Oppose SB47 & HB80

Governor Susanna Martinez
Senate Majority Leader Peter Wirth
Speaker of the House of Representatives Brian Egolf
House Majority Floor Leader Sheryl Williams Stapleton
Minority Floor Leader Nate Gentry
House Majority Whip Doreen Y. Gallegos
House Minority Whip Rod Montoya
President Pro Tempore Mary Kay Papen
Senate Minority Floor Leader Stuart Ingle 
Senate Majority Whip Mimi StewartSenate Minority Whip William H. Payne

 

Dear Governor Martinez and Esteemed Members of New Mexico’s Legislature:

 

It is with great concern for the economy, and issues of fairness and equity, that prompt the undersigned New Mexican environmental, Native and Hispanic, and public health and faith-based groups to come forward and express our strong opposition to PNM’s “Energy Redevelopment Bond Act (“SB 47/HB 80”),” introduced by State Senator Steven P. Neville and State Representative Joseph Candelaria at the 53rd Session of the New Mexico Legislature. Together we represent thousands of residential and businesses customers of Public Service Company of New Mexico (PNM), an investor-owned electric utility. As such, our members are directly impacted by the rates PNM charges for retail electric service. The passage of SB 47 and HB 80 will undoubtedly adversely affect the budgets and business operations of our members as they see monthly electric bills rise with the inclusion of the costs of PNM’s “securitized assets” authorized by this legislation.

 

As you know, our state needs sustainable economic development. With the worst unemployment rate in the country at 6.7% and the highest percentage of children living in poverty nationwide, our state’s low-income communities cannot afford higher electricity prices. Electricity rate increases disproportionately impact New Mexicans with less financial resources because they spend more of their income paying utility bills. The definition of “energy poverty” is when a family spends more than 10% of its household income on energy. In counties across New Mexico, average household energy costs range from 23.8% to an alarming 50.2%. For this reason, any legislation that would raise energy costs must be carefully scrutinized for impact and purpose.

 

A look at SB 47/ HB 80 shows that there is no rationale for this bill except to provide a mechanism for PNM to receive by legislative fiat what it has no hope of receiving from the New Mexico Public Regulation Commission (PRC) by following customary and legislatively mandated procedure. SB 47/ HB 80 would require that the PRC approve, if requested, a “financing order” that would authorize it to issue bonds to be paid by ratepayers to recover 100% of its undepreciated investment in assets selected for abandonment by PNM, including, specifically, Unit 1 and 4 of the San Juan Generating Station (“SJGS”). According to PNM, the undepreciated amount would be approximately $350 million and this amount would be repaid by PNM’s customers through a “non-bypassable” charge on their monthly bill upon abandonment of the plant.[1]

 

This legislation has several critical problems. First, it allows PNM to securitize undepreciated investments before PNM has sought abandonment of these resources. This legislation by-passes the authority of the PRC, the administrative agency tasked by law with assessing and vetting all aspects of utility acquisitions and abandonment decisions, and provides legislative solutions to a number of very serious and complex matters, such as replacement power, environmental clean-up, worker reparations, adverse economic impacts in San Juan County (e.g., on tax revenues, jobs, etc.), and more. Essentially, SB 47/ HB 80 is a blank check that could be used by PNM for a range of other uneconomic investments in abandoned assets—even those that, in the customary process of review, might have been determined by the PRC to be imprudent and not subject to cost recovery, such as the Four Corners Power Plant, reclamation and decommissioning costs at either San Juan or Four Corners, or both, or other failed assets. Under cover of SB 47/ HB 80, PNM could receive cost recovery without undergoing meaningful regulatory oversight and scrutiny. This is antithetical to public utility law in New Mexico, which requires that the interests of the public and ratepayers be placed on the scale as a counterbalance to the interests of utility stockholders.

 

Second, another glaring defect in SB 47/ HB 80 is that it allows PNM to recover 100% of its undepreciated investment in assets selected for abandonment. This generous allocation is contrary to the Public Utility Act[2] and has no precedent in cases before the PRC. When the PRC addressed similar undepreciated investments in prior cases, it held that a fair result is a sharing of loss between the company and the ratepayers. Thus, the PRC found in a recent case that a 50-50% split between shareholders and ratepayers was an equitable and reasonable allocation of interests between investors and ratepayers.[3] SB 47/ HB 80 gives PNM full recovery for its undepreciated investments, an allocation that unfairly burdens consumers.

 

Thus, it is clear that if PNM were to apply for recovery of its undepreciated investments at San Juan, the PRC would award, at maximum, a 50% recovery at its guaranteed profit return of 7.23%. If SB 47/ HB 80 is adopted, PNM would receive 100% recovery of its undepreciated investments at a bond rating of 3%-4%. A comparison of these two scenarios show why PNM is advocating for SB 47/ HB 80: Assuming that the total amount of “energy redevelopment costs” of PNM’s proposed abandonment of SJGS Units 1 and 4 in 2022 is about $350 million, as recently stated by PNM, recovery at 100% through SB 47 versus the PRC’s recent (2015) allowance of only 50% of PNM’s undepreciated investments in Units 2 and 3 of the SJGS (retired at the end of 2017), the cost increase to PNM’s customers resulting from application of SB 47/ HB 80 and a return of 7.23% on that amount would be in excess of $70 million. Thus, contrary to PNM’s claims that ratepayers would save money under the bills, PNM customers would pay approximately $70 million more under this legislation, rather than if PNM applied for cost recovery at the PRC.

