The state Supreme Court found that the New Mexico Public Regulation Commission’s interpretation of the Efficient Use of Energy Act is “unlawful and unreasonable.”

In an opinion issued Monday, the New Mexico Supreme Court overturned a PRC ruling over how utility’s collect revenue.

The case centers around a mechanism known as revenue decoupling. Essentially, revenue decoupling provides some separation between the amount of money a utility makes and the amount of electricity its customers consume. This is important because programs like load management and energy efficiency upgrades are necessary to reduce emissions but also result in lower electricity consumption. 

The Efficient Use of Energy Act directs the PRC to allow utilities to use revenue decoupling. 

The parties in the state Supreme Court case all agreed that the law allows for revenue decoupling. They disputed what that should look like. 

Both PNM and renewable energy advocacy groups like Coalition for Clean Affordable Energy appealed the PRC’s ruling, arguing that the law mandates approval of a full revenue decoupling mechanism. Meanwhile, the PRC concluded that the law allows it to approve a partial decoupling mechanism.

Under full decoupling, the utility is able to use the mechanism to ensure it reaches the full amount of revenue that it is allowed to recover. The state Supreme Court gave the example of a utility experiencing a $2 million shortfall due to lower than projected consumption. A full decoupling mechanism provides a way for the utility to recover that $2 million from rates.

Under partial decoupling, the utility might be able to recover a portion of that $2 million shortfall, but not the full amount. 

“Thus, unlike full revenue decoupling, partial revenue decoupling insulates only a portion of the utility’s collections from revenue losses due to various business risks,” the court opinion written by Justice Michael E. Vigil states.

The Public Service Company of New Mexico submitted an application for a shared cost of service rider. The company requested that the rider be applied to residential and small business ratepayers. It contained a full decoupling mechanism which, Vigil wrote, “ensured that the revenue approved in PNM’s 2015 general rate case would be recovered by PNM without regard to the quantity of electricity sold.”

However, later as the legal disputes emerged, PNM requested staying that petition. Later it joined other entities, including CCAE and the Renewable Energy Industries Association, in asking the PRC for clarification on legal issues that had been identified during the proceedings.

A hearing examiner issued a recommended decision in 2022 stating that the PRC is not required to allow full revenue decoupling, which the hearing examiner said would sever the connection between sales and revenue regardless of the “the reason for variation in the utility’s sales.”

The hearing examiner argued that a full revenue decoupling would contradict the PRC’s requirement under the Public Utility Act to balance public interests, consumer interests and utility interests.

The PRC then issued an order adopting the recommended decision. That order was overturned this week by the state Supreme Court.

The court found that the EUEA allows for full decoupling.

The language in the law states that when a utility petitions, the PRC shall “remove regulatory disincentives through the adoption of a rate adjustment mechanism that ensures that the revenue per customer approved by the commission in a general rate case proceeding is recovered by the public utility without regard to the quantity of electricity or natural gas actually sold by the public utility subsequent to the date the rate took effect.”

Vigil highlighted the portion that states that the utility can recover the full amount of approved revenue “without regard to the quantity of electricity or natural gas actually sold.” The court order states that only full decoupling would achieve this.

“Unlike the Commission, we do not view full revenue decoupling as inconsistent or incompatible with this balancing of interests and the setting of just and reasonable rates,” Vigil states in the opinion. “We have repeatedly emphasized that whether a rate is just and reasonable depends on whether the rate falls within the zone of reasonableness between utility confiscation and ratepayer extortion. We have found nothing in the record or regulatory literature cited by the parties which suggests that the Commission or utilities will be unable to meet this standard with a full revenue decoupling mechanism in place. For example, even with the adoption of a full revenue decoupling mechanism, the Commission must still calculate and approve a utility’s revenue requirement in a way that balances the interests of ratepayers and the utility’s investors and ensures just and reasonable rates.”