; Personal integrity and honest communication guide our dealings and keep us accountable to our stakeholders and to each other.
We work diligently every day to do business in an ethical, open and transparent manner, and this portal is an extension of that commitment. Here you can access the key sustainability information related to the operations of PNM Resources' utilities- PNM in New Mexico and TNMP in Texas. The information is compiled under five main headings: Environment, Generation Portfolio, Social, Economic, and Governance.
At PNM Resources, the term "sustainability" encompasses a broad range of important actions. It starts with our responsibility to deliver safe, reliable, affordable and environmentally responsible energy to our customers, and extends to areas that include:
- Economic development- supporting job growth, workforce training and efforts to retain and recruit business to New Mexico
- Improving the quality of life- partnering with community nonprofit organizations that support economic vitality and provide a hand-up to the less fortunate. Encouraging the spirit of volunteerism among employees, and providing financial contributions targeted to create meaningful change
- Conservation and resource protection- going beyond increasing cleaner energy resources to include wildlife protection, conserving precious water resources and maintaining our infrastructure in ways that minimize the impact on the environment
- Corporate governance- demonstrating strong leadership, setting high expectations and insisting on accountability for ourselves and our business operations
- Efficiency- operating our businesses in ways that effectively serve our customers while minimizing costs
We are proud of our company and proud of the positive difference we make in the communities that we serve. Through the hard work and dedication of our employees, we have achieved strong results, although we know there is still much to do. We will continue to strive to improve, and to support the communities we serve across New Mexico and Texas.