Dive Brief:

• Xcel Energy intends to shutter the 1,067 MW Tolk coal-fired generating station, which provides power to Texas and New Mexico, by Dec. 31, 2032, according to a stipulation endorsed by subsidiary Southwestern Public Service (SPS), environmental advocates and the utility division staff of the New Mexico Public Regulation Commission (NMPRC).

• Per the stipulation, SPS will recruit an independent evaluator to assess possible ways to replace the coal facility, and submit a report to the NMPRC by June 2021. The utility has also agreed to study earlier retirement scenarios for the plant, given its dependence on a rapidly-depleting source of groundwater.

• The NMPRC will need to formally approve the agreement before it can go into effect. A hearing examiner is scheduled to assess the stipulation — which is also signed by Sierra Club, Western Resource Advocates and other parties —​ in February, and recommend a final decision to the commission.

Dive Insight:

New Mexico lawmakers passed Senate Bill 489 last year, setting the state on a path to generating 100% carbon-free electricity by 2045, and increasing the state's renewable portfolio standard requirements to 50% and 80% by 2030 and 2040, respectively. The ambitious targets require all of New Mexico's utilities to "transition very quickly to renewables," Camilla Feibelman, director of the Rio Grande Chapter of Sierra Club, told Utility Dive.

Both units of the Tolk coal-powered plant began commercial operation in the 1980s. But the facility requires water to cool its boilers and relies on only one source —​ the Ogallala aquifer, in the Texas Panhandle, which is drying out due to excess agricultural, industrial and urban usage. The utility reduced operations at the plant to minimum load during off-peak months in 2019, and intends to keep the plant idle during off-peak months starting in 2021, if regulators in Texas and New Mexico allow it. 

Even with new well infrastructure, the aquifer will not be able to support the Tolk facility until 2042, when the first of its units is currently scheduled to retire, according to SPS. The utility requested commission permission to abandon Tolk's Units 1 and 2 in 2032 as part of its July 2019 general rate case application, which also sought a $50.8 million —​ or 18.7% —​ increase to its case rate revenue.

"Under the company's projections, if it continues to operate the plant normally, they'll run out of their groundwater rights about the mid-2020s. If they switch to seasonal operations —​ which is basically June through September — ​they can extend that, they think, until 2032," Joshua Smith, senior staff attorney at the Sierra Club Environmental Law Program, told Utility Dive.

The utility division staff of the NMPRC initially objected to SPS' plans to shutter the Tolk facility in 2032, although it acknowledged that the utility should be allowed to cut down on operations to conserve water. In a November filing, commission staff argued that SPS had not "adequately supported" its request to abandon the facility, and had not demonstrated that "modified operations" would not allow the two units to continue operating until 2042 and 2045, as originally planned. 

However, the commission staff's agreed to the stipulation, which requires SPS to submit "a robust analysis" of how it will abandon the Tolk facility and replace its generation. The analysis will be incorporated into the utility's 2021 integrated resource plan application. The stipulation would also adjust SPS's revenue increase in New Mexico to $31 million, with a 9.45% return on equity. 

"All of the parties that were involved in the New Mexico case have now agreed that the plant will be retired and abandoned by 2032," Smith said. While he acknowledged concerns over replacing the plant's capacity and possible increases in customer rates, "in our view, there's still a sufficient amount of lead time to mitigate those rate impacts, whatever they might be, and more than sufficient time —​ 12 years at this point —​ for the company to procure replacement capacity," he said.

Xcel Energy is continuing to invest in wind power —​ 700 MW of it were added to its system in 2019, and an anticipated 522 MW will be added later this year, a company spokesperson told Utility Dive in an emailed statement.

"Available groundwater affecting our Tolk Generating Station means that we expect to transition away from coal generation sooner than we had previously planned. At the same time, we will continue to add more renewable energy to our system while keeping service reliable and customer bills low," she added.

According to Smith, the study that Xcel has committed to doing will lay the groundwork for figuring out what kind of generation can replace the Tolk facility.

"Based on all the trends and all the data all over the country, we think it'll be clear that some combination of renewables or energy market purchases —​ possibly even battery storage —​ will be affordable in the near term," he said.