September 6, 2023

PRC kicks off lengthy hearing regarding proposal to raise PNM rates

The New Mexico Public Regulation Commission kicked off its lengthy evidentiary hearing regarding Public Service Company of New Mexico’s  proposed rate increase for its  customers.

The hearing will continue through Sept. 26.

During the opening day of the hearing, Henry Monroy, PNM’s vice president of regulatory and corporate controller, answered questions about the proposed rate increase. These questions came primarily from lawyers representing intervening parties including the Coalition for Clean and Affordable Energy, New Mexico Affordable Reliable Energy Alliance and the New Mexico Office of the Attorney General.

Lawyers base their questions on testimony that the witnesses like Monroy previously provided in written form. 

According to the pre-hearing order that sets a schedule for the hearing, PNM officials will answer questions this week and next week. Toward the end of the hearing, witnesses for intervening parties including the Sierra Club, the New Mexico Office of the Attorney General, New Energy Economy and Bernalillo County will answer questions.

This hearing came on the heels of a public comment session last week in which customers said higher rates could make it harder for them to pay their bills. Some of the customers expressed the belief that the rate increases are in part due to bad decisions that the utility has made over the years, such as the decision to continue using a coal-fired power plant in northwest New Mexico.

If approved, the rate increase would go into effect in January. PNM maintains that the rate increase will have a small impact on the average customer’s bill—raising their monthly payment by less than $1. 

The hearing examiner will use the information provided in the hearing as well as through documents filed in the docket to draft a recommended decision that will then be presented to commissioners. 

Energy transition 

Transitioning from fossil fuels to clean energy is a central argument in the rate case. 

This transition means going from large generating stations to smaller assets that often aren’t owned by the electric utility.

This means recovering investments into fossil fuel plants on a faster schedule while also investing in new generation, either through contracts known as power purchase agreements or through building new utility-owned assets.

In recent years, power purchase agreements have become more common. For instance, PNM is replacing electricity that it once received from the San Juan Generating Station with power generated by solar arrays owned by other companies. PNM has entered into contracts to pay for a certain amount of electricity from those solar arrays as well as storage capacity.

PNM’s goal is to reach 100 percent carbon-free energy by 2040. That pledge is not binding, Monroy said, but it is the “direction under which PNM is currently operating and moving towards.” 

This means some major changes to the current portfolio of generation assets, including early retirement of gas plants. Those include La Luz, Luna, Lordsburg and Afton plants.

The Reeves and Rio Bravo plants will also both close before 2040, but that is not an early closure, according to Monroy. 

What assets PNM uses to replace the fossil fuel power plants must be approved by the PRC.

Riders and credits

It’s more than just the base rate that impacts customer bills. There are also riders that customers pay. That includes an energy transition rider that is coming onto the bills as a result of last year’s closure of the coal-fired San Juan Generating Station. This rider is intended to pay off the refinanced past investments into the coal-fired power plant. These past investments will likely be refinanced using low-interest bonds, which have not yet been issued.

But the closure of the San Juan Generating Station will also result in what is known as a bill credit. The bill credit will reduce how much customers pay, but Monroy did not have the calculations for how much money customers will save through that credit. 

The PRC requested that PNM provide the calculations on how these bill credits will impact each customer class including residential and commercial.

Palo Verde leases

PNM has also made decisions to exit some of its carbon-free resources, namely leases on the Palo Verde Nuclear Generating Station. 

The PRC previously found that a 2015 decision to renew those Palo Verde leases was imprudent. 

PNM is seeking to recover investments that it made in the nuclear generating station as well as the costs for replacing the power from those leases.

Some of the intervenors are opposed to PNM recovering those costs from ratepayers, especially in light of the 2015 ruling that the decision to renew Palo Verde leases was imprudent.

Because nuclear power is considered clean energy, there was not any legislation requiring PNM to exit those leases. Monroy said the decision was based on an analysis showing that customers would save money if the utility ended those leases. 

He said that is why it is appropriate to recover the costs from customers, arguing that customers will ultimately benefit from that decision.

But, Mariel Nanasi, executive director of New Energy Economy, compared it to a tenant continuing to pay rent to a landlord even though they are not receiving housing. Nanasi and her organization have been among the most outspoken critics of PNM.

Four Corners Power Plant

Years ago, PNM had the opportunity to end its involvement in the Four Corners Power Plants, which it partially owns. The utility chose to continue relying on the coal-fired generating station. In the past rate case, opponents of this decision argued that the decision was made imprudently and that the utility should not be allowed to fully recover investments into the power plant from ratepayers. 

The commission at the time left the prudency of that decision unanswered, which means it must be addressed in this rate case.

PNM had also sought to transfer its ownership shares in the power plant to Navajo Transitional Energy Company. The PRC denied the conditions of that transfer and the New Mexico Supreme Court upheld the PRC’s decision earlier this year. 

Some advocacy groups have pointed to the decision to try to transfer the power plant as evidence that the decision to continue using the power plant was imprudent. 

New Energy Economy previously requested information about all the investments PNM has made in the Four Corners Power Plant starting in July 2016.

Between July 2016 and the end of 2022, PNM spent $194.5 million on the power plant. PNM is already recovering some of those investments through customer rates. 

The expenditures made after 2018 are not currently in rates, but PNM is asking to include those in rates and receive full recovery for those investments. 

When asked if customers were harmed by the continued use of the coal-fired generating station, Monroy said he does not believe they were.

He said the factors that PNM was considering when it chose to continue relying on the Four Corners Power Plants have changed. 

“You’re looking at two different time periods under which a decision was being made,” he said. 

He said the utility is going through a rapid transition to cleaner power. Because of that, “facts and circumstances that may have existed earlier in 2010, in the earlier part of that decade, are much different than the facts and circumstances that existed when PNM filed (to transfer its ownership shares to NTEC).”

It is unclear what role the Four Corners Power Plant will play in PNM’s generation portfolio going forward.

PNM has not committed to ending its summer use of the Four Corners Power Plant following a decision by the NM Supreme Court upholding the PRC’s denial of the stipulations to transfer PNM’s share of the power plant to NTEC.

Monroy said PNM is currently evaluating options and whether ending its use of the coal-fired power plant would benefit the customers. 

Currently, the Four Corners Power Plant only runs during summer months to help the various utilities that rely on it meet summer peak demand.