Monday, May 29, 2023

Ratepayers Shouldn't Cover PNM's Imprudent Costs


In 2019, we passed the Energy Transition Act. All signatories to this voted for it and believed that it would give Public Service Company of New Mexico compensation for closing its coal plants. We thought this would mean PNM's coal plants actually would close and stop harming the climate and our health and that the higher renewables requirement in the ETA would accelerate our transition from coal to solar and wind energy.

When we were considering the ETA, we did not know PNM's 2016 life extension and investments in the Four Corners Power Plant were pending a prudence review by the Public Regulation Commission because PNM had unilaterally renewed all its lengthy contracts at the coal plant, including a 15-year "take-or-pay" coal contract, without performing any contemporaneous financial analysis.

Under the law, if an investment by a regulated utility is imprudent, ratepayers don't pay for it. Period.

Passing legislation without determining taxpayer impact is problematic. The PRC rightfully required PNM to undergo an analysis of its investment in the Four Corners plant before it can charge ratepayers for its costs.

But PNM is taking the position that the ETA eliminated any prudence review for Four Corners and that the ETA allows PNM to force its customers to pay $300 million, plus interest, even if PNM didn't act prudently when it renewed the coal plant contracts. PNM also takes the position that, under the ETA, it can sell the plant to someone else instead of closing it, keeping coal burning for many years.

PNM's actions are disappointing, and a PRC hearing examiner's recent opinion is concerning because it recommends approval of PNM's "securitization" of $300 million the utility wants for Four Corners.  The effect would be that ratepayers would have to pick up the Four Comers tab without any prudence review.  Here is why this is an error:

  • PNM wants to "abandon" Four Comers but sell it to another operator. It won't "transition" New Mexico from coal burning but will prolong iL This is contrary to the spirit and letter of the Jaw.
  • The ETA includes a provision forbidding the commission from allowing PNM to sell or transfer any fossil fuel plant. PNM's abandonment application disregards the legislature's intent and purpose, endangering us and the environment.
  • Because abandonment is not in the public interest, PNM should not be allowed to shift to ratepayers the $300 million, plus interest, for Four Corners by "securitizing" it.
  • Our Supreme Court has held that ratepayers must be "held hannless" from imprudent investments of utility management, like imprudent costs in a power plant.
  • The PRC ordered the prudence review of PNM's investments in the Four Corners plant. The prudence review must come before securitization so, consistent with New Mexico law, only prudent costs are securitized.

We certainly did not know that PNM's coal plant costs were subjected to a prudence review when we passed the ETA. When we attempted to amend the ETA in 2021 to confirm rates wouldn't include any investment in Four Comers that the PRC determined were imprudent, we were told the rights of ratepayers to a prudence review would be protected. Yet, here we are.

Even the hearing examiner stated in his ruling that, if PNM were to get away with charging ratepayers for imprudent investments, this could "lead to a grave injustice."  Yet in his recommendation, he calls for the postponement of the prudence review that was ordered by the commission (in this case) until after securitization.  As many intervenors responded - this is likely a legally untenable remedy.

Legislators and advocates were misled.

The commission should deny abandonment and sale of Four Corners, make a final prudence determination, and eliminate the risk that ratepayers will be stuck with costs that rightfully should be PNM's responsibility.

Sen. Liz Stefanics represents parts of six counties - San Miguel, Santa Fe, Bernalillo, Torrance, Valencia and Lincoln.  She serves with her Bernalillo County colleagues, Sens. Antoinette Sedillo Lopez and Bill Tallman. They are Democrats.


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