PNM is pulling a fast one at the Legislature to avoid Public Regulatory Commission scrutiny of its valuation for the soon-to-close San Juan Generating Station. Senate Bill 47, drafted by PNM, will stick the public with $353 million plus interest for PNM’s old, unreliable, coal-fired San Juan power plant. In reality, the plant is worth nothing, or tens of millions less than nothing if we factor in cleanup costs, including dealing with the underground mountain of coal ash leaching into our San Juan River. Furthermore, renewable energy is far cheaper and more reliable than any coal plant. You have to admire PNM’s nerve for trying to make San Juan’s closure a payday.
Under the bill, the Legislature accepts PNM’s $353 million valuation for San Juan and allows PNM to “securitize” it by selling bonds in that amount at Wall Street. SB 47 requires ratepayers to pay it back, plus interest.
When a utility is forced by external circumstances to close a plant before its useful life ends, it can recover from ratepayers at least some of the plant’s remaining value. But PNM is not closing San Juan because of an external cause before its time is up, but because the plant is expensive, works only about 70 percent of the time and the co-owners want out. SB 47 allows PNM to sidestep the PRC, where there would be a hearing on San Juan’s valuation and a likely “stranded asset” award of between zero and 50 percent of San Juan’s true book value. Instead, PNM goes to the Legislature to get 100 percent of what it wants. Santa Claus will come down the chimney at the Round House, with SB 47 tied in a bow!
PNM claims that by securitizing the “value” of San Juan, it will save the ratepayers money, but that’s based on the hypothesis that the PRC would give PNM much more for the plant than it is likely to, as PNM knows. Otherwise, it would just go to the PRC. But there, PNM would have to prove what it should get. SB 47 jettisons this legal process by legislating that the plant is worth what PNM says.
The Legislature should let the PRC do its job.
There’s more: In addition to the “securitization” giveaway, SB 47 contains another doozy. PNM drafted SB 47 to require itself to replace coal generation capacity with only self-owned power. What’s wrong with that? A lot.
PNM will make millions more, and ratepayers will pay millions more, if PNM owns its own replacement power facilities than would be the case if PNM only did what other utilities would do: put out bids for solar and wind providers to build and operate their own projects in New Mexico and sell the power to PNM at long-term, pre-set rates, which are very low. PNM would not have included this requirement in its bill if it didn’t mean more money for PNM and higher rates for us. Anyone who thinks otherwise can meet me at the Brooklyn Bridge. I’ll bring a deed.
Large solar and wind companies are national and highly competitive. They build, own and maintain solar and wind facilities, selling the power they produce under long-term contracts. SB 47’s requirement of PNM ownership, as drafted by PNM, will have four negative effects on ratepayers: It will prevent the PRC from even considering whether non-PNM-owned generation facilities are more cost-effective, as the law requires. In future, it will make solar and wind appear more expensive than they are because competitive bidding will be suppressed. It will drive national providers away, and will remove the economic advantages to ratepayers of PNM buying renewable power plus storage at predetermined low rates. Instead, PNM will own the facilities, getting a guaranteed return on equity of nearly 10 percent, as opposed to the lower profit margins solar and wind providers accept.
This PNM-drafted, PNM-lobbied, private legislation should not pass.
John Boyd is one of the lawyers supporting New Energy Economy before the PRC and in the New Mexico Supreme Court.