December 6, 2022

PNM files for rate increases

People who live in Public Service Company of New Mexico’s service territory will see a 9.7 percent increase in the base rate for electricity starting in January 2024, but because the utility will not be paying as much for fuel to generate electricity, officials say the average residential customer’s bill will only increase by an estimated 75 cents, or less than one percent. This is based on the average customer using about 600 kilowatt hours of electricity a month.

PNM filed a proposed rate increase with the New Mexico Public Regulation Commission on Monday. As a regulated utility, PNM requires PRC approval for any changes in rates.

Ron Darnell, the senior vice president of public policy, said the rate increase that PNM is asking for is “significantly offset” by the savings from the closure of the San Juan Generating Station, a coal-fired power plant west of Farmington, and by choice PNM has made while managing the transition to renewable energy.

He emphasized that the energy transition is keeping rates affordable.

“The 9.7 percent in the filing applies to the change to one part of your bill—the base rate,” Darnell said. “It does not include other line items on your bill, including what customers pay for fuel.”

He compared it to grocery shopping and said looking only at the base rate increase is like looking at the total cost of items before discounts and coupons are applied at the grocery store.

Additionally, customers who use debit or credit cards to pay their bills or who use Western Union to pay bills will no longer face additional fees because PNM is asking the PRC to approve including those charges in the base rate.

With the rate case now filed with the PRC, various parties including consumer advocates have the chance to intervene. 

The last rate case, which was filed in 2016, had multiple contentious issues, including one that remains unresolved—whether or not past investments into the Four Corners Power Plant were prudent. If the PRC deems that PNM has imprudently invested money into projects, the utility can’t bill customers for those investments.

PNM has charged customers for the investments into Four Corners. 

PNM spokesman Ray Sandoval said the utility expects the question of whether the investments into Four Corners were prudent will come up once again during this rate case. He said the utility maintains that these investments, which paid for pollution controls that allowed the power plant to continue operating, were prudent but that it is up to the PRC to ultimately make that decision.

Should the PRC rule that they were not prudent investments, customers would be reimbursed.

Closing San Juan

This rate case will remove operating and maintenance costs related to the now-closed coal-fired San Juan Generating Station from customer bills. In 2024, that translates to $59 million less that customers will have to pay. However, customers will be asked to cover operating and maintenance costs for battery storage facilities that are coming online to replace the power plant. Those costs will be about $45 million in 2024.

Closing the San Juan Generating Station also means that PNM will no longer need to purchase coal from Westmoreland Coal Company to run the power plant. 

That will lead to reduced costs for fuel. The fuel clause, which also includes power purchase agreements, are adjusted on a quarterly basis. As long as the increase or decrease is not more than five percent, it does not need to be approved by the PRC.

In addition to the base rate, customer bills also include riders. These riders are fees that the customers pay to support projects like grid modernization or electric transportation. PNM filed for a grid modernization rider last week, which also must be approved by the PRC. The energy transition charges to pay off the bonds associated with closing the San Juan Generating Station are also included in that category.
The bills also include what is known as a fuel clause. The fuel clause allows the utility to recoup at least a portion of the costs of coal or natural gas. 

This is where PNM says customers will see savings.

PNM is also reducing the amount of electricity it receives from the Palo Verde Nuclear Generating Station in Arizona. That also means its share of operating and maintenance costs at Palo Verde will decrease, which is an approximately $40 million decrease in what PNM customers will be expected to pay for operating and maintenance in 2024. 

Transition to cleaner energy

Sandoval said the increased rates come as the company works to transition from fossil fuels to renewable energy and to modernize the grid.

“We believe that the Energy Transition Act is working,” he said. “We believe that this rate case is proof.”

The increase in costs to customers is in part due to PNM investing $2.6 billion in projects associated with the transition, such as grid modernization, since 2018 or expects to make by 2024. Those investments include rebuilding and modernizing substations and expanding transmission capability.

PNM now boasts that 55 percent of its energy comes from carbon-free sources.

Sandoval said PNM is not working toward net zero—which would involve offsetting carbon emissions through efforts like planting trees. Instead, he said PNM is working to achieve zero carbon emissions.

But those investments come at a cost. In 2024, PNM hopes to recover about $102 million from customers to pay off some of the investments.

PNM plans to retire its natural gas generation in 2040. To do so, it needs to recover its investments in the natural gas plants. That means it is increasing the depreciation on natural gas plants, meaning it will be paying more to pay off the investments into those plants. That will have a $25 million impact on bills.

Sandoval said PNM has mitigated the high costs of natural gas by participating in what is known as the energy imbalance market. There are 19 utilities in the western United States actively participating in this market. Those utilities partner so that excess power generated by one utility can be used by a utility that doesn’t have enough electricity. 

Sandoval said that helped save customers nearly $22 million this year. Just in September, Sandoval said, PNM sold $10 million worth of electricity to participating California utilities.

Another $23 million comes from fees that utilities pay to use PNM’s transmission infrastructure. This will help save customers money, Sandoval said.

“We’re doing a really good job, I would say, managing this transition to the benefit of customers, where we’re able to make these upgrades to the grid, the substantial investments in the grid, but it really isn’t going to cause a rate shock, because we’re using those savings at the same time to offset those investments,” he said.

Return on equity increase

PNM is also asking the PRC to approve an increased return on equity that it says will help attract investors. This means the investors will be able to see an increased profit. 

Sandoval said it is not a guarantee that they will make that much money off of their investments, as some of the utility’s critics claim. Instead, he said it is a ceiling. He said if PNM runs its business poorly, investors can still lose money.

But, if PNM runs its business well, investors will receive the approved return on equity.

PNM is asking the PRC to increase that rate from 9.575 percent to 10.25 percent. That would lead to a $10 million impact on customer bills in 2024.

Meeting demands in 2023

With the San Juan Generating Station closed, that electricity will not be available to meet demands during the peak summer months. 

Replacement power projects have faced multiple delays.

While the Arroyo and Jicarilla projects are expected to come online in 2023, the San Juan Solar Project won’t be online until 2024.

PNM issued a request for proposals in October for wholesale power to help meet the demand in 2023.

In November, the utility entered into four short-term—June through September—power purchase agreements. That will mean additional coal-fired electricity.

One of those agreements is for 35 megawatts of power from the Four Corners Power Plant. 

PNM will also have access to up to 25 megawatts of power from Palo Verde during on-peak hours if it gives a day’s notice.

Another 25 megawatts of power delivered to Palo Verde will be available during peak hours seven days a week and 25 more megawatts of power delivered to Palo Verde will be available six days a week during peak hours.