Immediate San Juan-related utility rate relief recommended - Albuquerque Journal

Immediate San Juan-related utility rate relief recommended

Public Service Company of New Mexico customers could see an $8 reduction in their monthly electric bills starting in October after the coal-fired San Juan Generating Station fully shuts down. (Roberto E. Rosales/Albuquerque Journal)

Copyright © 2022 Albuquerque Journal

Public Service Company of New Mexico customers could see an $8 reduction in their monthly electric bills starting in October after the coal-fired San Juan Generating Station fully shuts down.

But that depends on the five-member state Public Regulation Commission, which must decide whether to force PNM to immediately credit customer bills for savings that come from closing the plant’s two operating units, the first of which will cease functioning on June 30, and the second on Sept. 30.

PNM wants to continue charging customers for the plant even after closure to help pay for new investments it’s made in the grid since 2019, and then use that additional income to offset its next rate hike, which will likely come at the start of 2024.

On Friday, however, two PRC hearing examiners recommended that the commission order PNM to immediately start crediting all savings back to customers after the two units close. That would equal about $134 million over the 18 months from July 1, when the first San Juan unit closes, to December 2023, when PNM’s next rate case will likely conclude.

That would amount to about $8.19 per month less on the average monthly bill for residential customers, depending on the amount of electricity they consume.

The hearing examiners weighed input on the issue since early April from PNM, and from nearly a dozen parties opposed to the utility’s plan to withhold savings, including a weeklong public hearing in late May. They concluded that legally, PNM has no authority to retain the additional income that comes from San Juan’s closure, and that ordering immediate rate relief for customers after San Juan shuts down is in consumers’ best interests.

“PNM should be required to issue rate credits to PNM ratepayers upon the abandonment of each (San Juan) unit to completely remove the costs of each unit from PNM’s rates,” the two hearing examiners – Anthony Medeiros and Ashley Schannauer – wrote in their “recommended decision” to commissioners.

The full commission must now make a final decision in the case, likely at its June 29 weekly meeting, to rule on the issue before the first unit shuts down.

In the meantime, the recommended decision drew broad praise from parties opposed to PNM’s plan to withhold savings.

Noah Long of the Natural Resources Defense Council said monthly savings would total nearly $130 per customer over the next 18 months.

“People are facing price increases now across the board,” Long told the Journal. “This can help folks who are struggling.”

PNM, however, says using savings to offset a forthcoming rate hike would benefit customers more, avoiding a rate “roller coaster,” whereby monthly bills decrease and then shoot back up again later. PNM also says ordering a rate credit without a rate case oversteps PRC authority.

The company is awaiting the commission’s final decision, said PNM spokesman Ray Sandoval.

“PNM is hopeful that when the commission looks at PNM’s plan, it will find that ours is indeed the best path for customers,” Sandoval told the Journal. “If the commission adopts the recommended decision, PNM will need to review the final order and assess the next steps.”

Legal issues

Managing the financial impact of closing San Juan is directly connected to the state’s Energy Transition Act, which requires PNM to transition its grid to 100% non-carbon generation by 2045. To comply, PNM is closing San Juan about 20 years early, leaving nearly $300 million in lost investments it must still recover to remain financially sound.

To ease the transition, the ETA authorized a financial mechanism known as “securitization,” which allows PNM to sell low-cost bonds after plant shutdown to immediately recoup its investments and pay them back over 25 years through a monthly surcharge on customers’ bills. That secures PNM’s financial stability, while also saving customers money by replacing expensive coal with cheaper solar energy, and by using low interest rates on bonds to reduce customer payments for past investments in San Juan.

PNM also agreed to forego all profits on its plant investments when using bonds, increasing ratepayer savings.

The PRC authorized PNM in 2020 to raise $361 million from bonds to cover its lost San Juan investments and related expenses, plus $40 million more to assist workers and local communities impacted by plant shutdown.

But early this year, PNM announced it would postpone issuing the bonds until after its next rate case concludes, generating a backlash from all parties who participated in deliberations on San Juan’s closure in 2020.

