PRC Hearing Reviewers: PNM ‘Plots’ and Engages in ‘Clever Manipulation’ of Energy Transition Law
Late Friday, reviewers at the hearing for the state entity that regulates electric utilities issued a recommendation asking the state’s largest electric utility to issue rate credits for clients.
In the 119-page recommended ruling, New Mexico Public Regulatory Commission hearing reviewers Anthony Medeiros and Ashley Schannauer used words like “intrigue” and “cunning manipulation” of the transition law. energy to describe the New Mexico Utilities Company (PNM). plans to continue paying customers for the San Juan plant after the plant closes.
This comes as the PNM prepares to end operation of the San Juan plant once new solar resources come online. These solar projects were originally scheduled to be completed by the end of this month, but supply chain challenges have pushed back the completion date, and the plant is now expected to close at the end of September.
One unit of the plant is expected to close at the end of this month and the other at the end of September.
Although the plant’s closure means that PNM will no longer have to pay for maintenance, coal, repairs or employees to operate the power plant, the utility has no plans to immediately reduce rates. Instead, he told regulators that power plant operations would be removed from customer rates in the next rate case, which has yet to be filed. PNM indicates that it will file this file at the end of 2022. PNM also plans to issue the securitized bonds authorized by the law on energy transition when filing the tariff file. Tariff cases can take more than a year to finalize and PNM expects the new tariffs to come into effect in 2024.
PNM originally planned to file the rate case in June 2021, before the San Juan Generating Station closed, but delayed its filing because, at the time, it was attempting to merge with a larger utility company known as name of Avangrid and one of the terms that the Hearing Examiner in that case proposed that if the commission approved, it would delay the tariff case until December 2022. The PRC denied the merger application and PNM has since appealed that decision to the state Supreme Court.
PNM also indicates that the COVID-19 pandemic contributed to the decision to delay the rate case.
Related: Groups say PNM will ‘overcharge’ customers by not issuing bonds when SJGS closes
Consumer groups have argued that PNM’s proposal would force customers to continue paying for a non-operational coal plant for years after it shuts down.
Western Resource Advocates and the Coalition for Clean Affordable Energy filed a petition in February arguing that PNM would essentially withhold a 10% rate cut from its customers by not removing power plant costs from unit closing rates.
After months of debate, the reviewers at the hearing with the PRC took this position and recommended that a rate credit be applied to invoices. This would mean that PNM would provide credit on customer invoices until the next rate case to prevent customers from paying for a resource from which they no longer receive any benefit.
The recommendation also requires the PNM to issue energy transition funds to affected workers and communities upon plant closure even if it delays issuing the bonds.
This does not necessarily mean that customers will receive the rate credit. State regulators — an elected five-member commission — must now decide whether to adopt the hearing reviewers’ recommendation.
The PRC will also consider PNM’s arguments when making the decision.
PNM states that issuing a rate credit will provide customers with a short-term credit that does not reflect the actual costs of providing electricity to customers.
This means that when new rates are offered later this year, those rates will be much higher than they otherwise would have been,” the utility said in a news release. “Customers would receive short-term credit now, but face a much larger bill increase later.”
PNM indicates that any cost savings resulting from the closure of the coal plant will be used to offset increased costs in other areas and that in the next rate filing the utility would be required to show how it used these funds. By not implementing the rate credit, PNM asserts that customers will actually save money in the long run because the rate increase that will be offered in the upcoming rate case will be lower. According to the utility, this would save customers $36 million a year.
Hearing Examiner’s Recommendations Highlights
- Hearing reviewers find that PNM’s plan violates the intent of the Energy Transition Act: Two years after PNM announced its intention to close the San Juan Generating Station, the state legislature passed the Energy Transition Act in an effort to pave the way for a “just transition.” To do this, ETA authorized PNM, after approval by the PRC, to issue securitized bonds at low interest rates. Of the proceeds from these bonds, $40 million will go to three state agencies to help displaced workers, the Navajo Nation and the northwest corner of the state who will experience economic impacts during the shutdown. PNM says it expects to pay that $40 million when the plant closes, but there is no PRC binding order in place to ensure that happens. Some of the groups that have raised objections to PNM’s plans to delay issuing the bonds also argue that a delay will mean higher interest rates, which would be passed on to customers.
