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NM Supreme Court rules against PNM plan to extend the life of coal and foist $300M onto ratepayers

We won this round! After nearly a decade of opposition to PNM's investments to extend the life of the Four Corners Power Plant (FCPP), the Supreme Court yesterday rejected PNM's effort to defy the PRC's denial of their plan to sell their shares to Navajo Transitional Energy Company (NTEC) and force ratepayers to cover their imprudent investments. The final decision on prudence will now be made in the pending rate case. We have argued that ratepayers should be held harmless for PNM's bad decision to reinvest in and extend the operating life of coal at FCPP and that because PNM has already admitted that FCPP is no longer a cost effective resource, compared to wind, solar and storage, FCPP should be removed from rate base, meaning that ratepayers should only be responsible for fuel and operating costs as long as we get electricity from the plant, and that PNM's shareholders be responsible for all other (capital) costs. That means PNM shareholders will rightfully be stuck paying for the imprudent decisions of utility management, not ratepayers, which is the law.


In 2016 PNM extended the life of FCPP by paying for pollution controls and an Arizona Public Service (APS) “System Health Process” to keep the plant functioning. If PNM had performed an honest assessment of alternative replacement power options (like El Paso Electric did at the time) the options would have been clear and it would have exited the plant, which would have saved ratepayers hundreds of millions of dollars, likely closed the coal plant, saved water from being contaminated from coal ash poison, and reduced climate-altering carbon emissions.

Instead PNM invested approximately one billion dollars of New Mexico ratepayer money.

In 2017 PNM and a dozen other parties signed a Revised Stipulation (settlement) seeking an increase in rates to recoup those costs. New Energy Economy lodged the sole opposition to the Stipulation, claiming foremost that PNM’s re-investment in the Four Corners coal plant was “imprudent.” The Hearing Examiner agreed with New Energy Economy, finding that with respect to PNM’s participation in the Four Corners coal plant “there is a substantial record on which to make a finding of imprudence.” (Order, Recommended Decision, 10/31/17, p. 69)

Despite initially ruling in our favor, however, the New Mexico Public Regulation Commissioners were successfully lobbied and reversed their decision, ruling in 2018 that “The issue of PNM’s prudence in continuing its participation in FCPP shall be deferred until PNM’s next rate case.”

PNM continued charging ratepayers for those investments for another five years, delaying that rate case filing until this year. In the meantime PNM engineered and authored the Energy Transition Act (ETA) in 2019 as an end run around a prudence review of Four Corners.


In 2021, under pressure from Avangrid to rid their portfolio of coal, PNM filed an application to “abandon” their shares of the Four Corners Power Plant and be awarded $300 million from ratepayers, 100% repayment of their undepreciated investments under the ETA. Unable to find any buyers willing to pay for their 13% share of the plant, PNM instead agreed to pay NTEC $75M to take it off their hands. The PRC rejected that plan because their rushed application failed to include adequate replacement power plans to ensure reliability, and also rejected their assertion that they were owed 100% repayment on their investments without a prudence review, reaffirming that the issue of prudence would be decided in the currently pending rate case, ETA notwithstanding.

PNM promptly appealed that decision to the Supreme Court, and New Energy Economy was joined by Sierra Club, Western Resource Advocates and Coalition for Clean and Affordable Energy in opposing their appeal.

Yesterday's decision by the NM Supreme Court upheld the PRC's decision.


Most importantly the ruling puts an end to the transfer of PNM's FCPP shares to NTEC, leaving open the possibility for early closure. The contract signed by PNM, NTEC and other plant operators would have prevented the plant from closing before 2027 and imposed a $200 million penalty (paid to NTEC) if the plant was closed early. NTEC owns the coal mine that supplies coal to the plant and has a vested interest in ensuring that the plant stays open as long as possible.

The court's decision also has far-reaching ramifications for ratepayers in the currently pending rate case. The Court's assertion that the PRC was proper in its decision to defer the issue of prudence to the rate case is crucial. There are two important reasons why this imprudence finding must be made - one is that we should not get stuck paying for $300M for PNM's bad investment decisions. The second is that in this rate case we have the opportunity to prove that the Four Corners Power Plant cannot be considered "used and useful" because it is not cost effective. PNM admitted in its own testimony that the plant is not cost effective. We are arguing that because FCPP is an uneconomic plant, the costs should be shouldered by shareholders, not ratepayers. When shareholders carry the burden for an uneconomic plant, that will jumpstart a decision to close the plant. These are our ultimate goals.

The decision also has implications for PNM and Avangrid's pending merger agreement. The merger agreement was the driving force behind PNM's rushed abandonment application. The Supreme Court's decision represents further headwinds against the merger.

New Energy Economy has filed testimony asserting that ratepayers should be held harmless for all PNM's imprudent investments at FCPP. If our position is approved by the Commission then every New Mexico PNM household could save as much as $6000 plus 25 years of interest.


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