A proposal creating a pathway for PNM to recover its investments in coal-fired plants it closes early is a win-win, says bill sponsor Sen. Jacob Candelaria, while critics call it a bailout at ratepayer expense.
Public Service Co. of New Mexico says it is owed full recovery of its investments in the San Juan Generating Station near Farmington if it shuts the plant down in 2022 – 31 years earlier than slated. The bipartisan Senate Bill 47 sponsored by Candelaria and Sen. Steven Neville would allow the company to raise cash from investors through bonds equivalent to 100 percent of the utility’s unrecovered, or “stranded,” investments. That’s the money PNM would recuperate over the full life of the facility, which it previously expected to operate until 2053.
PNM customers would pick up the tab, repaying the bonds over 20 years through a special surcharge on their monthly bills. That could total up to $353 million.
The company says the bonds would actually save customers money because of low interest rates of about 3 percent. That compares to the nearly 10 percent in profits that ratepayers could shoulder if PNM sought recovery through the New Mexico Public Regulation Commission, which permits PNM to earn 9.57 cents on the dollar for its investments. Under SB 47, the company would forego those profits.
PNM says the bonds would also allow it to rapidly raise capital upfront to pay for alternative generating resources to replace coal, potentially accelerating the transition to cleaner-burning natural gas and renewables like solar and wind.
But critics call it a corporate “bailout” that awards the utility for “imprudent” decisions in years past to continue investing in dirty coal plants instead of cheaper, sustainable alternatives. Without such a state law, the PRC – which is currently the sole authority for approving or rejecting PNM’s coal-related plans – might only grant 50 percent, or less, investment recovery for PNM.
“In cases like this, the state Public Utility Act says regulators must balance the interests of shareholders and ratepayers,” said Mariel Nanasi, executive director of the Santa Fe-based environmental group New Energy Economy. “PNM is afraid if it asks the PRC for recovery of its stranded assets, it won’t get 100 percent, and maybe not even 50 percent.”
PNM executives say that reflects bias by NEE and others who want to penalize the utility for not having a crystal ball to better predict changes in energy markets before they happened.
“Some people just assume that we should go bankrupt,” said PNM Resources Chairman, President and CEO Pat Vincent-Collawn. “They say San Juan was a ‘bad decision,’ but even if we shut it down years ago there would still be undepreciated costs. Once it’s built, you have to put capital in to upgrade and maintain it.”
For the past four or five years, San Juan has continued as a good electricity-generating resource, even if declining costs for natural gas and renewables make it less economical in coming years, said PNM Vice President for Regulatory Affairs Gerard Ortiz. If PNM were forced to write off the costs for maintaining San Juan, it would damage the company’s financial stability, driving up the utility’s cost of capital for investments in replacement power and other things, which in turn hurts ratepayers.
“Some would argue that we should receive nothing,” Ortiz said. “But we think it’s best when the interests of the company and its customers are aligned.”