State regulators are expected to vote Wednesday on Public Service Company of New Mexico’s plan to exit the Four Corners coal plant in December 2024, but commissioners question whether PNM is entitled to full recovery of investments in the facility.
The state Energy Transition Act authorizes PNM to use low-cost bonds paid for by customers to recover all investments already included in the utility’s base rates. And, according to PNM, that includes about $150 million it previously spent on pollution controls to keep the plant running in compliance with federal regulations.
The Public Regulation Commission did “provisionally” approve those investments for inclusion in rates, starting in January 2019, but under the explicit condition that the PRC later review the prudence of those expenditures in PNM’s next rate case. PRC Hearing Examiner Anthony Medeiros says the PRC retains its authority to do that prudence review even after PNM sells the ETA-authorized bonds for recovery.
If the commission later rules the pollution investments were imprudent, it could order PNM to credit all money collected from ratepayers for those expenditures back to customers, Medeiros told commissioners at an open public meeting last week.
But commissioners fear the issue could wind up at the Supreme Court, because PNM says the ETA now eliminates PRC authority to deny cost recovery through a prudence review, because the pollution investments were already in its rate base when the ETA took effect in summer 2019.
“It’s a legal issue hanging over our head,” Commissioner Joe Maestas said at last week’s meeting. “… This is my primary issue in this case. I can see us doing the review on the ‘provisional’ order and the prudence of PNM’s investments, and then that downstream review coming under legal challenge through the ETA.”
Maestas favors excluding the pollution-control investments from the amount it authorizes for PNM to recover through bonds. That could, possibly, avoid a potential legal battle over PRC ability to later order rebates to customers on money already included in the bonds, assuming the commission found the pollution expenditures to be imprudent, Maestas said.
But doing that could immediately create a legal morass, because no ruling on imprudence yet exists to justify exclusion of those investments from bond financing under the ETA, according to Medeiros.
The PRC will vote on two separate orders on Wednesday, one to approve or deny PNM’s early exit from the coal plant, and the second to approve or deny investment recovery through the bonds.
Medeiros supports PNM’s exit plan, whereby the utility would sell its 13% share in the plant to the Navajo Nation, which already owns a 7% stake in the facility.
The remaining plant co-owners – which include Arizona Public Service, the Salt River Project and Tucson Electric Power – would likely continue operating the facility through 2031. But under agreements that PNM negotiated with them, the facility would move to seasonal operations starting in fall 2023, potentially reducing carbon emissions by up to 25% annually.
Customers could save up to $300 million over 20 years by PNM exiting the plant and replacing the coal-fired generation with cheaper renewables. But total savings will depend on the particular replacement resources authorized by the PRC in future hearings.
The financing issue, however, complicates the abandonment issue, because once abandonment is approved, PNM’s right for cost recovery through bonds automatically kicks in under the ETA. The PRC could then face a potential legal challenge if it denies bond financing, or limits the amount eligible for recovery.