Public Service Company of New Mexico has proposed increasing electric rates in a case now pending before the Public Regulation Commission. The big issues in the case are the amount of rate increase that PNM is entitled to, how the rate increase (if there is one) should be allocated between residential and business customers, and whether or not the monthly fixed charge on utility bills should be increased.
But there is another issue in the case that could have a big – and positive – impact on consumers in the future.
PNM has proposed a revenue balancing account which would significantly modify its business model. At the present time, once the PRC sets electric rates PNM has a financial incentive to sell as much electricity as possible and thereby increase its profits. But under the proposed revenue balancing account, PNM no longer has this incentive.
What is the rationale for adopting the revenue balancing account? One of the main reasons is that it holds PNM harmless when customers reduce their electricity purchases as a result of adopting energy efficiency measures or rooftop solar systems.
PNM is offering incentives to their customers for such measures, but their enthusiasm is dampened when they lose money every time a consumer saves energy or installs a solar system. The account would ensure that PNM is not harmed financially when they “do the right thing” for their customers and the environment.
How does the revenue balancing account work? It would ensure that PNM receives the amount of revenue it is entitled to per customer as determined by the PRC – no more or no less.
If PNM collects more revenue per customer than the PRC determines is appropriate, then the utility would provide a refund to its customers the following year.
And if PNM collects less than its approved revenue per customer, then it would add a surcharge to rates to make up the difference. The account would only apply to electric rates for households and small businesses.
Revenue balancing account mechanisms have been adopted by utility commissions in 15 states for electric utilities and more than 20 states for gas utilities. The experience in these states has been very positive.
The annual adjustments are relatively small, typically 2 percent or less, and they go both ways.
In some years consumers get a refund and in other years there is a small surcharge. Moreover, experience shows that utilities implement much more effective energy efficiency programs for their customers in states that have adopted a revenue balancing account mechanism.
By adopting the revenue balancing account policy, there is no longer any justification for increasing the monthly fixed charge on consumers’ utility bills. Increasing the fixed charge would be particularly harmful to lower usage customers, which are frequently lower income households.
So the revenue balancing account is more equitable and socially desirable, and consequently is supported by consumer and low income groups that oppose PNM’s proposed increase in the monthly fixed charge.
For these reasons, we urge the PRC to approve the revenue balancing account mechanism proposed by PNM.