ALBUQUERQUE, N.M. — Typical Public Service Company of New Mexico residential customers could be looking at a $9.75 hike in their monthly electric bills — about 14 percent — starting in January 2016 if state regulators approve a new rate increase requested by the utility on Thursday.
PNM is seeking approval from the New Mexico Public Regulation Commission for an overall 12 percent rate hike to generate an extra $107 million in annual revenue.
The company needs those extra funds to cover new investments in power plants and other infrastructure, adding to its renewable energy portfolio and to make up for a drop in power consumption caused by energy conservation and a still-sluggish New Mexico economy that has dampened electricity demand, said PNM Chairwoman, President and CEO Pat Vincent-Collawn.
“This is the first rate increase we’ve filed for since June 2010,” Vincent-Collawn told the Journal’s editorial board. “I don’t like filing for a rate increase any more than consumers like paying for it, but we need to do it.”
Under PNM’s proposals, the average residential customer consuming under 600 kilowatt hours of electricity each month would face nearly a 14 percent increase in their monthly bills. In contrast, large industrial consumers could actually see their monthly payments drop by almost 7.7 percent.
PNM says large users have been subsidizing residential ratepayers and the proposed rate design would address that and encourage economic development and job growth.
All told, PNM says it needs to recover $585 million in capital investments either already made since 2010, or planned through 2016. That includes the cost of some pollution controls and elimination of two units at the coal-fueled San Juan Generating Station near Farmington. It also includes investments in new solar and natural gas capacity, costs related to power from Palo Verde Nuclear Generating Station, and costs for transmission infrastructure and electric substations.
Those investments account for about 90 percent of the new revenue PNM will generate if its rate hike request is approved. The rest would help offset declining electric sales, which have placed pressure on PNM’s ability to cover fixed costs for maintaining and operating the grid.
The company says its operating costs have grown .2 percent.
“We take bill increases and the impact they can have on our customers very seriously and have worked hard to mitigate the need for this request,” Vincent-Collawn said. “These steps are critical for PNM to be able to maintain reliability, continue the move toward cleaner energy resources and to best serve our New Mexico customers.”
PNM is likely to face stiff resistance at the PRC, where consumer groups and solar energy advocates are expected to oppose many of the utility’s proposals. That includes a request to increase the fixed rate that residential and small business customers pay on their bills regardless of how much energy they consume. That’s aimed at guaranteeing an adequate revenue flow to cover the utility’s fixed costs as electricity use declines.
The proposals also include a new monthly “interconnection fee” that PNM wants to charge customers who install solar photovoltaic systems after Jan. 1 2016 to help pay for their access to electricity from the grid when the sun isn’t shining — something PNM says is fair because other consumers subsidize people with rooftop solar.
The solar fee could prove particularly controversial, since it would lead to a $21-per-month charge for the first time on most residential customers who install new solar systems. Solar industry leaders fear that could dampen the economic benefit of installing rooftop solar, possibly discouraging customer adoption and stunting growth of solar installation businesses in New Mexico.
As for the fixed-charge increase on bills, PNM wants to raise it from $5 today for the average residential customer to $12.80. That would help PNM secure the steady revenue flow it needs to maintain the grid, given that today only about one-fourth of all monthly bill charges come from the fixed payments. Nearly all the rest comes from charges for the actual electricity consumed by customers each month.
By raising the fixed charge, PNM could continue to encourage energy efficiency and conservation without concern over revenue declines undercutting its ability to maintain the grid, said PNM Vice President for Regulatory Affairs Gerard Ortiz.
“There’s a fundamental disconnect in the rate structure now that creates issues,” Ortiz said. “If a customer conserves energy or uses solar PV, they reduce their consumption but they still rely on the electric system while avoiding the costs of it.”
Without increasing the fixed charges on bills, those costs end up getting passed on to other customers, particularly large-scale electricity users, Ortiz said. That’s because as customers consume higher amounts of electricity, they pay more for each kilowatt hour used — a system established in the rate structure a few years ago to encourage conservation.
As a result, large consumers today are basically subsidizing smaller-scale users in terms of paying for investment in the grid, something PNM will try to partially reverse by limiting the increase in fixed-bill charges to only residential and small business users. Large-scale commercial and industrial customers would be exempt, said PNM Senior Vice President of Public Policy Ron Darnell.
“We’re looking at some robust changes regarding fairness and equity in how costs are allocated to customers,” Darnell told the Journal.
Rate structure changes
But that may prove especially controversial at the PRC, because it will cause uneven rate increases for different consumer classes if the commission approves it, placing most of the rate-increase burden on residential and small business customers.
Overall, PNM says its proposals would lead to a system-wide average rate increase of just 7.7 percent, once the decreases in rates for some large-scale users are factored in. But for residential consumers in general – including both average customers and those who consume more than 600 kilowatt hours of electricity per month – the proposals would mean an across-the-board average increase of nearly 12 percent.
PNM can expect close scrutiny of its proposals by intervenors in the case at the PRC, who will likely seek to lower the rate hike amount and roll back some of its most controversial elements, such as the solar interconnection fee, said Steve Michel, chief counsel for Western Resource Advocates.
“They’re asking for a significant increase, and I can’t remember a single rate case in the past that wasn’t heavily litigated and that didn’t result in substantial changes to PNM’s original proposals,” Michel said. “I think there’s a reasonable expectation that will be the case here too.”