New Mexico Public Regulation Commission hearing examiners recommended that the regulators approve a rate decrease for the Public Service Company of New Mexico customers rather than the increase the utility requested.

PNM has asked the PRC to approve a rate increase that would allow the company to collect $63.8 million from customers, but the hearing examiners said that the utility is only entitled to collect $6.1 million more through rates than it is currently collecting. This is based on projected revenues, expenses and a 9.2 percent return on equity for PNM investors.

The hearing examiners’ recommendation, if approved, would lead to an approximate 3 percent decrease in residential customer rates. This is a significant difference when compared to the 9.7 percent increase in rates that PNM proposed.

Should the recommended decision be approved, it would underscore arguments that environmental advocates have made that clean energy sources save customers money. This is because the decrease comes in part due to lower costs of fuel.

“The recommended decision’s small increases to our rates are being offset by lower fuel costs as a result of PNM’s move to cleaner energy. This results in a 3 percent decrease in the average residential total electric bill,” PNM spokesman Ray Sandoval explained in a statement.

In a statement, PNM Resources chairwoman and CEO Pat Vincent-Collawn expressed disappointment in the recommendation.

“We understand the sensitivity to any cost increase in today’s environment and have taken steps to offset nearly six years of inflationary costs on customer bills,” she said. “However,this disappointing approach to this recommendation calls for further reductions on traditional power sources and misses opportunities to look forward and implement new solutions to benefit customers as we lead New Mexico’s energy transition.

The next step in the process is for PNM and intervenors to file their exceptions to the recommendation. Those must be filed by Dec. 15. After that, responses to the exceptions are due by Dec. 20. 

The commissioners will consider the hearing examiners’ recommendations as well as the filed exceptions and responses before the regulatory body makes a decision.

The new rates are anticipated to go into effect in January.

Four Corners Power Plant 

Commissioner Pat O’Connell has recused himself from weighing in on the case as he previously served as a PNM witness in a past rate case that is directly related to this one. That means a unanimous decision by Commissioners James Ellison and Gabe Aguilera is needed. O’Connell had previously been a PNM employee and testified that the continued use of the coal-fired Four Corners Power Plant was prudent.

This was one of the unresolved issues that the hearing examiners have sought to address in their recommended decision. They say that the continued use of the power plant after 2016 was imprudent. A significant portion of the 384-page recommended decision is devoted to that topic.

The hearing examiners wrote that the process the utility went through in making the decision to continue using the power plant was a bad process.

One example of why they claim it was a bad process is that the 2011 and 2012 strategist modeling included a fundamental error, the hearing examiners state. Those models failed to include all of the expenses that the company needed to incur in addition to the pollution controls. In 2014, PNM acknowledged this mistake but did not run new models despite knowing about expenditures that would be needed in addition to the money needed for pollution controls. While the models showed customers would save $44 million if the plant remained in operation, the hearing examiners state that had the additional expenditures been taken into account, the models would not have shown those projected savings.

At that time, El Paso Electric was also a partial owner of the Four Corners Power Plant. EPE chose to exit its shares of the facility. The hearing examiners say that PNM could have chosen to rerun the models at that point as the various owners of the power plant attempted to decide whether to acquire EPE’s shares. Ultimately, those shares went to Navajo Transitional Energy Company, which has also sought to acquire PNM’s shares and owns the coal mine associated with the power plant.

The hearing examiners also say that PNM failed to reasonably consider alternatives to the Four Corners Power Plant.

The question of prudence is important because the regulatory body is, in part, tasked with ensuring customers are not paying for imprudent business decisions. 

A Sierra Club witness did an analysis that showed the continued use of the plant has cost customers $238.7 million. That is based on a calculation that exiting the power plant and finding other sources of electricity would have cost the utility less than continuing its use of the facility. Those other sources of electricity could have been natural gas or renewables. 

However, PNM says that customers have benefited from the continued use. 

According to PNM, the plant has supplied nearly 5 million megawatt hours of electricity to customers since 2017 and has played a critical role in ensuring the lights remained on during extreme weather events. The utility further argues that the continued use of the power plant has benefited customers economically.

