July 26, 2017

We must look at the facts on power plants

Terry Eiler, National Archives, https://www.flickr.com/photos/usnationalarchives/sets/72157623195288938/

The Four Corners Power Plant, photographed by Terry Eiler in 1972 as part of the EPA's Documerica project.

Let’s talk about coal, clean energy and activism. It’s a subject important to most progressives at some level as we recognize the science showing humans are involved in global climate change. We all hope for a cleaner, better future for our children, and that maybe we can leave this planet a little better than how it was when we inherited it.

Whatever title you give yourself – progressive, liberal, Democrat, environmentalist, etc. – those of use on the left side of the spectrum pride ourselves in being consumers of facts. We believe in science. We believe in truth. We believe in intelligent and educated development of opinions on matters. We do not lower ourselves to the false and lying tactics of those “other guys on the right”.

Which is why following the press releases and statements of New Energy Economy has led to concerns. Especially their most recent one.

NEE recently made several claims:

  1. PNM failed to perform a timely financial analysis into investment decisions back in 2013 and tried to “ring every last dollar from New Mexican families”, and now PRC required to run that analysis.
  2. PNM refused to provide financial evidence that investment in Four Corners Power Plan was fair, reasonable and just, and NEE forced PNM to provide it with a Motion to Compel through the PRC.
  3. The financial analysis proved that continuing with Four Corners cost rate payers an extra $445 Million, which resulted in an extra $1000 burden per household.
  4. PNM has an incentive to spend ratepayer money because they receive cost recovery from ratepayers and are guaranteed a 9.575% profit.

On the surface, it sounds bad for the Public Service Company of New Mexico (PNM). But when one digs just below the surface and begins to research these claims, they fall apart. The reality is that they are intentionally misleading, and completely false. Let’s lay out the history and review the facts.

Lisa Hannah is a life-long Democrat who has done opposition research, organizing and communications for multiple campaigns and states parties. Her most recent work was as the Lead Fellow for the Hillary for New Mexico.

Every 3 years, PNM is required to do Integrated Resource Planning (IRP), which involves looking at the assets currently in use, those in the planning, examining future projected costs and trends, and come up with 20 year plan that has within it a 4 year action plan. Part of that is to run a financial analysis. PNM uses a software called Strategist® in all their analysis determining scenarios for future planning. They completed an IRP containing a Strategist® Run in 2011. They then did another analysis in 2012.  The result, with the information available at that time, was to remain with Four Corners. Coal was showing to be cheaper than other forms of energy over the next 20 year period, and PNM is required to plan using energy sources that result in the greatest savings to rate payers.

Four Corners is not just a PNM plant. PNM has a 13 percent share. The Arizona Public Service Company (APS) is the operating manager and largest shareholder. Two other utilities have ownership shares: Tucson Electric Company and Salt River Project (El Paso Public Power also had a share at the time, but APS bought their share in 2014). Around that time, Southern California Edison Company pulled out due to state laws requiring divesting from coal. Also, the coal agreement was expiring, and APS began negotiations for a new contract. Due to delays involving APS and beyond PNM’s control, the final coal rate agreements did not happen until late 2013.

Now, in 2017, NEE is claiming that PNM should have ran a new analysis in 2013 before signing contracts to continue with Four Corners, claiming the 2012 analysis was “stale”. They believe it would have resulted in closing being the best option. But, the fact is, at the time, the only real change that occurred was the cost of the coal. Other factors regarding the cost of wind, solar, natural gas, etc. remained relatively stable. The rate for coal used at the time of the 2012 analysis was the initial amount proposed by BHP Billiton (who, at the time, managed Four Corners) of $59.99 per ton. The final rate that was settled on in 2013 was $45.44 per ton. Running a new analysis was not required for PNM to enter into the new coal contract. Even if it had been run, the result would have shown that coal was even more affordable than before.

This year, PNM issued their 2017 IRP with a new Strategist® Run that concluded that shutting down the San Juan Generating Station in 2022, and Four Corners Power Plant in 2031, would be the most cost effective path to take (available on the PNM website for public review). But NEE wants to relitigate an old argument going back to the signing of contracts in 2013. Based on their belief that coal cost more to ratepayers 4-5 years ago, NEE filed a “Motion to Compel” requesting discovery of multiple documents from PNM that had been previously withheld based on claims of privilege. Of the long list that that was requested, some were granted to be released, others were denied. In that motion, they also demanded that a financial analysis be ran by PNM.

It is false to claim that “PNM refused.” The request for “financial evidence” that NEE was specifically demanding was not something PNM actually had. NEE was demanding that, instead of the previous IRP data ran for 2012, which was publicly available, they wanted a new Strategist® report ran looking at the 2012 scenario, but they demanded it be ran with current 2017 assumptions about future costs, which are significantly different than what the best estimates available were back in 2012. They demanded numbers to be ran with a hypothetical closing of the Four Corners on 1/1/2017. They specifically required that all costs associated with Four Corners after 1/1/2017 be eliminated. The result was a “hindsight” analysis that is not actually allowed for use by the PRC as evidence due to this leading to invalid conclusions.

