Dive Brief:

• A Friday agreement between Farmington, New Mexico, and a local energy company could extend the 847 MW San Juan coal plant's life through federally-funded carbon capture.

• Enchant Energy would own 95% of the coal-fired facility and contract with engineering firm Sargent & Lundy to retrofit the plant's system with carbon capture and sequestration (CCS) technology through Department of Energy (DOE) funding, which has not yet been approved. Under the current ownership contract, Farmington would need to secure approval from the plant's four owners, including operator and majority-owner Public Service Co. of New Mexico.

• "I would classify this as a baby step on a journey of a million miles," PNM spokesperson Raymond Sandoval told Utility Dive. PNM owns 66% of the plant, while Tucson Electric Power owns 20%, and Los Alamos and Utah Associated Municipal Power Systems each own 4%, leaving the remaining 5% to Farmington, where the plant is located.

Dive Insight:

Farmington has been fighting to keep San Juan operating past its retirement date since regulators approved the plant's early closure in December. The top concern, say city officials, is the economic toll losing the plant could have on the city's workforce.

"I don't know if there's any other stories around the United States where a municipality has fought the way that we have," Farmington Mayor Nate Duckett told Utility Dive. "This is a state that it sits in the bottom of the economic barrel, so to speak, and trying to attract new industries and new jobs to this area is very difficult."

New Mexico in March passed its comprehensive Energy Transition Act, part of which secures through bonds the plant's stranded costs and puts some of those funds toward transitioning the Farmington community.

But the mayor says the Act doesn't go far enough and saving the plant is imperative to the city's economic viability.

"I don't know if you can really compare … a facility that produces $70 million a year in salaries and benefits to its workforce and a one time handout from the state that … is not going to be nearly as impactful as what they tried to sell it as," said Duckett.

Enchant's proposed plan would build a 20 mile pipeline and connect it to the 500 mile Kinder Morgan Cortez CO2 pipeline, which would then transport the captured carbon to enhanced oil recovery fields in the Permian Basin.

The project would rely on DOE funding opened up in January which would free up an estimated $30 million in funding for two CCS projects, which DOE plans to award in August, according to Enchant.

The plan would also take advantage of the 45Q tax credit, which lasts for 12 years on projects constructed before 2024, generating $2.554 billion through those credits after by saving 6 million metric tons of carbon annually over 12 years, according to the company.

But PNM is skeptical of some of the hurdles, according to Sandoval, including the higher costs of fuel, the cost of installing the technology, the additional coal power needed to run the technology and the amount of water needed to operate the system.

"The kind of carbon sequestration that they're talking about is where you spray water over the exhaust as the first filtration step," he said. "And that would require 80% more water. And in a state like New Mexico water can be very expensive because it's such a scarce resource."

And the 45Q tax credit would not cover the full cost of all those other factors, he said, putting the project about $800 million short, without taking into account the cost of water and the cost of powering more coal to run the system.

The city needs approval from the plant's other four owners in order to finalize the sale, and has support so far from the plant's second majority owner, TEP, Jennifer Breakell, Farmington City Attorney told Utility Dive. If PNM agrees to give up its ownership of the plant, the city would need to find a new operator as well, she said.

Currently, there are no formal negotiations between PNM and Farmington or Enchant, said Sandoval. "I hate to say this, but we see it as a nonstep."

The plant's closure has been a central point of tension between lawmakers and regulators in recent weeks, with one legislator recently threatening to impeach three of the state's five Public Regulation Commissioners for their efforts to skirt the ETA's provisions on the San Juan retirement plan.