How a Dying Coal Plant Sparked New Mexico’s Ambitious Climate Law — and What Other States Can Learn

New Mexico's Energy Transition Act

Aerial view of San Juan Generating Station. Credit: Dickylon

In 2019, New Mexico achieved something that appeared to be impossible: This poor, bluish-purple, oil-and-gas-heavy state with some of the highest per capita emissions in the country passed a clean energy law more ambitious than almost any other state had achieved. Not only that, it did so with broad bipartisan support.

The Energy Transition Act mandated 100 percent carbon-free electricity by 2045, a target matched only by California, Hawaii and Washington, D.C. Along the way, the act provided targets of 50 percent by 2030 and 80 percent by 2040.

Utilities backed it. Environmental groups called it visionary. Tribal leaders endorsed it, with one declaring it “a gift for our children.” Labor unions signed on. Even many rural legislators, normally wary of sweeping climate legislation, got behind the bill.

What magic could bring all these groups together? It was a dying coal plant.

The San Juan Generating Station, one of the biggest and dirtiest coal plants in the Southwest, had for decades been providing 20 to 25 percent of the electricity for New Mexico’s largest utility, PNM. But sun and wind had gotten so darn cheap that PNM realized it would save money to simply abandon its investment in the plant and shutter its doors. The cost of continuing to dig up coal and shovel it into the furnaces just wasn’t worth it anymore when the sun shone and the wind blew for free.

The decision to close the plant created a rare opportunity, because everyone — utilities, electricity consumers, environmentalists, labor, local communities — had something to gain from shaping what came next.

PNM was motivated because it had invested $320 million in the San Juan plant that it hadn’t yet gotten back from utility bills. In closing the plant, it would either lose that money or it would continue to charge customers for a plant they were no longer getting electricity from. The first option would cause its shareholders to revolt, and the second would cause its customers to revolt.

Tribal leaders and labor unions, faced with the closing of the plant, wanted support for the workers. Most of the workers at the San Juan plant were Diné (Navajo). They wanted financial assistance, retraining programs, and economic development to bring in new jobs.

Environmentalists wanted bold clean energy targets. And the new governor, Michelle Lujan Grisham, wanted to make good on her campaign promises of climate action.

The closing of the plant was a crisis that created the space for ambition.

At the heart of the Energy Transition Act was a bit of financial alchemy with the awful name of “securitization.” In simple terms, it let PNM recover its stranded $320 million investment in the San Juan coal plant by charging customers — but it did so through low-interest bonds rather than traditional utility rates. Instead of earning PNM’s usual 9.5 percent return, bond investors accepted just two to four percent because the bonds were so safe and “secure.” That single shift meant customers’ bills went down by about $6 to $7 a month.

And the bond package included an extra $40 million to create a fund to help displaced workers — one of the first times a climate law built direct support for communities into its financing.

This turned the dull lead of PNM’s bad investment in the plant into the shining gold of freedom for the utility, lower electricity rates for consumers, support for workers, and bold climate action.

So how well has it worked?

New Mexico is ahead of schedule: A full 50 percent of the electricity generated in the state was renewable in 2024 — well ahead of the 2030 target. That’s a testimony both to the power of the law and to the astonishing drop in the cost of wind and solar — down by a third to a half from 2019.

The equity goals have had more mixed results. Roughly 350 laid-off workers were promised $20,000 transition checks, but many of those payments didn’t arrive until a year after the plant closed, and managers reportedly received far more than mine and plant workers. Many of the jobs workers found as replacements paid tens of thousands of dollars less. Coal plant workers often earned $80,000 or more with strong benefits, while most solar and wind facilities employ just a handful of full-time technicians and don’t offer comparable wages.

Still, the act did provide funding to help ease the landing. And a large, 200 MW solar farm being constructed nearby will contribute property taxes to the local school district, partially replacing the lost revenue from San Juan.

Without the law, the San Juan plant still would have closed. But the replacement might have leaned more heavily on natural gas, which, though sometimes more expensive than renewables, is also more familiar to utility executives. There would have been no binding targets, no transition funding, no coordinated effort to ensure equity.

The act also opened the door to further climate legislation, including the Clean Car Standards and Clean Fuel Standard to accelerate EV adoption and the Grid Modernization Act to prepare the electricity grid for more renewables.

New Mexico’s Energy Transition Act is a remarkable achievement worth celebrating — but even more, it’s worth emulating. Coal plants are becoming uneconomical across the country, and New Mexico’s example shows that each closure represents an enormous opportunity.

So far, while other states have taken pieces of New Mexico’s approach, the full combination remains unmatched. States including Michigan, Wisconsin, and Montana have passed securitization laws in recent years, allowing utilities to refinance stranded coal-plant costs through low-interest bonds. But those laws didn’t ask anything in return: no binding decarbonization targets, no funds for displaced workers. In those states, securitization was treated as a technical fix — a way to clean up balance sheets and soften the blow to customers — not as a chance to reshape the future. Other states have created binding decarbonization targets or support for displaced workers through political will alone, untethered to securitizing stranded coal generation assets — remarkable achievements, but difficult to emulate without solid Democratic majorities.

New Mexico instead used securitization as leverage that made utilities eager to accept ambitious, enforceable clean electricity mandates and to provide transition funding for workers. That lever only gets stronger as renewable costs continue to fall.

New Mexico shows how the economic force of cheap renewables can be shaped by political will to create true change. The question now is whether more states will seize the same opportunity to turn economic crisis into climate progress..