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PNM Rate Case will decide who pays for PNM's failure to understand energy transition

On Friday we filed 90 pages of testimony in the PNM rate case. As we reported last week, the issues that will be decided in this case represent the culmination of nearly a decade of our work to hold PNM accountable for its imprudent investments in coal and nuclear power when it could have and should have known better.

PNM has repeatedly attempted to deny and delay the efforts of economic justice advocates to protect the public from PNM's bad business decisions by:

  • successfully delaying a decision on prudence in the Four Corners Power Plant (FCPP) case for nearly seven years,

  • convincing the legislature and the Governor to pass the Energy Transition Act in order to guarantee 100% recovery for the company's undepreciated investments in the Four Corners and the San Juan Generating Station (SJGS) coal plants,

  • successfully delaying a decision on the SJGS related rate credits promised and then denied to the public when the plant closed,

  • continuing to charge ratepayers for Palo Verde Nuclear Generating Station shares even after PNM sold those shares to a third party;

  • foisting Palo Verde Nuclear Generating Station (PVNGS) decommissioning costs onto the public after imprudently repurchasing a 64MW lease,

  • And finally attempting and ultimately failing to remove these issues from this rate case.

Now the Hearing Examiner has ordered that the time for delay is over. All of the evidence that we have amassed and submitted in these cases will finally be considered and a decision made.


PNM has attempted to ignore or evade some of the fundamental principles of utility regulation: only plants that are currently used and useful can be included in rate base; a utility can only be permitted to receive a return of and a return on prudent investments which meet that test, and only reasonable expenses related to providing utility service can be recovered from ratepayers. Our expert witness, Christopher Sandberg, has evaluated the facts through those lenses, and made the following recommendations based on the evidence:


  • Because PNM failed to perform a proper, contemporary financial or alternatives analysis before it invested in expensive pollution control measures to extend the life of the plant, its investments in FCPP after 2016 were imprudent. We recommend 50% on undepreciated investments in the plant before that date to be paid by ratepayers over three years, and denial of any recovery on investments made after that date.

  • That PNM be denied all future costs on those FCPP investments and remove FCPP costs from rate base. To the extent PNM continues to rely on FCPP, the associated fuel and operational costs should only be recovered through the fuel adjustment clause.

PNM's attempts to retroactively rationalize their investment of nearly one billion dollars in FCPP through the development of a post-hoc justification based on hindsight should be disregarded as irrelevant. Prudence can only be determined based on knowledge management could have or should have known at the time of the decision. Most importantly, the plant should have and could have closed and been replaced with cheaper, 100% renewable energy sources if PNM had not opted to invest in extending the life of the plant.

New Mexican's should not be forced to continue to pay an expensive premium for dirty energy from coal that is destroying our climate.


  • Because at least $95M in costs for PVNGS leases are related to leases that are no longer used and useful, and because PNM has continued to collect those costs from customers over the past year, the full amount associated with the leases plus the return that is being collected on those leases should be returned to customers as a rate credit over the same period of time that it billed customers for it. Parity is an important principle here; if PNM takes from ratepayers over a certain length of time then it should be required to return it to ratepayers over the same period, not five, ten or 25 years as they often request - because by spreading the credit over long periods of time it makes the payback amount so minimal as to be meaningless, and compensates the wrong customers for the harm done.

  • Because it was already found that PNM imprudently repurchased a 64MW lease in PVNGS in 2016, a determination should be made that customers were subjected to increased risk for decommissioning costs and therefore, PNM shareholders should bear the burden of funding the nuclear decommissioning trusts, not PNM customers.


  • A finding that PNM did not adhere to the Energy Transition Act (ETA) or the Commission’s Financing Order, and that as a result the authority granted by the Financing Order to issue bonds promptly upon abandonment has expired under its own terms. As a result, no authority exists in the Financing Order to issue bonds at PNM’s leisure and PNM has foregone its opportunity to issue ETA bonds.

  • That, as a result of the above, the SJGS undepreciated investments must be addressed in this case and that PNM recovery of SJGS undepreciated investments should be at 50% of $283 million, or $141.5 million, depreciated over 10 years at the cost of debt. Why the cost of debt instead of their "normal" guaranteed rate of return? Because PNM untruthfully testified that further investments would be cost-effective for 20 years, when it knew or should have known that they were not, and decided to close the plant just 14 months later.

  • A finding that PNM was imprudent when it decided to delay issuance of rate credits and purchase of securitized bonds upon closure of SJGS. PNM delayed rate credits and bond issuance for its own business interests (including the Avangrid/PNM merger), without any contemporaneous financial evaluation of how this decision would impact ratepayers (again), and as a result has and is collecting $98.3 million/per year, which should be returned over the same time period in which it was taken from ratepayers.


To add insult to injury, PNM has filed for an increased Return on Equity (ROE), from 9.575% to anywhere from 10 to 11.3%. As a refresher, Return on Equity is the guaranteed interest that PNM can charge customers for any investment it makes in infrastructure. ROE generates the bulk of PNM profits. In theory this guarantee is supposed to incentivize investments in improving electricity service, but in practice it instead incentivizes utilities to spend recklessly and choose the most expensive forms of energy generation possible. Recent analyses find that in general utilities have been successful in maintaining higher-than-needed rates of return even as they have found ways to reduce their risks, resulting in excess wealth transfer from ratepayers to shareholders.

Utilities have been successful in maintaining or increasing their ROE even while significantly reducing risk through the use of numerous “rate riders.” These are rate provisions which permit automatic changes in retail prices outside of a rate review process. Typical examples include fuel clauses and purchased power clauses that automatically adjust rates according to a utilities costs. Translation - PNM does not deserve an increased guarantee of return on its investments because, in fact, the utility faces less business risk than other industries. For the test year being used in this case, PNM expects that almost a third - 31% - of its total revenues will come from “rider revenue”.

In Arizona regulators recently reduced the Return on Equity for Arizona Public Service Company for similar reasons.

Because PNM has failed to reflect the materially reduced risks of its operations, we recommend that its ROE be set at no more than 8.9%.

There is a reason that all of these cases will be decided together, a reason that the proposed Avangrid takeover, too, is connected to PNM's recent decisions - our energy system is in the process of a necessary transition that threatens the guaranteed profit model that has served these utilities well for many decades. Utility companies, like fossil fuel companies, enjoyed an inordinate and undemocratic level of control and dominance over our economy and our decision makers because they supplied the necessary engine for nearly every aspect of our lives and our economic growth.

Now solar, wind, and battery storage technologies are disrupting that entire equation - giving local governments, communities, even individuals access to energy generation and storage. PNM failed to understand the change that was coming, and now they want us to pay for their failures.

Our fight is not just about how much we pay for energy, but who will pay for the transition, who will control access and distribution, and how energy wealth will be distributed. New Energy Economy holds that the sun and wind belong to ALL people, and the energy and profits generated should be distributed accordingly. We demand energy justice and energy democracy.


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