Thanks to the work done during the Obama administration, incentives were put in place that accelerated the investment into research, development and expansion of renewable energy. As with all things, over time, costs go down. These drops accelerated over the last few years.

PNM objected to the use of the program for the purpose of a hindsight analysis because of the invalid result. But the PRC determined that PNM could plug the numbers into the program and give NEE the results requested. To claim it was a “refusal” is disingenuous. PNM made their argument as to why it would be invalid, the PRC said to run it anyway, and PNM complied.

When you look at the results of the hypotheticals, first with a 1/1/2017 closing, and then with a 12/31/2031 closing, the difference comes out to $445 Million. NEE claimed this showed that keeping Four Corners open was a $1000 burden to ratepayers. But this whole claim is a falsehood.

First off, NEE presents this in a way that suggests an immediate savings (if the numbers were true). But the analysis is over a 20 year period.

Also, there is nothing in the analysis that points to a $1000 savings to ratepayers if the plant had been shut down on 1/1/2017. The only thing close is if you take the invalid number of $445 Million and break it down. But in using it, you must assume that: 1) There are no costs associated with reclamation and shutting down of Four Corners; 2)  No costs associated with purchasing or development and building of new sources to replace the generation being lost; and 3) That every penny of that hypothetical amount would go back to rate payers. If you do that, you can take that number and divide by the approximately 520,000 residential customers that PNM serves. Result? About $825 per customer. That’s not $1000. Then you have to account for the fact that it is over 20 Years. So that $825 then becomes $41.25 a year, or a savings of $3.44 per month. But the reality is you can’t just ignore any of those factors. So the claim of a $1000 savings is false.

Interestingly, as NEE has been arguing that an early closing of Four Corners would have been a savings to customers, their very own experts struggled to make that argument in testimony before the PRC. Neither Steven Fetter or David Van Winkle (experts used by NEE) knew or couldn’t recall what 2012 and 2013 estimated costs for wind, solar, natural gas or other forms of energy production where while trying to argue that the costs were more for coal when PNM examined the costs back at that time. Without knowing and understanding that information, one could not come to that conclusion. PNM, on the other hand, was able to provide that information and show that their 2012 analysis was sound.

While NEE continues to pursue this old line of argument, PNM has kept moving forward and agreed to a Revised Stipulation for the next 4 year plan of action, one which three other environmental groups that advocate the move toward more renewable energy sources all agreed to. They are The Coalition for Clean Affordable Energy, Western Resources Advocates, and the Sierra Club. NEE is the only group that is objecting to the Revised Stipulation.

From testimony, the Revised Stipulation is as follows:

  1. A reduction in the amount of PNM’ s requested non-fuel revenue requirements by $36.9 million. PNM requested a $99.2 million increase in non-fuel revenues in its Application, which is reduced to $62.3 million under the Revised Stipulation.
  2. A reduction in PNM’s return on equity to 9.575% compared to 10.125% requested in PNM’s Application.
  3. The mitigation of the bill impact to customers by phasing in the agreed rate increase over two years.
  4. The limitation on PNM’s return being recovered based on its embedded cost of debt only, rather than a weighted average cost of capital, for PNM’s share of its investment in the Four Corners selective catalytic reduction (“SCR”) emission controls which are required under the EPA’s Regional Haze Rule; this results in a financial benefit to customers of approximately $3.1 million in the Test Period.
  5. The accelerated return to customers of previously collected excess deferred state income taxes resulting in a reduction to PNM’ s revenue requirements in its Application by $6.1 million.
  6. An opportunity for customers to benefit from potential federal income tax reforms which otherwise would not be included in this case.

The 9.575 percent return on equity that NEE claims is “guaranteed” and therefore a reason to “spend ratepayers money”, is actually not a guarantee. PNM is a publicly traded company. They are not a non-profit. Under the business they do, they have a right to work toward a reasonable return in equity. That rate must be approved by the PRC. PNM originally asked for 10.125 percent, but agreed to 9.575 percent. Instead of a “guarantee”, it’s a maximum allowed. By comparison, the average rate of return for utilities is about 10.13 percent. So PNM has agreed to limit their rate of return below the national average.

Another thing NEE does not acknowledge is part of the analysis, but that the other three environmental groups do, is the economic impact on the Farmington and Shiprock areas, and the hundreds of workers working high paying jobs that will be affected by the closing of the mines and the plants. There are generations of workers within families that have spent decades working to provide the coal and energy we demand so we can turn on our lights and enjoy air conditioning in the summer. When we pay our electricity bills, part of that money is going to pay their salaries, and in turn the money gets recycled into the communities, so not all of it goes to some faceless corporate interest.

