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PNM must not be rewarded for poor decisions

If PNM has its way at the next legislative session, New Mexico’s ratepayers will see yet another charge on their electricity bill. This is because PNM is asking the Legislature to approve a bill granting PNM the right to issue a bond to collect up to $353 million from its customers. PNM is asking lawmakers to secure its profits, even though customers will receive no electricity in return.

If passed, the “Energy Redevelopment Bond” sponsored by Sen. Jacob Candelaria, D-Albuquerque, will grant PNM an iron-clad guarantee to recover 100 percent of its sunk costs in the San Juan coal-powered plant. Recovery is guaranteed because the bond will be insured by the state and backed by all of us – PNM customers. Through this bond, PNM is asking the public to bear the full brunt of its decision to close San Juan while it and its stockholders are insulated from risk and rewarded for poor investment decisions. If this seems like a big ask, that’s because it is.

First, PNM is not entitled to a complete bailout. As a regulated monopoly utility, PNM is assured reasonable compensation in exchange for providing reliable electricity based on prudent business decisions. PNM plans to close its San Juan plant early based on its analysis that the plant cannot compete against cheaper solar and wind investments. Prudent business decisions would have created a more diversified portfolio, one that is not so heavily dependent on coal. A sensible policy would also have anticipated this early closure of San Juan due to a changing energy landscape and the feasibility of cheaper renewables.

PNM appears to have put profit above prudence. It now wants a guarantee to recoup up to $353 million that it would have made if the plant remained open till 2022.

Under N.M. state law, the Public Regulation Commission has “exclusive power and jurisdiction to regulate and supervise” PNM. In the past, the commission denied PNM’s request for full recovery on assets at San Juan. Instead, the commission balanced the needs of utility customers with PNM’s shareholders, splitting the cost 50/50 between the two. What’s more, in that case, the federal government forced PNM to act. Now PNM is acting on its own. There is no reason to believe that the commission will allow PNM to collect more than 50 percent this time.

Under federal and state law, a power plant resource must be “used and useful” before customers can be made to compensate a utility. But when San Juan is closed, it will be neither. Unfortunately, it now appears that PNM is pursuing an end-run around the commission and applicable law by going straight to our Legislature and asking for a 100 percent guaranteed bailout.

Second, PNM’s bond is a big ask because PNM has already received fair compensation for its power generation. Under its terms of operation for the past 45 years, PNM has earned a guaranteed profit of 9.75 percent on San Juan. This risk premium was designed to cover the risk to PNM and its stockholders in anticipation of just this kind of circumstance: an “early” plant closure.

The average life of a coal plant is 40 years. PNM mortgaged out San Juan for 80 years, until 2053. That was financially irresponsible and contrary to prudent business practice. Now PNM is asking the N.M. Legislature for additional compensation over and above what it has already collected to cover its imprudent decisions. This is not fair.

PNM is commended for joining the nationwide movement away from coal and toward renewable energy. But customers shouldn’t be burdened by its poor financial planning. The Energy Redevelopment Bond allows PNM to bypass the commission and reap profits in a failed investment. Concerned citizens should call their state representative, Speaker of the House Brian Egolf, D-Santa Fe, and Senate Majority Leader Peter Wirth, D-Santa Fe, and tell them to vote against this PNM handout.

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