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The Journal is right, cost tests for renewable energy procurements by New Mexico utilities should accurately reflect impacts on customers’ bills. The rule adopted by the Public Regulation Commission last December does exactly that.
It begins by stating “revenue requirements shall reflect rate impacts on customer bills” and making it clear that adjusting current year costs for future impacts is prohibited. The language on capacity costs, which has drawn opposition, states that adjustments can include “costs for capacity, transmission, or distribution that can be shown to result in actual reductions in costs to ratepayers.”
Opponents of the PRC’s December rule avoid mentioning its actual language, and instead imply it opens the door to adjusting today’s renewable energy costs with speculative, impossible to quantify savings “down the road.” But the truth is, not only does the rule already exclude speculative, down the road offsets, it is those who want a repeal who prefer a biased, inaccurate measurement.
Deleting the current language on capacity costs means that you want a formula that ignores cost offsets that can be proven (i.e., “can be shown”) and that result in “actual reductions in costs to ratepayers” in the current plan year. How fair is that?
Opponents also mislead when they imply the rule allows “hard to measure” general environmental benefits as offsets. The actual language is “environmental credits pursuant to compliance rules in effect during the plan year,” meaning the monetary value of credits for nitrogen and sulfur oxide emissions (NOx and SOx) that have been traded since 1994.
Today, PNM and other utilities include the net cost of buying and selling credits in customer bills as part of the fuel and purchased power component, since these credits are directly related to how much fuel is burned by a particular plant. When renewable energy use reduces the fuel burn at a plant with NOx or SOx emissions, fewer credits are needed for federal compliance, and costs to ratepayers are reduced.
Why would you want this excluded from the renewable energy bill impact test?
PNM, when not fighting to weaken rules promoting renewable energy, has deployed many worthwhile renewable energy projects in the state.
Last year, with PRC approval, it contracted for a 10 MW geothermal power plant near Lordsburg. When operational, this plant will provide power for over 10,000 homes, year-round, completely displacing the need for 10 MW of conventional resources on PNM’s system.
In an Albuquerque-area demonstration project, PNM is using batteries and power-management technology to make solar photovoltaic panels a more dependable grid resource.
When projects like these are operational and have deferred the need to build additional conventional generation to serve customers’ needs, the savings from not building a gas-fired plant or from building a smaller plant should be considered when figuring the net additional cost of renewable energy procurements.
Capacity values of renewable energy resources are increasingly well understood. Obviously, around-the-clock renewable energy technologies like geothermal and biomass have equivalent capacity value to conventional resources. Solar with storage can be equivalent for serving summer peak demand. Even solar generation without storage is now widely accepted in the utility industry as providing some capacity benefit and capital cost savings according to a 2012 study by the Lawrence Berkeley National Laboratory.
The PRC rulemaking process that led to the December rule lasted 18 months. It included two public hearings, and multiple rounds of comments and testimony. The case record, showing capacity benefits and cost offsets occur with some renewable energy projects, was carefully considered in the December vote.
The only thing “wrong” with the December 2012 rule is that opponents of renewable energy didn’t get the slanted rule they wanted, and hope now to get a different result now that Doug Howe and I have left the commission.
