PNM's purchase of nuclear energy questioned

By Rebecca Moss
The New Mexican

Posted: Monday, June 27, 2016 11:15 pm | Updated: 5:19 am, Tue Jun 28, 2016.

New Mexico regulators resumed a hearing Monday on a rate increase sought by Public Service Company of New Mexico, which says it needs the money to offset the purchase of electricity from a nuclear power plant in Arizona and its investments in alternative energy.


Regulators and lawyers questioned whether PNM had taken into account the decline in the market for nuclear energy and the electricity needs of the state — as well as what is fair to customers.

Hearings before the Public Regulation Commission began in early April on PNM’s request for a fixed monthly rate increase of as much as 15.8 percent, which would add between $5 and $13 to customer utility bills. The proposed rate hike would generate some $123.5 million in new revenues for the company, but PNM said it actually needs to raise more than $217 million to cover the cost of the new nuclear power as well as other related expenses.

PNM purchased 64.1 megawatts of power in two units at the Palo Verde Nuclear Generating Station for a cost of $163.3 million in early January. The purchase was meant to replace the power lost in the shutdown of two coal-burning units at the San Juan Generating Station in Northern New Mexico.

The revenue PNM is hoping to accrue would cover the cost of the new nuclear power, the improvements to the plant and the expense of decommissioning parts of the plant for which it is responsible.

PNM first purchased shares in the plant in the mid-1970s, only to enter into a sale-lease back agreement with an outside company for two of the generating units. The lease is set to expire this year.

New Energy Economy, one of the parties involved in the current rate case, objected to the purchase, saying PNM and its parent company, PNM Resources, had failed to disclose the cost or implications of the purchase to the commission.

On Monday, Andrea Crane, vice president of the engineering contractor The Columbia Group, testifying on behalf of the state Attorney General, said she believes PNM paid too much. In her view the company should have weighed the benefits of extending or discontinuing the lease instead of purchasing the power — or should have negotiated the purchase at a fair market value. She also noted there had not been an analysis of the impact the plant had on customers over the last 30 years.

“We have so many issues in this case,” she said. “In no way, shape or form did they justify the market value that they are asking for here. The question is, what do you do? … Where do you go from here?”

As a result, she said, the amount the company sought to recover from ratepayers was not justified.

“We don’t think you [PNM] did a very good job, at all, of supporting evaluation. We don’t even think that you’ve necessarily supported a decision to buy the 64.1 [megawatts from Palo Verde].”

Crane said the Attorney General’s Office was recommending a lower rate hike to the PRC, which would limit the reimbursement PNM can collect from ratepayers, maintain the health of the company and its stakeholders, but was still a “generous approach.”
She said it would even be reasonable for the commission to disallow any rate increase, but said, “We recognize that this is a large amount of money and we are trying to come up with something that we think does balance the interests of ratepayers and shareholders.”

Gerald Ortiz, Vice President of Regulatory Affairs for PNM, who also testified Monday, faced questions on how decommissioning the plant would affect ratepayers and whether he was aware of the many nuclear plants currently being shut down, including the Diablo Canyon Power Plant in California, which announced its $3.8 billion plan just last week.

He said it was reasonable for a company to recover all the costs, including decommissioning.

Ortiz referred a number of questions about the implications of the purchase agreement, including if PNM had provided sufficient notification to the commission of its intent to purchase power at Palo Verde, to his supervisor Elizabeth Eden, executive director of financial planning and business analysis for PNM Resources Inc., who will testify later this week.
The rate case is scheduled to continue at the PRC throughout the week.

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