A rule-making process on the issue that began in November 2011 will likely culminate at a PRC hearing in January. The outcome could determine how fast new projects come online in New Mexico, and whether higher-cost solar or geothermal power takes a back seat to lower-cost wind generation as utilities strive to meet the state’s renewable portfolio standard.
Hanging in the balance is how much ratepayers will be asked to pay for alternative energy.
“It’s a very important rule making, because it establishes the annual budget for renewable energy procurements utilities make to comply with the renewable portfolio standard,” said Gerard Ortiz, Public Service Company of New Mexico’s vice president for regulatory affairs. “Up to now, we haven’t had an approved methodology to calculate it, and we’ve spent a lot of time arguing about what a ‘reasonable cost threshold’ should be when presenting renewable procurement plans.”
Renewable cost cap
Under the state’s portfolio standard, public utilities must derive at least 10 percent of their electricity from renewable sources this year, 15 percent by 2015 and 20 percent by 2020. But to ease the burden on ratepayers, the PRC has maintained a cost cap, or reasonable cost threshold, that limits annual revenue recovery by utilities for clean energy procurements to 2.25 percent now, and 3 percent after 2015.
The commission, however, never set a standard method for utilities to calculate procurement costs, leading to heated disputes at the PRC over alternative energy plans in recent years. Last year, for example, PNM clashed with renewable advocates when it said it couldn’t meet 2012 portfolio requirements without violating the reasonable cost threshold.
PNM introduced a new plan this year to regain compliance. But solar and environmental organizations say the problem arose because PNM overestimated costs. They say PNM did not include future savings from so-called clean energy in its calculations, such as avoided construction of more natural gas plants.
In contrast, PNM and other utilities say such future benefits are speculative, and their inclusion distorts the immediate impact of renewable investments on electric rates. The commission has held two hearings on the issue, the latest on Oct. 24, and intervenors have filed hundreds of pages of testimony.
Two camps of thought
As the process winds down, two camps have emerged.
PNM and other utilities support a PRC staff proposal to ignore future savings when tabulating renewable procurements and only count offsets from lower fossil-fuel purchases in any given year. New Mexico Industrial Energy Consumers and the state Attorney General’s Office, which represents consumers, also support that.
But renewable advocates want projected savings from avoided plant construction, and from avoided environmental regulation costs, included in calculations, because it gives more spending headway for renewable development.
One outgoing commissioner shares that position.
“When we figure net cost, should we consider if the utility didn’t have to add 10 megawatts from a new (fossil fuel) plant? I think the answer is obvious, but others don’t,” said Commissioner Jason Marks, who leaves the PRC in the new year.
The conflict is less about cost and more about how much alternative energy utilities must add, Marks said. “I’m concerned that folks who want to completely rule out all (avoided) capacity as part of savings are trying to put their thumb on the scales.”
Raising the cost cap
To make up for discarding future savings, PRC staff proposes to raise the renewable cost threshold to 4 percent in 2015 and 5 percent in 2020. That would allow utilities to recover enough revenue to meet the renewable portfolio standard in those years.
Most parties oppose that, however, although for different reasons.
Utilities say they want to limit the impact on customers’ bills, while renewable advocates say a cost-cap increase would make ratepayers think they’re paying more for alternative energy when they may actually be paying less than the cap allows if all savings were included in the net price.
“It would leave customers with the impression that renewable development is costing 5 percent more than traditional resources, and that’s just not the case,” said Steve Michel, chief counsel for Western Resource Advocates.
Further complicating the issue are PRC “diversity requirements,” which compel utilities to derive at least 20 percent of renewable energy from solar sources, including customer-owned systems subsidized by utilities.
Industrial Energy Consumers and the AG’s Office want to eliminate the quotas entirely, because they force utilities to add higher-cost energy to their systems, rather than buying less expensive power, such as wind. But diversity advocates say eliminating the quotas would stunt development of solar and other resources while undermining the market for companies that install customer-owned systems.
Ruling in January
A PRC ruling could come in mid-January, 30 days after the Dec. 10 deadline for final briefs to be filed in the case, PRC Chairman Pat Lyons said.
That would exclude the two commissioners most active in the case, Marks and Doug Howe, from voting on the issues, because they will be replaced on Jan. 1 by newly elected commissioners Karen Montoya and Valerie Espinoza.
Howe said that may reflect deliberate jockeying by the AG and Industrial Energy Consumers, who requested a filing extension beyond a Nov. 16 deadline set by Marks at the PRC’s Oct. 24 hearing.
“Six or seven deadline extensions have already been granted,” Howe said. “It’s very hard for me to not interpret the new extension request as a way to make sure that the two most active commissioners on the issue don’t vote on it.”
Lyons, however, said involving Montoya and Espinoza in the case is positive. “It’s better to have them there, because they’ll be on the commission for the next four years.”