Copyright © 2022 Albuquerque Journal
A Public Service Company of New Mexico plan to delay use of bonds to recover its investments in the San Juan Generating Station could mean $125 million in additional costs for customers, according to a motion filed Monday with state regulators.
The environmental group Western Resource Advocates filed the motion, along with the Coalition for Clean Affordable Energy and the consumer advocacy group Prosperity Works.
Those groups want the Public Regulation Commission to order an immediate reduction in consumer rates after PNM abandons the coal plant this summer. That would put an immediate stop to monthly cost-recovery charges that now appear on customers’ bills, rather than allowing PNM to continue collecting those fees until it issues recovery bonds, which will replace today’s fees with a lower monthly surcharge on bills.
PNM, however, says it intends to “true up” the cost of the bonds that will be charged to ratepayers after it issues them, crediting back to customers through a rate case any additional amounts they may pay during the delay in selling the bonds.
PNM plans to close San Juan later this year, leaving nearly $300 million in lost, or “stranded,” investments in the plant.
To preserve the utility’s financial stability, the state’s Energy Transition Act – which requires PNM to replace fossil fuels with 100% non-carbon generation by 2045 – allows PNM to sell “securitization bonds” to recover its lost investments, which customers pay back in their bills over 25 years. That will significantly lower consumer costs through low interest rates on the bonds, and because PNM will forego any profit on its investments.
The state’s largest electric utility says customers will save up to $7 per month by financing the plant closure with the bonds, plus another $3 per month once fuel costs for plant coal supplies are eliminated.
But by waiting some 18 months to issue the bonds, customers will continue paying for San Juan even after the plant closes because those monthly charges are already included in base rates, said Steve Michel, an attorney with Western Resource Advocates. That could amount to about $125 million in additional costs if PNM delays bond sales to year-end 2023.
In addition, interest rates are expected to start rising again this month, which could lower anticipated savings if PNM waits to sell the bonds, Michel said.
“PNM’s delay strategy is a pretty callous disregard for the well-being of customers,” Michel told the Journal.
But PNM says customers will be made whole when selling the bonds and replacing today’s monthly San Juan-related charges with a new bond-based monthly surcharge.
“We’ll go through a process to ‘true up’ the cost of San Juan recovery to reconcile the difference in what customers already paid and what’s still owed,” PNM Vice President for Generation Tom Fallrgren told the Journal. “If the difference means what’s still owed is lower than the value originally anticipated for the bonds, then we’ll give that back to customers through a rate case. There won’t be any double collection.”
Upcoming rate cases
PNM plans to file its next rate case in December, seeking cost recovery for about $1.2 billion it’s invested in the grid since the conclusion of its last rate case in 2018. It will also seek recovery for another $1.2 billion it expects to invest by 2024, much of which is related to the costs of transitioning its electric system from fossil fuels to renewable generation.
The company previously planned to file two separate rate cases in 2020 and 2021 to cover those costs, but it postponed them to avoid additional burdens on customers during the global pandemic, which caused many ratepayers to fall behind on their electric bills.
Had it pursued its original time line, those rate cases would have concluded before abandoning San Juan this year, allowing PNM to coincide the sale of bonds and the new surcharge on customers bills with whatever new electric rates that the PRC approves, said PNM spokesman Ray Sandoval. That’s important, because the savings generated by using bond recovery for its lost San Juan investments could significantly offset any new electric rates approved by the PRC to cover additional grid investments since 2018.
Rate shock worry
The problem now is, that if PNM issues the bonds this year after abandoning San Juan, customers will see their monthly bills drop by about $7 per month, plus another $3 for eliminating coal expenditures. But within 15 to 18 months – after its upcoming rate case concludes – customer bills could shoot back up again, Sandoval said.
“By waiting to issue the bonds until after newly approved rates take effect, likely in January 2024, we can prevent a rate roller coaster, or rate shock, for customers,” Sandoval told the Journal.
And to “true up” the additional charges customers will continue to pay for San Juan after it shuts down – and before the bonds are issued in January 2024 – PNM will factor those over charges into the upcoming rate case and credit that difference back to customers in whatever new rates the PRC approves, Sandoval said.
Michel, however, questions whether PNM actually will, or even can, credit back overpayments to customers.
“Customers will be overcharged $125 million,” Michel said. “And trying to go back and reverse that later, without specific approved accounting mechanisms to do so, is unlawful, retroactive ratemaking.”
In addition, Michel said, customers should immediately benefit from San Juan shutdown savings and not wait for PNM to conclude its next rate case.
“Regarding rate shock, it is not PNM’s prerogative to withhold a rate reduction now to condition their customers for a possible rate increase later,” he said.