PRC hearing examiners reject PNM rate settlement

Depreciation deal not part of original request, examiners say

Regulatory examiners in charge of reviewing Public Service Co. of New Mexico’s latest rate case have rejected a proposed agreement by PNM and other parties to lower the utility’s requested rate hike from 14 percent to 9 percent.

PNM had announced the agreement on May 5 with eight other organizations intervening in the case at the Public Regulation Commission.

But the two hearing examiners presiding over the case, Ashley Schannauer and Anthony Medeiros, rejected the settlement on Friday, saying parts of it could violate established regulatory procedures.

The settlement, or “stipulation” agreement, called for lowering PNM’s request for an additional $99.2 million in annual revenue to $62.3 million. If approved, the increase would be implemented over two years, with average residential customers paying about 3.9 percent more on their bills in 2018 and 3.4 percent more in 2019.

It also paved the way for PNM to close the coal-fired San Juan Generating Station near Farmington in 2022, and to pull out from the nearby Four Corners Power Plant by 2031, if not earlier.

To do that, the parties had agreed to allow PNM to increase depreciation rates at San Juan for faster recovery of investments there from ratepayers, reducing the utility’s losses before abandoning the plant by allowing it to generate an extra $10 million in revenue annually. Settlement terms would also allow it to recover up to $150 million from investments at Four Corners.

But the examiners said those changes to depreciation rates did not form part of PNM’s original request for a 14 percent rate hike, and to approve them as written in the settlement would force the commission to “pre-judge” issues of cost recovery years before PNM has even filed to abandon those facilities. That would lock regulators into pre-established orders on cost recovery in future rate cases, when such issues should be fully reviewed and vetted in public hearings.

The examiners also objected to the settlement’s proposal to separate the rate case into two phases, one to set higher rates for PNM, and the second to establish a new rate structure that sets different percentage hikes in rates for residential, commercial, industrial and institutional customers.

That two-phased process would, in effect, extend the case beyond the implementation of the first new rates to take effect in January 2018, “imposing unnecessary complexity on a major rate proceeding with looming suspension deadlines,” the examiners said.

Still, the examiners left open the door for settlement participants to make changes and re-file the agreement.

“In sum, this Order does not dismiss this case,” the examiners said. “It only provides that the stipulation, as currently written, should not be heard. The parties have the opportunity to revise the stipulation to eliminate the problems cited in this Order.”

But PNM and possibly the other parties in the agreement will likely appeal directly to the commission to override the examiners’ order.

“We strongly disagree with the order rejecting the agreement prior to any public hearings,” said PNM spokesman Pahl Shipley in an email to the Journal late Friday. “We will be asking the commission to review the hearing examiners’ order.”

About a dozen organizations now support the settlement, since three more groups signed on in the last week. That includes the City of Albuquerque, the Albuquerque Bernalillo County Water Utility Authority and the New Mexico Industrial Energy Consumers.

One lone wolf, the Santa Fe-based environmental organization New Energy Economy, opposes the agreement, largely because it allows PNM to recover investments at the San Juan and Four Corners plants without having fully justified those expenses at the PRC.

The examiners’ order vindicates New Energy’s position, said the group’s executive director, Mariel Nanasi.

“New Energy Economy decried the unjustified rate increase as a heavy and unjustified burden on New Mexican families,” Nanasi said in a statement. “And this is exactly what the hearing examiners found.”