PNM’s rate adjustment a losing proposal

Albuquerque Journal readers may not be aware that PNM recently filed an application for a “rate adjustment mechanism,” or revenue decoupling, at the Public Regulation Commission – Case No. 20-00121-UT. I wrote to the PRC to concur with the motions to dismiss filed by New Energy Economy, the city of Albuquerque, Albuquerque Bernalillo County Water Utility Authority and Bernalillo County. PNM is asking the PRC to guarantee that PNM will recover all fixed costs from ratepayers regardless of how much energy is consumed. However, I do not see the benefit to ratepayers in insulating the utility from all business risk regardless of its performance.

Currently, utility revenues are tied to its sales of electricity – the more ratepayers consume, the more PNM makes. Revenue decoupling, as in PNM’s “rate adjustment mechanism,” is designed to eliminate or reduce the dependence of PNM’s profits on system sales. How does that make sense? We all use less electricity but continue to pay PNM the same amount?

In a significant departure from traditional cost-of-service principles, which historically provide utilities with only the opportunity to earn a fair return, revenue decoupling guarantees earnings. Decoupling shifts significant business risk from PNM shareholders to consumers with only dubious opportunities for offsetting consumer benefits.

I am a strong supporter of energy efficiency and load management initiatives. I believe we all benefit when we are able to use less electricity and to use it wisely. However, PNM’s application does not provide any positive incentive to promote or support energy efficiency or conservation programs; it only makes the company financially neutral to such activities. PNM’s decoupling proposal is missing critical components to ensure that the rate adjustment mechanism has the desired result: to increase energy efficiency while protecting New Mexicans from significant rate increases.

Unfortunately, PNM’s decoupling application also does not limit cost recovery to sales lost through energy efficiency programs. It is much broader in scope, allowing rate adjustments to compensate for any loss of revenue. That includes revenue loss resulting from fluctuations in weather or economic conditions. It includes revenue loss from individual consumer actions to reduce energy consumption, such as installing rooftop solar or simply turning down the thermostat. In fact, if granted, the PNM application would serve to dis-incentivize rooftop solar by forcing solar customers to pay the “Shared Cost of Service” rider regardless of their energy usage.

In exchange for this wholesale transference of business risk to ratepayers, PNM offers nothing. Not only is the PNM decoupling mechanism broad and overreaching, it is not evidence-based nor cost-based, and it fails to balance the interests of consumers and investors. Our New Mexico Legislature approved the right to implement decoupling under specific circumstances: 1) if it is accomplished in the context of a general rate case and 2) if it properly balances the public interest – consumers’ interests and investors’ interests.

PNM has failed to follow the law and instead relies on outdated cost information from its 2015 rate case. So many things have changed in the last five years: depreciation and tax rates, energy resources, and even our laws have changed. The PRC, like all responsible agencies, must rely on current information.

PNM’s proposal is a one-way balancing account: the utility is made “whole” for all expected revenues with little or no benefit to ratepayers. PNM’s “rate adjustment mechanism” is not in the best interests of New Mexicans and should be rejected.


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