 

Third, Section 18 of the Bills would legislate a special preference for PNM to own any new gas-fired, renewable energy or energy storage resources it may need to replace the capacity of coal-fired plants it abandons. Make no mistake, the undersigned organizations are great advocates of removing coal-fired plants from service as quickly as possible. The citizens of New Mexico are paying a steep price for the documented adverse public health, environmental, and climate impacts of coal-fueled power generation plants. This legislature has specified that if healthier, cleaner, and more cost-effective resources are available to PNM, those should be utilized to replace conventional generation. The undersigned whole-heartedly support the closure of the SJGS and FCPP, as practicable.

 

That being said, SB 47/ HB 80 is harmful for a number of reasons and may be challenged on these additional grounds:

 

  1. A) By giving PNM a special preference to own replacement generation, instead of allowing third-party independent power producers (IPPs) to own generating assets and provide power to PNM under power purchase agreements (PPAs), the bill arguably violates anti-trust provisions, is anti-competitive, and is inherently unfair. It stifles the renewable energy market for other power producers.
  2. B) Because PNM’s cost of power includes a 10% markup, its rates for replacement power produced by its own plants will likely not be the lowest cost replacement power for consumers.
  3. C) The bill circumvents and substantially removes the PRC’s existing authority to determine whether new PNM-owned power generation and energy storage resources are PNM’s “most cost-effective” options among all “feasible” resource alternatives available. This IS the bedrock of utility law. The proposed legislation would undermine consumer protections established by this legislature and implemented by the PRC.

 

A look at Section 18.B(2) of the Bill reveals that PNM would have the legislature place its thumb on the scale so that any calculations and comparisons of the cost of replacement resources would favor PNM over potentially more cost-effective replacement resource proposals in PNM’s service area. These potential competitors include independent power providers, a group that is closely aligned with this Governor’s stated concern and this Governing Body’s goal of creating a flourishing renewable energy market and creating economic development in New Mexico. Allowing open opportunity for energy production in this State creates opportunities for development, jobs, and infuses money into our economy.[4]

 

Finally, this legislation is premature. PNM is expected to file its San Juan coal plant abandonment case at the PRC in July, 2018, and this bill would allow PNM to short-circuit this process and give hope to PNM that it will avoid the certainty of a scrupulous hearing. Yet, the PRC process serves an important function and it is imperative to see what is teased out by the various parties through exhaustive discovery and a full evidentiary hearing on replacement power and energy ownership, San Juan coal plant clean up, reparations for county residents and workers, etc. There is much to be understood before making an ultimate decision, and the Legislature is NOT the forum to investigate these matters.

 

Given our concerns that this bill allocates 100% of potentially enormous unspecified costs to ratepayers, deliberately excises and disregards PRC authority and expertise in deciding these matters, and will effectively suppress competition in the energy market by allowing PNM guaranteed ownership of replacement power, we believe that this legislation is premature and overbroad, unjust, unreasonable and antithetical to the public interest. For these reasons, the undersigned urge you to reject SB 47/HB 80. The protection of New Mexicans deserves nothing less.

 

[1] Traditionally, recovery of undepreciated investments is only granted due to an unforeseen external cause (unanticipated environmental regulations or major equipment failure) not due to poor financial planning. PNM has the San Juan plant depreciated out until 2053, which would make that plant 85-years old. For PNM to have relied on profit from that plant until that date is irresponsible. The average coal plant runs for 40 years.

[2] Public Utility Act (“PUA”) (specifically NMSA §§ 62-6-4.A and 62-8-1) to implement the policy of the PUA (of setting utility rates that balance the interests of a utility’s customers and investors). See, e.g., In the Matter of the Rates and Charges of Mt. States Tel., v. Corporation Commission, 653 P.2d 501, 507 (N.M. 1982).

[3] “The Hearing Examiner finds that, under the facts and circumstances of this case, a Stipulation that provides for the recovery of one half of PNM’s undepreciated investment in San Juan Units 2 and 3 after the units’ abandonment reflects a reasonable balancing of the interests of investors and ratepayers.” 13-00390-UT, Certification of Stipulation, April 8, 2015, p. 114. Cost sharing for stranded assets “fairly balances the interests of investors and ratepayers and is reasonable.” Id, at p. 124. “PNM should be allowed recovery of 50% of the undepreciated value of Units 2 and 3, estimated to be $257 million as of December 31, 2017.” 13-00390-UT, Certification of Stipulation, November 16, 2015, p. 101. Adopted by Final Order, December 16, 2015.

 

 

[4] See a recent article regarding the economic development opportunities in a robust competitive renewable energy plus storage market: “In Colorado, a glimpse of renewable energy’s insanely cheap future” January 16, 2018, https://www.vox.com/energy-and-environment/2018/1/16/16895594/colorado-renewable-energy-future

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  • endorsed 2018-02-03 09:39:08 -0700
  • endorsed 2018-02-02 14:31:46 -0700