PNM 'shocked' by rate case recommendation - Albuquerque Journal

PNM ‘shocked’ by rate case recommendation

Copyright © 2016 Albuquerque Journal

“Shocked.”

That’s the word Public Service Company of New Mexico executive Ron Darnell used to describe the company’s reaction to a regulatory recommendation handed down last week, which slashed the company’s rate hike request by two-thirds.

The recommended decision, by New Mexico Public Regulation Commission hearing examiner Caroline Glick, rejected the utility’s request for an increase of $123.5 million in annual revenues in favor of a dramatically reduced increase of $41.3 million. The PRC is expected to hand down a decision Aug. 31.

Part of the difference between PNM’s request and Glick’s recommendation is due to Glick’s decision to exclude from the rate base calculation PNM’s purchase of 64 megawatts of power from the Palo Verde Nuclear Generating Station in Arizona for $163.5 million. The exclusion decreased the recommended annual rate increase by about $24 million.

If approved by the commission, Glick’s recommendation would mean that PNM customers on average would see their bills increase by 6.4 percent instead of 14.4 percent under PNM’s application. It would also mean severe financial challenges for the utility, according to statements by the company’s executives.

“It’s one thing to argue about the valuation of the purchase,” said Darnell, PNM’s senior vice president of public policy. “It’s quite another to exclude it entirely. I really don’t know how she could have arrived at zero.”

Glick declined to respond to questions from the Journal, saying through a PRC spokesman that doing so would be beyond the scope of what is permissible in the middle of a case. But in her recommendation, she blasted PNM for the Palo Verde purchase, calling it imprudent.

“Ratepayers are not to be charged for negligent, wasteful or improvident expenditures, or for the cost of management decisions which are not made in good faith,” Glick wrote.

PNM made the nuclear power purchase in January to replace some of the energy it will lose from shutting down two units at the coal-powered San Juan Generating Station. The closures are part of an agreement between PNM and the Environmental Protection Agency aimed at reducing air pollution in the Four Corners area.

In her recommendation, Glick said PNM failed to prove that the Palo Verde purchase was the most cost-effective choice for replacement power compared to other alternatives, such as natural gas or renewables. Glick pointed to a 2013 PNM memo in which management appeared to indicate that it had purchased the 64.1 megawatts to increase its rate base and earnings, an accusation PNM denied.

Of the nine intervening parties that filed supplemental briefs on the Palo Verde purchase, only two – New Energy Economy and the Albuquerque Bernalillo County Water Utility Authority – recommended complete exclusion of the purchase, on the grounds that PNM had not provided sufficient financial analysis to show the purchase was reasonable.

The others either called for varying amounts of recovery for PNM, though not as much as the company had requested, or declined to state how they believed the purchase should be valued.

Mariel Nanasi, executive director of New Energy Economy, said she had anticipated that the hearing examiner’s recommendation on the Palo Verde purchase would mirror that of her organization.

“PNM simply had no alternatives analysis. It was an imprudent purchase,” she said.

PNM argued in the hearing that the analysis would be appropriate in a resource planning or acquisition case, not a rate case. PRC utility accounting bureau chief Charles Gutner, a former PNM employee, had originally filed testimony supporting PNM’s request for the full $163.5 million, but his testimony was stricken from the record during the hearing when he changed his mind on the stand to support a lesser number. Gutner told Glick that he had changed his mind as a result of information PNM disclosed during the proceedings.

Other exclusions

The Palo Verde power purchase wasn’t the only major exclusion Glick made from the rate base calculation. She also cut $19.5 million in costs associated with other Palo Verde transactions, as well as $52.3 million in pollution controls at the San Juan Generating Station that some called excessive.

While PNM requested a return on equity of 10.5 percent, Glick recommended 9.57 percent. She also called PNM’s request to increase a fixed charge for every homeowner from $5 to $13.14 “astonishing,” and recommended a charge of $7. PNM sought the increase to recover costs that included residential customer billing, meter reading and customer service, according to its application.

PNM CEO Pat Vincent-Collawn warned of the problems the utility could face if Glick’s recommendation is adopted.

“PNM’s credit rating could be downgraded due to the lack of timely cost recovery and an uncertain regulatory environment,” she said in a statement when the recommendation was announced. “Customer bills would potentially be impacted because PNM would have to pay more to access capital for improving and maintaining the energy grid. In addition, PNM will be forced to reevaluate its spending for New Mexico infrastructure, operations and in other areas.”

The day after Glick’s recommendation, PNM suspended its request to the PRC to install smart meters, stating in a filing it “will need to evaluate the financial implications of the commission’s final order in (the rate case), including its potential effect on the company’s capital funding priorities going forward.”

In an earnings call on Tuesday, PNM announced that the company’s net earnings dropped 26 percent between April and June compared to the year before, a decline driven by decreased electric demand in the state. A PNM executive said during the call that if PRC did not “correct” Glick’s recommendation with its own decision, the company would immediately appeal to the New Mexico Supreme Court.

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