Why are PNM’s electric costs so high?
Actual 2014 residential electricity rates for Public Service Company of New Mexico customers were the highest in New Mexico.
PNM’s actual residential rates were 13 cents per kilowatt-hour. Residential rates for the city of Farmington’s municipal utility were 9.2 cents per kWh, and Southwestern Public Service, which serves southeastern New Mexico (Carlsbad, Roswell, Artesia, Tucumcari, Hobbs, etc.), has residential rates of 9.5 cents per kWh. PNM’s residential rates were 41 percent higher than Farmington and 37 percent higher than SPS. The story is similar for commercial electricity rates, with PNM’s actual 2014 rates more than 20 percent above SPS and Farmington. This seems insane, considering the much larger and presumably favorable economies of scale that PNM enjoys. (SPS serves 119,000 customers in New Mexico, and PNM serves about 500,000.)
Why are PNM’s costs so high? In 2013, Southwestern Public Service got approval from the New Mexico Public Regulation Commission for a 700-megawatt wind project at 2.3 cents per kWh. SPS’s sole purpose for this project was to save ratepayers money, $590 million over the life of the project. When PNM went out for bids in 2014 and filed its report with the PRC, it reported wind prices at 3.8 cents per kWh. PNM’s costs were 65 percent higher than SPS results.
Why are PNM’s costs so high? In 2014, PNM got approval from the PRC for a 40-megawatt solar project at 6.8 cents per kWh. In April 2015, SPS submitted a request to the PRC for approval of 140 megawatts of solar. It received 38 bids at less than 5 cents per kWh and finally agreed on a bid at 4.2 cents per kWh. SPS’s purpose for this project was to save ratepayers money, and PRC filings show this solar project will save customers $26 million. PNM’s cost per kWh was 62 percent higher than SPS’s results and less than half the size of SPS’s solar project.
Why are PNM’s costs so high versus SPS’s? I don’t know.
Why is PNM’s use of new technology, such as wind and solar, that saves customers money so low? PNM is heavily invested in old technologies, coal and nuclear, that are rapidly increasing in cost, while the cost of new technology for both solar and wind has dropped below the cost of coal and nuclear. PNM currently produces about 80 percent of its energy from coal and nuclear. Even when two of the units at the San Juan Generating Station are retired, PNM’s plan still produces about 70 percent of its energy from these old technologies.
PNM’s plan guarantees that overall costs will increase with these old technologies, and it also ensures that the new, lower-cost technology resources will be limited. (They cannot be added, as the energy is proposed to be produced by coal and nuclear.) For example, PNM wants to sell energy from its Palo Verde nuclear unit, located in Arizona, at price of 8 cents per kWh to New Mexico ratepayers. This is much higher than all of the wind and solar costs. Also, PNM currently sells this energy on the merchant market for 3.7 cents per kWh. It seems as if PNM wants to sell this energy to New Mexico ratepayers at more than twice the market price.
I am a business owner in Northern New Mexico. PNM’s continuing rate increases since 2008, the proposed rate increase for 2016 (another 16 percent for residential and 14 percent for small commercial) and likely future increases are a major problem for small businesses in this area. PNM should invest in cost-effective wind and solar and dramatically reduce its dependence upon coal and nuclear.