PNM’s decoupling proposal would cut savings
PNM Vice President Ron Darnell’s recent opinion piece urging the Public Regulation Commission to approve PNM’s recently proposed “full revenue decoupling” rate rider surcharge to its residential and small-business customers because it would help PNM become “carbonfree” by 2040 failed to inform the public, or the PRC commissioners whom it was apparently intended to (improperly) influence, of some important facts.
This “heads we win, tails you lose” rate proposal by PNM proposal is not only tone deaf during the current pandemic, but also one that should be summarily rejected by the PRC based on established regulatory law.
Currently, the only ways for PNM’s residential and small-business customers to manage and reduce their electric bills are by taking their own energy conservation actions (e.g., turning off unneeded lights, purchasing and using fewer energy-consuming devices), turning thermostats up in summer and down in winter, participating in a PNM energy conservation program for which they pay a monthly surcharge on their bills, or investing in a solar system on their property. PNM’s “decoupling” proposal would effectively eliminate most of the money-saving benefits its residential and small-business customers could achieve by taking any of those self-help actions.
Mr. Darnell didn’t disclose that, if approved by the PRC, PNM’s “decoupling” proposal
would not only allow PNM to surcharge its residential and small-business customers for its alleged “fixed costs,” including a 9.575% profit, that PNM does not recover due to their participation in a PNM energy conservation program pursuant to the Efficient Use of Energy Act (EUEA), but also such revenues PNM does not recover from them in a prior year for any other reasons, including changes in economic conditions (e.g., closures or reductions in hours due to COVID-19) and weather, or customers’ substantial investments in solar systems at their residence or business.
Even worse for some customers, including low-income customers, PNM’s “decoupling” proposal would surcharge all of its residential and small-business customers for those unrecovered revenues — not simply customers that used less PNM power by conserving energy or installing their own solar systems.
One well-established principle of New Mexico’s “regulated monopoly” framework is that monopolies such as PNM are not provided with a guaranteed level of profit, but only with a fair opportunity to earn the return on equity (ROE) authorized by regulators. PNM’s proposal would alter that aspect of the so-called “regulatory compact” by guaranteeing PNM recovery of all of its alleged “fixed costs” and whatever ROE the PRC authorizes from its residential and smallbusiness customers.
PNM’s most recent ROE for 2019 reported to the PRC was 9.622% — even higher than the 9.575% ROE authorized by the PRC in PNM’s last (2016) rate case. And PNM achieved those higher earnings before the PRC approved a “nonbypassable” surcharge by PNM to all of its customers, beginning in 2022, allowing PNM to recover 100% of its remaining investment in the coal-fired San Juan Generation Station scheduled for abandonment that year due its economic obsolescence, and associated abandonment and regulatory costs, as mandated by the Legislature in the 2019 Energy Transition Act.
PNM claims in its PRC filing that the Legislature gave it the right to recoup all revenues even “if a utility sells less power due to [solar], weather, or general economic conditions — whatever the reason.” PNM argued that the “Legislature’s pronouncement that the Commission ‘shall’ entertain a full revenue decoupling petition on a standalone basis trumps any argument that” the PRC can deny PNM’s proposal.
I doubt many, if any, New Mexico legislators would agree with PNM that this is what they intended to do to residential and smallbusiness customers of electric utilities when they amended the EUEA in 2019. And if it is what they intended, they have a great deal of explaining to do to the public.