But, while customers continued to receive electricity from the Four Corners Power Plant, the aging facility was becoming less and less reliable. Forced outages at the plant were first noticed in 2013 and continued through 2015.

Should the commission agree with the hearing examiners that the continued use was imprudent, it will need to quantify how that decision impacted the customers.

The hearing examiners have recommended that amount be $84.8 million that PNM cannot collect through rates. 

Under this recommendation, PNM would not be able to recover 100 percent of its past investments into the plant, but it would be able to recoup about 67 percent. The hearing examiners say the evidence presented in the rate case could support reducing the amount that PNM can recover by much more drastic measures. One reason for the more restrained number is that there was a long delay in determining whether the investments were prudent. The hearing examiners also say that PNM’s unsuccessful attempt to transfer its ownership shares in the power plant to NTEC is another reason why they recommended a lower disallowance.

One of PNM’s most vocal critics, New Energy Economy, objects to the lower amount that the hearing examiners recommend.

NEE Executive Director Mariel Nanasi said that the recommended decision includes a lot of good things, but she urged people not to “let the 3 percent rate decrease fool you.”

“It ought to be a lot more, given that PNM was reckless in their climate-altering Four Corners Power Plant investment,” she said in a statement. “If ratepayers were actually held harmless for PNM’s recklessness and greed the reduction in rates would’ve been far more than 3 percent.” 

Some of the intervenors in the case, including the Sierra Club and the New Mexico Office of the Attorney General, have expressed concerns that PNM may in the future try to recoup its past investments into the Four Corners Power Plant by using the Energy Transition Act’s provision for securitization. Securitization under the ETA allows for the issuance of low-interest bonds to refinance past investments into a coal-fired power plant when a utility seeks to end its use of that facility. But the hearing examiners say that hypothetical is not a question that can be ruled upon in the current rate case. Instead, they say that will need to be addressed in a future case regarding exiting the power plant.

Palo Verde Nuclear Generating Station

Another topic that the hearing examiners sought to address is investments into the Palo Verde Nuclear Generating Station in Arizona. PNM has been involved in that facility for decades and first received state regulatory approval for using the generating station in 1977.

PNM’s involvement in the plant is decreasing. That is leaving what is known as a stranded asset. A stranded asset occurs when a utility leaves a generating facility prior to collecting from ratepayers the amounts that it has invested into that plant. PNM has exited some of its leases early, which resulted in the stranded asset.

PNM says that amount is equal to $96.3 million, which it hopes to collect from customers over a period of 20 years.

PNM argues that the utility incurred the costs in order to provide customers with power and that Palo Verde did reliably serve the customers. Furthermore, the utility says that the use of Palo Verde saved customers money.

“The depreciation schedules do not match the leases due to decisions rendered fifteen years ago when the transition to a fully renewable power system was not an obligation that PNM labored under as it does today,” the hearing examiners wrote in the recommended decision. “PNM now asks, reasonably (from its perspective) to be able to recover those costs.”

But, the hearing examiners point out in the document, not everybody agrees with that contention.

For instance, the PRC staff found that PNM extended its leases in the past without demonstrating any benefit to customers. 

Several intervenors argued that PNM’s decision to extend those leases was imprudent.

The hearing examiners say that PNM’s testimony shows that $51.3 million of undepreciated investments were made prior to the lease extensions that the intervenors say were imprudent.

“These monies cannot be withheld from PNM on grounds that PNM acted imprudently as these investments predate that finding,” the hearing examiners state.

That leaves $45 million subject to the question of whether the leases were prudent.

The hearing examiners say that PNM did not consider alternative resources“ and proceeded upon the assumption that the leases should be extended regardless of the consequence for customers and proceeded upon the assumption that the leases should be extended regardless of the consequence for customers.”

The hearing examiners have recommended that PNM be ordered to remove that $45 million from its return on investments.

The hearing examiners also recommended that the commission defer a decision regarding Palo Verde decommissioning costs.