Today Public Regulation Commission Hearing Examiners Anthony Medeiros and Christopher Ryan issued a recommended decision in Case 22-00270-UT. PNM’s application requested a rate increase of 9.65%. The Hearing Examiners recommended a rate case decrease of 3-4 % for the average residential ratepayer. PNM asked for an increase from 9.575% in their Return on Equity (profit for shareholders) to 10.25% but the Hearing Examiners recommended 9.26%. The Hearing Examiner’s found, for a second time, that PNM’s 2016 decision to invest in extending the life of the Four Corners Coal Plant (FCPP) was imprudent, stating unequivocally that “PNM has failed to meet its burden of demonstrating the company’s decision to extend its participation in Four Corners was prudent.” (p.134). PNM retained an $850,000 expert witness to try and convince the Hearing Examiners that PNM was prudent in their FCPP investment but they found his testimony to be “fatally flawed.” (p. 157).
The Hearing Examiners found $238.7 million net cost to ratepayers due to PNM’s imprudent FCPP decision (p. 185), and identified a further problem - that there would be additional potential harm from “undepreciated plant balance” upon expected closure of the plant in 2031 (that could be securitized or paid by ratepayers in another manner). (p. 131). This amount would be an additional $286,904,778! Together the financial harm has the potential to reach $525,604,778.
Despite the finding of $238.7M in harm to ratepayers, and a potential additional $287M when the plant finally closes, the Hearing Examiners recommended only an $84M disallowance from rate base, 32.4% of only the $238.7M amount. (p. 199) This is a substantial disallowance but falls far short of the remedy demanded by law in the State of New Mexico - that ratepayers must be held harmless for the imprudent decisions of utility executives.
While there are a lot of good things in the Recommended Decision, don't let the 3% rate decrease fool you. It ought to be a lot more, given that PNM was reckless in their climate-altering Four Corners Power Plant investment. If ratepayers were actually held harmless for PNM’s recklessness and greed the reduction in rates would’ve been far more than 3%. The remedy recommended by the Hearing Examiners will still allow PNM to securitize all the remaining balance in a later case and stick ratepayers with hundreds of millions for PNM’s imprudent Four Corners investment. This is unfair. We will ask the Commission to do what the law requires to fully protect ratepayers and hold the company accountable.”
The Hearing Examiners found that even though the Four Corners Power Plant is still operational it cannot be considered “useful” under the “used and useful” requirements for capital assets, stating that “the evidence on harm in this case shows that Four Corners is an uneconomic resource.” (p. 185) This is further justification for a more significant remedy than what was offered by the Hearing Examiners.
On Palo Verde Nuclear Leases:
The Hearing Examiners recommended a disallowance of $51.3M for PNM’s imprudent decision to extend leases at the Palo Verde Nuclear Generating Station (PVNGS), and agreed with our argument that PNM must repay ratepayers for $38M they continued to collect from ratepayers for Palo Verde nuclear leases after those leases were sold to a third party.
However, their recommendation to defer a decision on responsibility for future decommissioning costs for the Palo Verde Nuclear Plant fails to hold PNM to account for ignoring the Public Regulation Commission’s Order in Case No. 21-00083-UT:
“Consideration of any issues raised by PNM’s application in this case that have not been resolved by this order shall be addressed as in Case 22-00270-UT. This includes the issue of whether PNM’s decisions to renew the five leases and repurchase 64.1 MW of PVNGS Unit 2 capacity (which were found to be imprudent in Case No. 15-00261-UT) exposed ratepayers to additional financial liability beyond that to which ratepayers would have been exposed had PNM chosen to not renew the leases and not to repurchase the 64.1 MW of PVNGS Unit 2 capacity and whether PNM should be denied recovery of any future decommissioning expenses as a remedy for PNM’s imprudence.”
PNM must not be allowed to ignore Commission orders and foist these substantial future costs onto ratepayers.
On Return on Equity and other financial metrics:
The Hearing Examiners recommended a reduction of return on equity from their current 9.575% to 9.26%, NOT the increase to 10.25% requested by PNM. (p.250) The Hearing Examiners also recommended a capital structure of 49.61% equity, 50.10% debt and .29% preferred stock. (p. 274) They also suggested that the Commission should authorize an overall weighted average cost of capital (WACC) to be reduced from PNM’s current 7.2% to 6.47%. (p. 274).
Other Issues:
The Hearing Examiners recommended no change to the fixed monthly charges on each ratepayers account. As we argued in our brief, PNM’s proposed fixed charge increase would have had a disproportionate impact on low-income people and those who invest in energy efficiency or rooftop solar to reduce their energy usage.
Two issues additional issues were deferred till a later date. In NEE’s pre-filed testimony, NEE objected to inclusion of $6,718,924 of costs to PNM’s banded revenue requirement for “Community Solar Recovery”. In rebuttal PNM withdrew its position and the Hearing Examiners agreed that Community Solar Cost Recovery should be decided in the next PNM Rate Case. (p.325) The Hearing Examiners also deferred a decision on approval of PNM’s proposed Time-of-Use rate design because PNM failed to meet its burden of proof that such a proposal would result in just and reasonable rates. (p.331).
New Energy Economy will be filing exceptions to the amount of the remedy recommended for PNM’s imprudence at the FCPP and associated harm caused to ratepayers, and will seek to prevent securitization of undepreciated investments in this uneconomic and environmentally destructive plant from further harming ratepayers when the plant is finally abandoned. We will also file exceptions to the Hearing Examiners’ decision to ignore PNM’s failure to follow Commission orders with respect to future Palo Verde decommissioning costs. Lastly, the Hearing Examiners denied PNM’s request to accelerate their depreciation of gas plants to 2040. (p. 316) NEE agreed with PNM to change their depreciation schedule for their gas plants and align depreciation with expected gas plant terminal dates. NEE supports quicker depreciation rates that will help us transition from fossil fuel use sooner.
Further, the Commission, in its SPS case, agreed to accelerated depreciation rates for fossil generation and should follow that precedent. Hence, NEE will include depreciation schedules in its exceptions.
In total the Hearing Examiners recommendations, if adopted, would result in a significant reduction in PNM non-fuel revenue requirements - an approximate 3-4% reduction in rates. PNM requested a $63.8 million increase in revenues for the 2024 calendar year test period but the Hearing Examiners recommendations only allow for $6.1 million increase (which is a 90.4% reduction). (p. 4). While substantial, the remedy the Hearing Examiners recommend for PNM’s imprudent decisions to prolong the life of the Four Corners Power Plant and their failure to hold PNM responsible for future nuclear decommissioning costs at Palo Verde Nuclear Generating Station constitute a failure to hold PNM accountable for the profound economic and environmental harms it has inflicted and continues to inflict on the people of New Mexico.