Everyone had expected the bonds to immediately replace customers’ current monthly payments on San Juan when the plant closes to provide instant savings for ratepayers. And that’s clearly reflected in the PRC’s 2020 order authorizing the bonds, said Stephanie Dzur, an attorney with the Coalition for Clean Affordable Energy.

Delaying the bonds now denies those customer savings, while potentially offering PNM “double recovery” for its San Juan investments, Dzur said. That’s because customers would continue paying for San Juan on their monthly bills over the next 18 months, and then, after the bonds are actually issued, PNM would still recover the full net book value of the plant, since under ETA terms and conditions when using securitization bonds, the total value of PNM investments in San Juan gets locked-in at the time of plant closure.

Dzur called that an “illegitimate” scheme that hurts customers.

“It violates the ETA,” Dzur told the Journal. “… Ratepayers will not benefit if they have to pay the balance of PNM’s stranded assets twice, first through their rates and a second time when the energy transition bonds are issued.”

PNM says it needs continued earnings from San Juan to help pay for some $2.1 billion in new investments its either already made, or expects to make in the grid this year and in 2023. PNM can’t charge customers for those investments until the PRC approves new utility rates.

That means ratepayers are now saving up to $36 million per year through uncompensated capital expenditures made by PNM. And those savings will continue until the end of PNM’s next rate case, said PNM spokesman Sandoval.

The utility had intended to file two rate cases in 2020 and 2021, but the pandemic and PNM’s proposed merger with Connecticut-based energy giant Avangrid forced the company to postpone filing for new rates, which it now intends to do in December.

If the utility is forced to issue a rate credit now to customers, PNM’s credit ratings could dive, since the decrease in earnings would come on top of its still-uncompensated investments, Sandoval said. And that, in turn, could lead to higher interest rates in the future that will hurt customers in the long-term.

Moral hazard?

PNM says it always intended to issue the securitization bonds after concluding its next rate case to “true up” all its new investments and income before removing San Juan from customers’ bills, allowing the savings from using the bonds and replacing coal with solar energy to buffer the impact of new rates. But previous rate-case postponement forced it to alter the timing of the bonds until all costs and expenses can be trued up in a still-forthcoming rate filing.

According to PNM, neither the ETA nor the PRC’s 2020 order authorizing use of securitization bonds requires the utility to issue them when San Juan actually closes.

The hearing examiners, however, rejected those arguments, accusing PNM of “guileful manipulation” in interpreting the terms and conditions of the ETA and the PRC order to its own advantage. That constitutes a “moral hazard,” the examiners said, whereby PNM is attempting to “game” the law.

“The hearing examiners find that PNM’s new plan violates the intent of the ETA and constitutes a moral hazard to the substantial and potentially irremediable detriment of PNM’s ratepayers unless a remedy is imposed,” the examiners said. “… We therefore recommend that PNM should be required to issue rate credits to PNM ratepayers upon the abandonment of each (San Juan) unit from PNM’s rates.”

Under the recommendation, the rate credit would be required whether PNM chooses to issue the securitization bonds or not, thereby assuring customer benefits once San Juan shuts down.

The examiners also recommended that PNM be ordered to transfer the $40 million earmarked to assist displaced workers and local communities within 30 days after closure of the first San Juan unit on June 30. And, they recommend that PNM be required to explain and defend its decision for delaying bond issuance in its next rate case, given that interest rates are now rising, which could erode consumer benefits from the bonds if PNM waits 18 months to issue them, according to the examiners.

PNM Chairman, President and CEO Pat Vincent-Collawn said the recommendations, if adopted by the commission, will unfairly punish PNM for trying to find an equitable balance between the interests of ratepayers and shareholders.

“For the benefit of customers, we have repeatedly deferred our planned rate filings to avoid increasing customer bills during the global pandemic,” Vincent-Collawn said in a statement. “This recommendation would arbitrarily penalize the utility for delaying a planned rate increase and putting customer interests first in our decision-making.”

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