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New law boosts energy-efficiency mandates

New Mexico’s electric consumption could drop markedly over the next decade thanks to new energy-efficiency mandates approved by Gov. Michelle Lujan Grisham.

House Bill 291, which the Legislature passed this year and the governor signed into law on April 3, requires the state’s three public utilities to achieve 5 percent savings off 2020 retail sales by 2025, followed by higher savings targets that the state Public Regulation Commission will set through 2030. It also authorizes up to a 66 percent increase in utility spending on energy-efficiency programs.

The new mandates modify the state’s Efficient Use of Energy Act, enacted in 2005. Under that legislation, Public Service Company of New Mexico, El Paso Electric Co. and Southwestern Public Service were required to achieve 5 percent savings off 2005 retail sales by 2014, and 8 percent by 2020.

As of 2018, three utilities had reduced electric demand by a combined 7 percent, saving ratepayers a total of $400 million, according to the Southwest Energy Efficiency Project.

But with the mandates scheduled to sunset next year, environmental groups lobbied legislators to set new requirements going forward, said Tammy Fiebelkorn, SWEEP’s New Mexico representative.

“All the utilities are in good shape to meet the 2020 requirements, but then the mandates end,” Fiebelkorn said. “We wanted to extend them out another decade to make sure the utilities continue to pursue energy efficiency.”

The law’s extension and modification provides critical support to the state’s new Energy Transition Act, approved by the Legislature and the governor in March. That law now requires the state’s public utilities to derive all electricity from clean, non-carbon-emitting sources by 2045.

“Energy efficiency is the unsung hero for fighting climate change and saving customers money at the same time,” said Noah Long, senior attorney with the Natural Resources Defense Council. “It’s the lowest-cost, fastest thing to cut carbon emissions, and it’s a critical part of the overall effort to achieve New Mexico’s clean energy goals.”

HB 291 includes key changes in spending levels and in the way that utilities recover costs from energy-efficiency investments. Under the current law, utilities can’t spend beyond 3 percent of their total retail sales on energy-efficiency measures. That keeps costs down for customers, who pay for those programs through a rate rider on their bills.

Now, under HB 291, the utilities must spend at least 3 percent and up to a maximum of 5 percent. If all three utilities raise their investments to the 5 percent level, total spending would jump by $29 million per year to $73 million, up from a combined annual total today of $44 million, according to a fiscal impact report by the Legislative Finance Committee.

Higher spending levels will mean a larger rate rider on customers’ bills. But the law requires utilities to invest only in energy-efficiency programs that cost less than what they would otherwise have spent on electric generation to meet demand.

“The utilities must show that all programs are cost-effective,” Fiebelkorn said. “In all cases, spending on energy efficiency must be less expensive than energy produced from other resources to make it cost-effective energy savings.”

In addition, utility programs help customers reduce consumption and lower their bills, helping to offset the rate rider.

PNM, which spent about $80 million on energy efficiency from 2007-2017, has offered rebates to customers who replace energy-hog refrigerators, cooling systems and appliances with modern, efficient models. The utility also offers partial reimbursements to business customers for upgrades to buildings and new energy-efficient home construction, plus home energy “checkups” for residential consumers in which utility representatives do on-site assessments to show homeowners how they can reduce consumption. During the home walk-throughs, PNM installs energy-efficient gadgets such as light bulbs and smart power strips.

As of year-end 2017, PNM estimates its programs had generated electricity savings equivalent to what would power 470,000 homes for a year. The rate rider in 2017 equalled about 3.2 percent of consumers’ bills, or about $2.31 for an average residential customer.

The rate rider allows utilities to recover only the cost of their programs. It doesn’t compensate them for decreased electric consumption, which cuts into their bottom line.

To address that, HB 291 authorizes a rate adjustment known as decoupling, whereby electric rates will be set based on how much electricity a utility projects it will sell in the coming year. If energy efficiency cuts their sales below that projection, rates will rise slightly to compensate the utility. If sales are above projections, the utility will rebate the difference back to customers.

PNM says those changes will help it meet the new mandates.

“Decoupling is not intended to be an incentive,” said PNM Energy Efficiency Program Manager Sharon James. “Instead, it removes the disincentive that results when a utility doesn’t recover its sunk costs that are tied to energy-efficiency savings.”

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