In the airless fourth floor hearing room where the body charged with regulating public utilities operating in New Mexico meets to conduct its public business, special rules apply: the Sun revolves around the Earth, which is flat by the way, and utility companies being in the electricity generation business is a really good idea.
In recent weeks, the state’s largest utility, Public Service Co. of New Mexico (PNM), was before the New Mexico Public Regulatory Commission (PRC) seeking approval of its its Renewable Energy Act Plan for 2018. At special issue was the utility’s proposal for a turnkey contract with an Albuquerque-based solar provider, a company already in the constellation of solar providers in PNM’s renewable energy universe.
In the proposed deal, Affordable Solar would build out five 10 megawatt generating facilities for completion in 2019, and transfer ownership back to PNM. Under current law, owning the facilities outright, as opposed to purchasing output from independent providers, guarantees PNM a 10% profit on the value of the solar farms, including the value of the land they’re built on, which it can include in its rate base calculation. Growing the asset base upon which rates are determined is a surefire way that investor-based for-profit utilities like PNM, whose shares are traded on the New York Stock Exchange, can grow future profits and remain attractive in the capital markets.
Opponents to the deal, who notably include the PRC staff and Hearing Examiner, say that PNM ran roughshod over the procurement process, effectively shutting out independent power producers in order to achieve a predetermined result, and that if the deal is allowed to go forward ratepayers will be disadvantaged to the benefit of PNM’s shareholders.
Guaranteeing profits to utilities is a policy that was once considered to be in the public interest; it harkens back to the earliest days of electricity generation where companies needed financial inducements to build costly coal plants and nuclear facilities. But 39 years ago Congress passed The Public Utility Regulatory Policies Act of 1978 and set a different policy direction saying that no “natural monopoly” for the generation of electricity exists, and unraveled the vertically integrated utility model.
But many state laws still reward ownership creating what independent power producer advocate, Robert Kahn, Executive Director Northwest & Intermountain Power Producers Coalition, terms “a perverse incentive” in “an antiquated paradigm that persists by dint of political power.” Kahn praised the Hearing Examiner for her Recommended Decision filed on October 27 urging the PRC to reject the Affordable Solar contract, an episode he views as “a precedent.”
“It was not a difficult call,” wrote Hearing Examiner Carolyn Glick in her Recommended Decision.
Glick had the benefit of arguments laid out in a 45-page brief submitted by New Energy Economy, a nonprofit whose mission is the “just transition” to renewable energy. It exhaustively catalogs how PNM deformed the procurement process to capture that irresistibly tantalizing 10% premium in defiance of well-established rules, laws, principles and precedents. Written by NEE president Mariel Nanasi, whose staff bio states that she’s an experienced rhythmic skier, the brief reads like a fast cold ride down a slippery slope.
Glick wrote in her Recommended Decision: “The Hearing Examiner agrees with the opponents that PNM failed to show, as required, that the Affordable Solar Project is PNM’s most cost effective solar resource procurement among available alternatives because the 2017 RFP process did not give PPA bidders a fair opportunity to participate and compete. I found that allowing bidders only 31 days to respond to the RFP was insufficient and that the provision in the RFP allowing turnkey bidders, but not PPA bidders, to use PNM-controlled sites was unfair and uncompetitive.”
Nonetheless in a 3-2 vote, the PRC approved the contract at its November 15 hearing, to which New Energy Economy fired off an expedited Motion to Reconsider. The Motion, also written by Nanasi, condemns the commissioners who voted to uphold the Affordable Solar procurement, saying they ignored crucial evidence about cost-effectiveness. For Facebook’s Los Lunas facility, PNM and Affordable Solar stick a deal providing for an “actual ceiling price” of up to $39.85 per MW hour. The was back in April, but just seven months later, the best price they could come up for ratepayers was $44.63 per MW hour.
At the November 29 meeting where the PRC rejected NEE’s motion in another 3-2 vote which saw two commissioners switching sides (one explained her switch, one didn’t bother), Commissioner Valerie Espinoza, the only commissioner to steadfastly reject the deal, did a “back of the envelope calculation.” The math showed that the half-a-cent disparity would “clip the ratepayers” to the tune of, give or take, $18 million over the duration of the contract. She chastised PNM’s executives, saying they “should be ashamed.”
Such a sorry outcome for ratepayers would be a serious affront to the commonweal anywhere, but is particularly anguishing in an impoverished state where 157,000 children already live under the poverty line and where any increase in a family’s utility bill can come at the cost of other essentials, like food. According to the 2017 “Map the Meal Gap” report which measures child hunger nationwide, one in four children is already at risk of hunger in New Mexico.
New Energy Economy says its next move is to take the matter before the New Mexico Supreme Court to stop the PRC from giving PNM “the keys to the kingdom.”
The kingdom of course is all the solar contracts yet to come. Will they be procured monopolistically or democratically? Will competition be fostered or strangled? Will price ceilings favor ratepayers or shareholders? So many unknowns. What is certain though, even from “the back of the envelope,” without court intervention to put a stop to the PRC’c ritualized bilking of the ratepayers, the future for many New Mexicans will be colder, poorer, darker.