Ledes from the Land of Enchantment

San Juan dispute moves to arbitration

The San Juan Generating Station near Farmington on Sept. 28. The coal-fired plant had generated power for Public Service Company of New Mexico and other local and regional utilities for 50 years before shutting down on Sept. 30. (Chancey Bush/Journal)

The City of Farmington requested “emergency arbitration” last week to take over the coal-fired San Juan Generating Station from other facility co-owners, effectively dropping its previous lawsuit to legally force transfer of ownership.

Farmington still reserves its right to refile the court case if arbitration isn’t successful, said city attorney Jennifer Breakell.

“We filed a notice of dismissal without prejudice in the court case yesterday, because the issue is now in arbitration,” Breakell told the Journal on Friday. “We’ve agreed to move to arbitration, and that’s how this matter will be resolved now.”

Under emergency arbitration, which the city filed with the American Arbitration Association, Farmington is seeking “emergency relief” to impede any efforts by Public Service Co. of New Mexico and other co-owners to dismantle the plant, which shut down on Sept. 30 Farmington claims it has a right to fully acquire the facility under a previous agreement to negotiate its transfer with other co-owners now that those utilities are abandoning the plant.

If successful, Farmington, which owns a 5% stake in the plant, would acquire it for free and then hand over 95% control of the facility to Enchant Energy Inc., which wants to apply carbon capture and sequestration technology to continue running the facility .

But despite four years of negotiations, Farmington and Enchant failed to reach a transfer agreement with PNM and the other utilities, which now want to demolish San Juan. That prompted Farmington to sue the other co-owners on Sept. 21 in the 11th Judicial District Court in San Juan.

It’s unclear what led to Farmington’s reversal in favor of arbitration, something it could have previously pursued under terms of the agreement for transfer negotiations before the plant closed.

“Farmington has agreed to voluntarily dismiss their lawsuit and asked for arbitration under the now expired SJGS exit agreement,” PNM spokesman Ray Sandoval told the Journal in an email. “The arbitration process has been available to Farmington for the past four years and they only chose to exercise it at a time when the mine has closed, the employees have been laid off, and the plant has already ceased operations.”

Breakell said the lawsuit defendants themselves “invoked” the arbitration process in a notice to Farmington and the court after the city filed suit.

The lawsuit, however, almost immediately became a legal hot potato among state court judges after Farmington filed it, with three different local judges promptly recusing themselves, and a fourth recused after the city objected to that judge’s appointment in the case. Then, after a fifth judge was assigned, the defendants requested the case be moved to federal court, because continued operation involves inter-state commerce through transmission of its electricity across state lines, something that the Federal Energy Regulatory Commission must approve.

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That request was approved despite Farmington’s opposition, with the United State District Court in New Mexico taking over on Sept. 30 under Judge Kea Riggs, who promptly set a schedule for briefings from both plaintiffs and defendants for Oct. 14, with responses due by late October.

But in withdrawing its legal suit, the city questioned federal intervention, claiming the federal court lacks appropriate subject matter jurisdiction.

“In dismissing this action without prejudice … Farmington does not waive and expressly reserves its rights to refile its claims in a court of competent jurisdiction, including without limitation relief sought be unavailable in the arbitration forum,” said the city’s notice of voluntary dismissal.

Farmington says the defendants never negotiated in good faith to reach a plant-transfer agreement. But PNM and the other co-owners say neither the city, nor Enchant Energy, have offered essential guarantees to relieve them from any future liabilities incurred if the new owners continue operating San Juan.

Meanwhile, potential plant demolition is hanging in the balance, unless the incoming arbitrators order a stay while mediation takes place.

Environmental organizations oppose carbon capture technology at San Juan, and want the facility demolished, said Mike Eisenfeld, energy and climate program manager for the San Juan Citizens Alliance.

“Once this case knew moved to federal court, the city it had no chance of winning,” Eisenfeld told the Journal. “… The San Juan plant and mine are now closed — it’s that simple. The focus now needs to be on decommissioning the facility and reclaiming the site.”

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