During this last presidential election, there was actually one candidate that was invested in finding ways to protect and help save these communities. Hillary Clinton saw how coal was slowly dying out, and entire communities were losing everything as a result. Now, without that support in Washington to implement a plan with incentives to invest in these communities, it falls back on companies doing it on their own, or state and local governments trying to find ways to hold back possible collapse. One thing PNM has stated is that they are looking into investments in the Four Corners region for future energy production, and that takes time, money and planning. An immediate shut down without a backup source would result not only in having to scramble to find more expensive sources to make up for the power lost, but would also devastate a region.

As an example of PNM’s interest, a year ago (June 2016), after Westmoreland of Colorado took over mining for the San Juan Generating Plant from BHP Billiton, they ended up laying off 88 workers. According to reports in the Farmington Daily News at the time, PNM worked with the union and San Juan Community College to find ways to help to retrain and help the workers transition to new work. They also worked to maintain jobs at the plant to ensure there were no more layoffs. The community was able to absorb those layoffs, but it wasn’t easy and took planning. If San Juan Mine closes in 2022 as a result of the proposed retirement of the San Juan Generating Station, the mines alone will result in over 300 employees losing their jobs. So time and planning helps to find ways to reduce the negative impact on the region.

NEE continues to fight the rate increases proposed because of all the arguments gone over above, but reality is that costs for everything goes up. None of us like to see our bills go up as our wages stagnate. We want to ensure what we are paying is at least a fair price, while being used to invest in communities, in renewable resources, and for the needed maintenance and upgrades needed as the system ages. No publicly traded company is going to work to spend more on energy if they don’t have to, and as renewable sources become more affordable, the more practical it is to invest in those sources.

So where does New Mexico stand as far as what we pay for our electricity? As it turns out, New Mexico is finally on a list where it’s number one.

According to the Department of Energy, the average monthly bill for New Mexico residents is the lowest rate in the nation. From their most recent list from 2015, here is the top 10 states with the lowest rates in the country:

StateAverage Monthly Bill (Dollar and cents)
New Mexico$                 79.23
Utah$                 80.92
Colorado$                 83.42
Maine$                 86.75
Washington$                 87.64
Montana$                 89.03
Illinois$                 89.91
Wyoming$                 91.19
Minnesota$                 92.32
Michigan$                 93.61

By contrast, here are the 10 states with the highest average monthly residential bills:

StateAverage Monthly Bill (Dollar and cents)
Virginia$               130.58
Delaware$               131.18
Florida$               132.16
Texas$               136.00
Mississippi$               137.24
Maryland$               139.91
Alabama$               142.48
South Carolina$               144.04
Hawaii$               152.12
Connecticut$               153.13

In the midst of all this, a fair person needs to acknowledge what has been done and what the future plans are. At present, the goal for PNM is to reach 20 percent reliance on renewable sources of energy by 2020, and they are close to reaching that goal. What have they done to work toward that?

First off, PNM has a battery storage facility at their solar farm near the Albuquerque International Airport. This storage facility is the first in the nation. Its New Mexico taking the lead in technology needed as solar energy is expanded. The storage facility helps to keep a reliable flow of energy, for example, on days where there is little sun. Plans are in the works to add on to this facility and continue to lead in this area.

Wind energy is being generated in the eastern part of the state, and PNM purchases all of that. But the issue with that is there is currently a lack of transmission capacity. PNM is exploring upgrades to capacity for wind transmission, but the costs are extremely high at the present time.

There are the solar farms that are in the planning stages, and soon to start, for the Facebook center in Los Lunas. Not only will the facility be fully solar powered, but an agreement to build 2 more solar farms has been made.

There are many other things outlined in their 20 year plan. The bottom line to all of this is that, despite our desire to find an enemy who is working against all we hold dear, there is not an enemy here. The fact is that the national trend is toward ending coal and moving toward more renewable forms of energy. While these are changes that we all know will benefit the country in the long run, they will still hurt families and communities in the near future, and these concerns must be accounted for as well.

As educated consumers, we must make sure we know and understand all angles so that we develop fully informed opinions based on fact and reason. It is not a benefit to the cause or to any consumers when those who claim they are working for the greater good turn to using misleading and false information in the pursuit of their agenda. We expect that from the Republicans and the radicalized right that currently control Washington, but we must demand better from those who claim to be working on our behalf. Otherwise, we are no better, and we hurt those efforts. Good solutions are best achieved in positive, creative environments. Working with companies that are actually reducing coal generation and adding renewable energy is more likely to speed up the process than attacking them at every turn.

What we all can do is work to influence state elected officials to find ways to encourage even further growth and investment into renewable sources in this state through incentives. We must also push for plans to address how to help communities that will be negatively impacted as coal is further reduced and jobs are lost. That way we can all find ways to benefit over time.