The company had requested $99.2 million in new annual revenue when it filed the case in December, which would have increased overall average rates for all customers by 14.3 percent. Residential and small-business consumers would have faced higher percentage hikes than large industrial and institutional consumers in that proposal, although rates would have been implemented in stages in 2018 and 2019 to mitigate the impact.
Under the new settlement agreement, PNM’s annual revenue would grow by only $62.3 million. That would still be phased-in over two years, and most of the rate-paying classes would face the same base-rate percentage increases of a total 9 percent over two years.
Average residential customers will pay about 3.9 percent more on their total bill in 2018, and an additional 3.4 percent in 2019. The impact is smaller because the rate increase only applies to a portion of the total bill.
About a dozen parties are participating in the case. Of those, PNM and eight others have signed the settlement, including the attorney general, PRC utility staff and four environmental and consumer advocacy groups: Western Resource Advocates, Sierra Club, the Coalition for Clean Affordable Energy and the Renewable Energy Industry Association. The board of New Mexico Industrial Energy Consumers will vote next week and Energy Freedom Coalition of America remains neutral.
Only one lone wolf, Santa Fe-based New Energy Economy, is so far opposing the agreement.
Those signing the settlement said it represents a good deal for ratepayers that ensures the utility’s financial stability and electric system reliability while working toward more environmentally friendly generation.
“The broad support of this agreement demonstrates the parties’ shared vision for PNM customers to have affordable, reliable and environmentally responsible power,” Pat Vincent-Collawn, PNM Resources chairwoman, president and CEO, said in a statement.
The rate impact on customers is now lower than it otherwise might have been, and the two-year phase-in will help offset the impact, said Steve Michel, attorney with Western Resource Advocates.
“We believe it’s a good outcome for consumers that also provides a reasonable rate path forward for PNM,” Michel said.
All sides made significant concessions. PNM, for example, agreed to a 9.575 percent return on equity, which the PRC had approved in its previous rate case last year, thus forgoing a bump to 10.125 percent that the company had sought in its proposal in December.
PNM also accepted a much lower increase in the current $7 fixed charge residential consumers pay on their monthly bills independent of how much electricity they consume. PNM agreed to a 65-cent increase in contrast to the $6 increase it proposed in December.
PNM has said it needs more fixed-charge income to compensate for energy efficiency programs that have decreased electric consumption in recent years. PNM’s fixed costs to keep the grid operating 24/7 have remained unchanged despite declining consumption, leading to $91 million in unrecovered utility costs from 2011 to 2016.
In the settlement, rather than cover such losses through higher fixed charges on bills, the parties will seek solutions for energy efficiency-related revenue issues through more regulatory proceedings next fall.
The new rate hike would come on the heels of a rate increase last October that added about 10 percent to the average residential monthly bill.
Four Corners controversy
The parties also negotiated significant agreements on the coal-fired San Juan Generating Station and Four Corners Power Plant near Farmington. The agreements could help pave the way for PNM’s early shutdown of San Juan and a pullout from Four Corners in coming years. Much of the company’s rate hike will pay for capital investments related to shutting down two of the four San Juan generating units and installation of pollution controls at Four Corners, where PNM owns a 13 percent ownership stake.
Under the settlement, PNM would raise depreciation rates at San Juan to generate an additional $10 million in revenue annually to accelerate cost recovery for capital investments there. That would be offset by lower depreciation rates on the company’s electric distribution system.
That could ease the burden of shutting down San Juan entirely in 2022 when the plant’s co-ownership agreement and coal contract end.
At Four Corners, PNM will be allowed to recover its share of investment in pollution controls that were mandated under environmental laws, but it has agreed to earn only enough return on that investment to pay off debt, not to turn a profit. It also agreed to review the potential costs and benefits of an early pullout from Four Corners before the ownership and coal contracts there expire in 2031. The company will analyze impacts if it departed in 2024 or 2028 as part of its next integrated resource plan, which it prepares every three years to chart the most affordable and reliable paths forward in future years.
Those agreements helped pave the way for support from environmental and renewable energy organizations in the settlement.
“The rate-making treatment we worked out for San Juan and Four Corners will make it easier for PNM to get out of coal generation in the next few years,” said Chuck Noble, attorney for the Coalition for Clean Affordable Energy.
New Energy Economy opposes the settlement principally because it allows the utility to recover capital investments in the Four Corners plant. The group says PNM has never justified retaining its ownership stake there with a financial analysis that shows its investments in Four Corners, which total about $150 million, are beneficial for ratepayers as the law mandates.
“PNM is asking ratepayers to foot a $150 million bill on capital expenditures on a 50-year-old plant without any financial analysis to show it’s justified or cost-effective,” said NEE executive director Mariel Nanasi. “That’s a heavy and unfair burden to place on ratepayers.”