PNM has introduced a "Energy Redevelopment Bonding Act" - Senate Bill 47. This "securitization" bill in its proposed form is a bail-out for failed assets at San Juan.
In advance of abandonment approval by the PRC for San Juan units 1 & 4 PNM is seeking to recoup $353 million from ratepayers for the money it planned to make on those assets.
Here's what's wrong with PNM's securitization of failed assets at ratepayers expense:
1. Stranded assets recovery has been awarded when there is an external cause (EPA Regulation, like the Regional Haze Rule) causing unexpected "early" retirement of a plant. In those instances, the PRC has held that the burden must be shared 50/50 between shareholders and ratepayers. A 50/50 split would SAVE ratepayers money compared to the proposed legislation. Further, in the instant case, PNM is not closing San Juan because of some external cause, it is closing San Juan because 1) all the other co-owners want out; and 2) PNM cannot meet its burden to show that San Juan is cost effective against alternative resources (wind & solar); and 3) PNM's internal senior management and Board assessment is that PNM can make more money (their estimate is $532 million) closing San Juan than running it.
So, PNM is afraid that the PRC may award PNM nothing - zero dollars because of the reasoning behind "early" closure: San Juan will be more than 50 years old at that time, is poorly performing (only runs about 68% of the time), and is more expensive for ratepayers than alternatives. At maximum the PRC will award PNM 50%, because that is what PRC precedent is and that is what was awarded when there was a legitimate external cause that forced early retirement. (PNM has San Juan depreciated out to 2053.)
2. The Legislature should NOT award PNM any more money than PNM would get at the PRC just because PNM is afraid of what the PRC will do in its request for cost recovery from ratepayers for stranded assets. PNM is making an end run around the PRC and asking for 100% recovery at the Legislature. The Legislature has empowered the PRC to regulate utilities but PNM is now afraid to go before the PRC for stranded asset recovery.
PNM falsely claims that its Energy Redevelopment Act will save ratepayers money but that is only if the PRC gives PNM the right to 100% recovery of stranded assets - which it most certainly will not. PNM never chooses to lose money - actually its against their fiduciary duty to do so. Therefore, they can't choose to save ratepayers money over making money for its shareholders, unless regulated to do so.
If PNM received 100% recovery on $353 million at 9.575% (its guaranteed return on equity), which is their "straw man" position, than securitization of PNM's failed asset of $353 million at a bond of 3-4% would be cheaper. This straw man position is just that - a position without merit because PNM will not get 100% stranded assets at the PRC. If PNM was sure it was going to receive 100% from the PRC than it would prefer to get the failed assets recovery at that venue because it would receive 9.575%, which is more money in their pocket. It is only because at maximum PNM will receive 50% of $353 million, or $175 million, at 9.575% and that would be worse for the company and better for ratepayers than $353 million at 3-4%. Ratepayers are less well off by about $50 million. See financial analysis attached.
3. This bill is premature. PNM will file its abandonment case at the PRC expected in July 2018 which will provide a critical opportunity for extensive and exhaustive discovery regarding replacement power & energy ownership, clean up, reparations for San Juan county residents and workers, etc.
There is much to be understood. By taking this to the Legislature at this time, PNM is attempting to circumvent the PRC and exclude other parties from impacting the resolution of these issues.
4. This bill bakes in PNM ownership of ALL replacement power resources on PNM-owned land to the detriment of a robust competitive renewable energy RFP process that could produce ten thousand newjobs in New Mexico. So this is problematic for a number of reasons: a) violates anti-trust provisions, is anti-competitive, and is inherently unfair stifling (if not killing) the market for other power producers; and b) will NOT result in the lowest cost renewable energy for consumers; and c) effectively undermines the authority of the PRC to require a utility to “acquire the most cost effective resource(s) among feasible alternatives.” This IS the bedrock of utility law and has been repeatedly been followed. If PNM was NOT the gatekeeper in charge of ALL renewable energy then other independent power producers would be creating jobs, thousands of jobs here and we could diversify and grow our economy.