ALBUQUERQUE — New Mexico's largest utility on Thursday terminated a power purchasing agreement with a proposed biomass electric plant that has been touted as part of the state's push for renewable energy.

Western Water and Power Production LLC has plans to build a $90 million biomass-fueled electricity plant near Estancia, but permitting and financing delays have continuously pushed back the construction date.

Now, Western Water and Power co-owner David Cohen said the decision by Public Service Company of New Mexico to terminate the 20-year contract to buy power from the 35-megawatt plant could mean another round of delays.

"We had told PNM that they would be making a terrible mistake and potentially costing their ratepayers millions of dollars if they terminated the contract," Cohen said.

PNM and Western Water and Power signed the power purchasing deal in 2006, when rates for renewable energy were much lower. Cohen said that means PNM could be forced to pay much more for renewable power in today's market.

PNM spokesman Don Brown acknowledged Thursday that the energy market is more expensive today. But he said the utility must focus on finding reliable renewable energy sources to meet the company's diversity goals as well as a state standard that calls for 10 percent of electricity from the state's investor-owned utilities to come from renewable sources by 2011.

"We really need to focus on renewable projects that have a high probability of becoming a reality and this one at this point does not appear to be close to fruition," Brown said. "There are too many question marks surrounding this project at this time."

Western Water and Power had made economic, political and regulatory headway after unveiling the project planned south of Estancia in October 2003. Gov. Bill Richardson's administration even included the plant on a list showing progress in developing alternative energy projects.

But the company ran into trouble while trying to obtain an air permit and a tax credit from the state, and some residents and environmentalists voiced concerns about the project's potential impact on air quality and New Mexico's forests. The proposed plant would be fueled by wood and forest byproducts.

Bryan Bird, WildEarth Guardians' public lands program director, called PNM's decision to terminate the power purchase deal a victory for New Mexico's forests, air and water.

"New Mexico is blessed with abundant wind and solar resources and we should not sacrifice our precious forests when clean and renewable energy is available now," he said in a statement. "... Burning forests for electricity makes no sense in our arid, desert environment."

Bird argued that the biomass plant isn't environmentally or financially viable.

A spokesman for Rep. Heather Wilson, R-N.M., said Thursday the congresswoman was disappointed PNM terminated the power purchasing agreement. Wilson has argued that the plant would bring jobs to the Estancia Valley and would move New Mexico forward in renewable energy production.

In a December 2007 letter to Richardson, Wilson warned that the state's delay in awarding a tax credit to Western jeopardized its contract with PNM.

Richardson's staff did not immediately respond to a request for comment.

Despite PNM's decision, Cohen said Western Water and Power is still talking to investors about obtaining financing and that he's confident the plant would be able to sell its power.

"We don't see a lack of interest or a lack of our ability to sell the power. That's not going to be a big issue to us. The project will get developed," Cohen said. "But PNM's action has probably delayed us six months to a year."

Had the company been given more time to complete its due diligence with investors, Cohen said "we could have had a shovel in the ground by August."

Brown said: "Not a spade of dirt has been turned and we have to move on."

Next month, PNM plans to issue two requests for proposals for renewable energy producers in an effort to meet the state standards for renewables and diversify its portfolio. Brown said renewable energy currently represents about 7 percent of PNM's capacity, which is the amount of power the utility can draw at any give time. As for energy produced over the course of a year, Brown said renewable sources amount to about 4 percent.