Hearing reviewers concluded that PNM’s plan “violates the intent of the LTA” and constitutes what is known as moral hazard. Later in the paper, they cite the Florida Public Service Commission’s definition of moral hazard as: “a form of play whereby a party to a plan or contract may act in a way – in the framework of the existing plan – which allows him to gain an unforeseen competitive or financial advantage at the expense of the other party”. The hearing examiners say that this moral hazard means that the taxpayers could face “substantial and potentially irremediable” unless reparation is imposed.
Hearing reviewers also say that moral hazard occurs when one party has access to information that another party does not have access to, leading the party with more information to change its behavior. before an agreement is reached.
- Internal communications show a “pattern” for avoiding a rate credit when issuing securitized bonds: Hearing reviewers found that PNM’s internal communications indicated that the company was conspiring to avoid triggering immediate rate credit when the bonds were issued.
“Ultimately, PNM secretly opted for a ponytail scenario in which PNM’s tariff case timeline would be extended (by one to two years) to control and dictate the timing of transition bond issuance. energetic to some extent long after San Juan was abandoned,” they wrote.
PNM also paid $7,500 to a Colorado PR firm to conduct a customer survey to develop a messaging narrative “designed to persuade customers and stakeholders to believe the abandonment savings that PNM was plotting. to retain clients were for altruistic rationalizations such as the COVID-19 pandemic,” the hearing reviewers wrote.
Hearing reviewers say there is nothing to prevent PNM from continuing to delay the issuance of the bonds.
- Lawmakers intended to issue bonds closer to shutdown time, but did not specify a timeframe in the ETA: Section 16 of the ETA specifies the percentages of bond proceeds to be placed in state accounts to assist displaced workers and affected communities. This section states that within 30 days of receipt of bond proceeds, money must be transferred to funds to help mitigate and repair the impact of the closure.
“Based on the establishment of the funds by the Legislature and the requirement to use the proceeds of the bond issue for this purpose, the Legislature appears to have intended that the funds be provided at the approximate time of the abandonment and, in order for that to happen, the legislature apparently also intended that the energy transition bonds that would be used to fund these transfers also be provided at the approximate time of the abandonment,” the hearing reviewers wrote in the decision recommended “The legislator does not appear to have intended the bonds to be issued and the proceeds to be paid into the energy transition fund years later, at the discretion of the utility.”
Hearing reviewers further wrote that the Legislature intended to issue the bonds in a timely manner and not how PNM “by shrewd manipulation of the provisions of ETA, could evade its failure to satisfy the intent of the legislature”.
- ETA does not limit the power of the PRC to require PNM to remove the San Juan plant from tariffs before the issuance of the bonds:” The LTA provides for the recovery of the costs of abandoning a utility through a new securitization process, and as such, it makes sense that the LTA also authorizes the Commission to develop a pricing methodology to address the costs securitized as the utility begins charging ratepayers for the costs of energy transition bonds,” the hearing reviewers wrote. “But there is no indication in the ETA or elsewhere that Parliament intended to eliminate the Board’s power to deal with the removal of the costs of abandoned units from tariffs where the abandonment is not made in conjunction with the securitization process.
They further wrote that ETA does not address the scenario presented in the case currently before the committee, namely the issuance of the bonds occurring at a time separate from the closure of the power plant units. This, they say, is because the legislator did not foresee this scenario when drafting ETA.
- Rate credits must be issued upon closing of units: Hearing reviewers recommend that a rate credit be issued at the closing of unit one. This rate credit would be $1.76 for residential customers using less than 1,000 kilowatt hours per month. Then, when Unit Four closes in late September, Rate Credit is expected to rise to $8.19.
Hearing reviewers agreed with PNM’s contention that such a rate credit would constitute piecemeal or single issue pricing, but they state that the commission’s concern with piecemeal pricing per move is merely political and not prohibitive.
“And, if, as here, there is good reason to act contrary to this policy, it should be done,” they wrote.