PNM Files for Rate Adjustment Mechanism

Updated: Nov 19, 2020

We wish PNM would be a good energy partner and do the right thing without being forced to - we really do. The trouble is - they are actors in a system that's built upon perverse incentives and the prioritization of profit over all else. They will always look to offload costs and liabilities onto ratepayers and undermine all efforts that reduce their share of the energy market because they have a fiduciary responsibility to maximize profit and minimize liabilities for their shareholders. The Investor-Owned-Utility model is inherently flawed -- which is why we need Energy Choice! And why, in the meantime, we need to scrutinize every proposal, EXPECT our IOUs to attempt to screw us, and fight like hell to defend our communities and the environment against them with every regulatory tool we've got. So when PNM recently filed their “rate adjustment mechanism” in NM PRC Case No. 20-00121-UT - we of course took a close look. The purpose of decoupling from the consumer perspective is to advance aggressive energy efficiency standards by making energy efficiency palatable to the utilities by "decoupling" the actual demand for energy from the revenue the utility can expect. It's a pretty sweet deal for utilities because it allows them to make just as much money while providing less energy. It's a tool that disproportionately impacts low-income ratepayers, tenants, etc who spend more of their income every month on electricity bills and are hurt more when the cost per unit of energy goes up.

So at New Energy Economy we're not actually fans of decoupling - for us the question is:


Are the financial concessions made worth the environmental benefits in energy efficiency gains?

Low and behold - PNM's decoupling application fails to commit to any substantial and measurable energy efficiency targets. Surprised?

Neither were we.


New Energy Economy is joined by the City of Albuquerque, Albuquerque Bernalillo County Water Utility Authority and Bernalillo County in filing our Motion to Dismiss” PNM’s decoupling proposal for the above stated reasons and more. Together, we have claimed that PNM's application has failed to comply with the rules of the commission, failed to provide data relevant to the necessity and reasonableness of their proposal, is retroactive and piecemeal ratemaking outside a general rate case proceeding, is contrary to New Mexico’s commitment to renewable energy (rooftop and community solar), should be rejected and dismissed because it is incomplete, and is inconsistent with the public interest.

New Energy Economy’s position: decoupling can be a tool for reducing emissions if done correctly. Unfortunately, the PNM application has several fatal flaws:


1. It does not tie decoupling to a robust energy efficiency commitment and portfolio. Revenue decoupling should be combined with other policies that incentivize energy efficiency, including Energy Efficiency Resource Standards (EERS) which require utilities to meet energy-saving targets with customer efficiency programs. As it stands now, the application only removes an alleged disincentive while at the same time creating significant disincentives for competent management of the business.


2. It would guarantee PNM cost recovery from captive customers for any reason, including their participation in energy efficiency and load management programs, AND customer energy conservation actions independent of those programs (e.g., simply turning thermostats down in the winter or up in the summer), installation of rooftop-solar, or fluctuations in weather or economic conditions. Meaning that if customers withdraw from PNM’s energy portfolio, for instance, and invest in solar, those solar customers would still have to pay a “Shared Cost of Service Rider”, effective January 1, 2021, for PNM’s decrease in revenue. 


3. In other states the Return on Equity allowed by the Public Utility Commission for capital investments is adjusted to reflect the reduced risk held by the utility. PNM's application specifically disallows adjustments to the Return on Equity based on decoupling. With guaranteed revenue regardless of energy usage and the recent increase of fixed cost Power Purchase Agreements from third party providers in its portfolio, PNM's risk decreases substantially and its guaranteed Return on Equity should be adjusted to reflect those changes. Instead PNM wants to have our cake and eat it too.


4. It does not include a multitude of consumer protection requirements to protect ratepayers, especially low income and vulnerable communities.

5. The New Mexico Legislature passed a law that if decoupling is to be adopted it must be to 1) compensate the utility for “energy efficiency and load management”, (not other reasons) and 2) “in a manner that balances the public interest, consumers’ interests and investors’ interests,” and 3) take place in a “general rate case,” which is the law in most states. PNM's application does not comply with the law.




The recent adoption of revenue decoupling by many states has been controversial because decoupling has led to significant impacts on customer prices, and a transference of risk from utilities to consumers. A London School of Economics November 2019 analysis, found that decoupling tends to increase electricity rates rather substantially upon implementation, about 9% on average and about 19% after two years. This translates to almost a $70 increase in the monthly electric bill for an average electric customer, more than 30-fold what decoupling proponents have previously estimated ($2.30 per month). (“Revenue Decoupling for Electric Utilities: Impacts on Prices and Welfare,” http://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2018/11/working-paper-309-Brucal-Tarui-Nov-2019.pdf


During this global pandemic that is prompting a partial shutdown of the economy and extreme hardship and suffering for so many, passage of PNM’s flawed application must be seen as a blatant attack against the poor and people of color – taking advantage of people when they are struggling the most at a time when PNM reported a hefty $45.5 million in net income in the second quarter of 2020.


NEW ENERGY ECONOMY CHALLENGES US TO INSTEAD IMAGINE A NEW PARADIGM, IN WHICH DISTRIBUTED ENERGY MICROGRIDS DEMOCRATIZE ACCESS TO POWER, THOUSANDS OF JOBS ARE CREATED TO INSTALL AND MAINTAIN LOCAL RENEWABLE POWER SOURCES AND RETROFIT EXISTING BUILDINGS TO FIT NEW ENERGY EFFICIENCY STANDARDS AND THE NEW MEXICO PEOPLE DIRECTLY BENEFIT FROM THEIR REDUCED ENERGY CONSUMPTION.

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