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Water utility, UNM and industry protest renewable energy charge

The university installed this 114 kilowatt solar system on its UNM West Building this year. (Courtesy of UNM)

The university installed this 114 kilowatt solar system on its UNM West Building this year. (Courtesy of UNM)

ALBUQUERQUE, N.M. — About two dozen industrial energy consumers could be hit with a $1.5 million annual bill if state regulators stand by their decision to make large-scale electricity customers pay for fuel savings they now enjoy from Public Service Co. of New Mexico’s investments in renewable energy.

In addition, the Albuquerque Bernalillo County Water Utility Authority and the University of New Mexico would together face about $500,000 in new charges – even though they have already invested millions of dollars on their own to generate renewable energy.

New Mexico Industrial Energy Consumers, which represents all those parties at the New Mexico Public Regulation Commission, is appealing the PRC’s Nov. 18 decision ordering those entities to pay for allegedly “windfall” benefits they receive through lower fuel charges on their PNM bills.

PNM passes directly to ratepayers the costs of fuel it procures to generate electricity, such as natural gas and coal. As those costs have declined with integration of solar, wind and other renewables onto the grid, all consumers are benefiting.

A PRC hearing examiner, acting on her own initiative, concluded that large-scale industrial and institutional consumers receive a disproportional share of those savings while enjoying legal protections that either limit or fully eliminate the amount they must pay to support PNM’s renewable investments.

The five-member commission agreed and the PRC now says those big users should pay those savings back to the electric utility to share more of the benefits with ratepayers in general.

NMIEC and other opponents say that would unfairly impact industrial consumers with annual bills that, in the case of companies like Intel Corp., could mean a sudden charge of hundreds of thousands of dollars. And, while those companies would simply have to absorb the new costs, ratepayers would be forced to pick up the tab for fuel savings for the water utility, and taxpayers would foot the bill for UNM.

“The water utility will have to up its charges to customers and UNM could either impose additional charges on students or absorb the costs in their limited budget, which simply means doing less of something else on campus,” said NMIEC attorney Peter Gould. “Neither of those entities has shareholders who they can lay those costs off on.”

If the PRC doesn’t reverse its decision, NMIEC and some of the entities it represents, such as the water utility, say they will take the case to the state Supreme Court, since they believe state statutes shield them against the charges the commission wants them to pay.

For its part, PNM has not taken a stance on the issue, said Vice President for Regulatory Affairs Gerard Ortiz.

Statutes misread?

Under the New Mexico Renewable Energy Act, large-scale, non-government consumers are supposed to pay only up to 2 percent of their annual electric consumption to help finance public utility investments in renewable energy, with a cap of $99,000 per year.

That’s to protect those businesses from excessive costs for renewables, which all other ratepayers finance through a rate rider on their monthly bills that amounted to a 2.32 percent charge in 2015.

Without that statutory cap, which protects 25 industrial customers served by PNM, some large-scale consumers like Intel could pay well above the $99,000 for PNM’s investments in renewables.

UNM and the water authority, meanwhile, are entirely exempt by statute from renewable charges through a 2014 legislative amendment to the Renewable Energy Act that allows them to instead invest the equivalent of at least 2.5 percent of their annual electric costs in their own renewable systems.

In the water authority’s case, those investments amount to about $20 million in the past two years for renewable energy projects, such as solar electric and biomass-to-energy systems. If the PRC decision holds, in addition to the cost of those investments, the utility would have to pay nearly $300,000 for the annual fuel savings it has received through lower bills charged by PNM.

In UNM’s case, the fuel-savings bill would amount to about $191,000 per year, said UNM Physical Plant Director Jeffrey Zumwalt.

“Up until this year, we were paying about $500,000 per year for PNM investments in renewables because the cap on industrial consumers didn’t apply to governmental agencies,” Zumwalt said. “Through the amendment that exempted us from those payments, we keep that money to invest it into our own systems.”

UNM has invested about $2.17 million in solar projects on campus since 2010, providing a total of 468 kilowatts of electricity annually, or the equivalent of the energy consumed by more than 100 average New Mexico homes each year.

More than one-fifth of that capacity was installed just this year and UNM is planning another solar project on the southside of campus that will add nearly 100 kilowatts more to the university’s solar capacity at a cost of $484,000, Zumwalt said.

“If we have to pay for fuel savings (through PNM’s system), we would still do the solar investments, but we’d have to find the $191,000 somewhere in the budget,” Zumwalt said.

The PRC, which approved the charges for fuel savings in a unanimous 5-0 vote, said those payments would not run afoul of the legislative statutes because it would be compensation for “windfall” fuel benefits the large entities are receiving through PNM’s decreased fuel costs.

“It’s a windfall for both the large-cap customers and the exempt customers,” said Carolyn Glick, the PRC hearing examiner who recommended the commission impose the fuel-savings charge.

She said big industrial users are receiving unearned fuel savings and the exempt customers don’t pay for any costs of PNM’s compliance with the state-mandated renewable portfolio standard.

She said it’s a matter of “eliminating an unfair situation.”

Gould and some of the large-scale customers said that is a distortion of the statute, which clearly places a “hard cap” on what large-scale industrial consumers must pay for utility investments in renewables, and which outright “exempt” UNM and the water authority from payments.

“We think the hearing examiner misread the statutes and imposed an additional charge when the statutes clearly say there are no additional charges intended,” Gould said.

Savings make sense

For some large industrial customers like Intel, the charge could be substantial. As the largest customer on PNM’s system, Intel would likely be responsible for more than half of the $1.5 million in fuel savings for the 25 large-scale customers that qualify for the cap on renewables.

Some environmental groups, including Western Resource Advocates and the Coalition for Clean Affordable Energy, support the decision to charge industrial consumers for the fuel savings, but don’t support the charge for UNM and the water authority, said Steve Michel, chief attorney for Western Resources.

“For the exempt customers, the statute is aimed at providing incentives that UNM and the water authority have acted on to procure a lot of renewables at their facilities, and it makes sense that they save on fuel costs because that translates back either into lower taxes or lower water bills,” Michel said. “With capped customers, they’re getting a windfall that doesn’t flow back to New Mexico citizens. It just flows back to their bottom line.”

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