August 28, 2019

Suit alleges ETA a ‘deregulation law’ for PNM

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A group of organizations filed a lawsuit in state Supreme Court this week that alleges the Energy Transition Act is a deregulation law for PNM, and are challenging provisions in the law as unconstitutional.

The suit from New Energy Economy, a Santa Fe-based advocacy nonprofit, and six other groups claims the ETA removes some of the authority given to the Public Regulation Commission (PRC) to regulate the Public Service Company of New Mexico (PNM) and its proposed rate increases associated with its fossil fuel assets.

PNM is an investor-owned utility that operates as a monopoly in parts of New Mexico. As a utility, the company has an obligation to serve its customers—the ratepayers—in the most efficient manner and at the lowest possible cost. But as a publicly-traded company, PNM also has an obligation to its shareholders to generate profit.

The PRC, on the other hand, is charged with the task of protecting the interests of the ratepayers by regulating PNM as a monopoly and overseeing rate increases.

“New Mexicans have only one shield against monopoly predation and that’s review and regulation by the PRC,” said Mariel Nanasi, executive director of New Energy Economy. “That constitutional protection cannot be bargained away by legislators, no matter how noble their overall goals.”

A ‘deregulation’ law

The Energy Transition Act, which was signed into law by Gov. Michelle Lujan Grisham earlier this year, sets an ambitious renewable portfolio standard for the state of New Mexico.

The law requires that 50 percent of the state’s electricity be generated from renewable sources by 2030 and that 80 percent of electricity be renewable by 2050 . It also allows the PNM to issue bonds at lower interest rates to pay off debts associated with a coal powered plant in the northwest corner of the state. It also establishes a $20 million fund to help workers and communities that will be affected by the shutdown of the San Juan Generating Station.

But there’s one line in the law that caught the attention of New Energy Economy. The new law states the PRC is required to allow and may not disallow “recovery of any undepreciated investments or decommissioning costs by a utility.”

That provision, the petition argues, essentially enables PNM increase rates to pay for costs associated with undepreciated investments or decommissioning costs without oversight from PRC.

In direct testimony submitted as part of New Energy Economy’s petition, Steven Fetter, president of utility advisory firm Regulation UnFettered and former chairman of the Michigan Public Service Commission, said the ETA removes ratepayer protection against imprudent actions and expenditures by PNM.

“Blanket approval of ‘any’ undepreciated assets. along with decommissioning and reclamation costs, without an objective standard of reasonableness, is contrary to the regulatory frameworks across the entire U.S.,” Fetter said in his testimony. “The core concept underlying the regulatory compact is recognition that, before an investor-owned utility is allowed to raise rates, the utility must show that its investments have been prudently made.”

PNM’s history of ‘imprudent’ decisions

PNM has a history of making imprudent decisions around generation assets and investments, and New Energy Economy has been involved in a number of cases against PNM.

The New Mexico Supreme Court found in 2019 that PNM’s investment in the Palo Verde Nuclear Generating Station was “imprudent” because PNM did not conduct the necessary financial assessments and comparisons with other resources. New Energy Economy was a plaintiff in the lawsuit.

“The consideration of alternatives is of course to reasonably protect ratepayers from wasteful expenditure,” the court decision reads. “Ratepayers must be held harmless for the imprudent decisions in utility management.”

And in 2017, a hearing examiner decided the utility’s investment in the Four Corner Power Plant was also imprudent, as no financial analysis, risk evaluation or consideration of alternatives had been conducted.

Some of PNM’s handling of the San Juan Generating Station has also found to be flawed. In 2015, PNM asked the PRC for $46 million in capital investments to go towards the San Juan Generating Station. In litigation that New Energy Economy was involved with, “the commissioners found that $36.5 million of the $46 million that PNM was asking for, there was no basis for,” Nanasi said.

“In the face of these gross imprudent actions by PNM, with regard to Four Corners Coal, with regard to San Juan, and with regard to Palo Verde — in every single one there’s been hearing examiner, Commission or Supreme Court rulings that they’ve been imprudent. Every single one,” she said.

PRC’s split docket

The San Juan Generating Station case has thrown a spotlight on the complexities of the ETA and how it may impact ratepayers, as the PRC has worked to ensure it can maintain its regulatory authority over PNM’s abandonment of the plant.

PNM announced in 2017 that it planned to close the San Juan Generating Station, but it didn’t submit its consolidated application for abandonment, securitization and replacement power for the power plant until July, weeks after the Energy Transition Act had been signed into law. Doing so ensured the new law would apply to PNM’s proposal, and also ensured that the PRC would have less authority to deny requests from PNM to recoup losses related to abandoning the plant.

The Commission instead voted to split the consolidated filing into two dockets to add the abandonment and securitization proposal to an existing docket the Commission had opened earlier in the year in response to PNM’s announcement that it would close the San Juan plant.

The PRC, led by chairwoman Theresa Becenti-Aguilar, has since asked the two hearing examiners overseeing the San Juan case to for an opinion on if the ETA should apply to PNM’s abandonment proposal. 

Becenti-Aguilar did not return a request for comment.

Criticism of PRC overblown?

The PRC’s actions on the San Juan Generating Station case spurred a wave of criticism from politicians and other renewable energy advocates.

The governor designated PRC reform as one of her top priorities for the next legislative session. Speaking at Sen. Martin Heinrich’s Energy Summit in early August, Lujan Grisham touted the ETA as saving New Mexican utility ratepayers $22 million. But she also argued that the Commission’s actions were delaying the state’s transition to renewable energy. 

“When we have elected leaders that fail to use that one fact that I just gave you — that we’re going to save ratepayers $22 million dollars,” she said, “then something’s not quite right about a system we created to both regulate the industry and protect New Mexicans, and help transition us into a clean energy economy.”

The Governor’s Office did not return a request for comment. 

Western Resource Advocates’ government affairs director, Maria Nájera, said PRC is “creating uncertainty for New Mexico families and businesses, and jeopardizing the progress made this year to leverage our state’s abundant clean energy resources.” State Sen. Jacob Candelaria, D-Albuquerque, has gone so far as to call for the impeachment of three Commissioners; and Navajo Nation and Jicarilla Apache officials have asked the PRC to apply the ETA to PNM’s San Juan proposal.

But by Nanasi’s estimation, criticism of the Commissioners for doing their jobs is overblown. 

“This is the best PRC we’ve had in 15 years,” Nanasi said. “They’re trying to do what’s right. They’re supposed to regulate on behalf of the public. Now they’re starting to hold PNM accountable for their shady financial and business decisions.”

A spokesperson for PNM told NM Political Report PNM “has not had an opportunity to thoroughly review the petition from New Energy Economy to the New Mexico Supreme Court but we are confident that all aspects of the Energy Transition Act are constitutional and the Legislature’s energy policies will be upheld.”