Regulators Deny Utility’s Request to Find Costs Reasonable in Advance
By Hudson Sangree
In a case that’s grown increasingly convoluted, state regulators last week granted two of the approvals Public Service Company of New Mexico (PNM) had requested to join CAISO’s Western Energy Imbalance Market, but they denied one concession the utility deemed key (18-00261-UT).
The New Mexico Public Regulation Commission found that PNM had complied with state filing requirements and authorized the utility to create a regulatory asset that would allow it to seek cost recovery in a future rate case.
The commission had approved the same two requests for joining the EIM in December, but it vacated the order in February and reconsidered the matter, to the surprise of PNM and environmental groups that supported the move.
In its latest order, issued Wednesday, the PRC balked at a third request by New Mexico’s largest utility to “find that it is reasonable to join the EIM and expend necessary funds to do so.” The commission decided PNM was asking it to approve the costs to join the market in advance, without proof of a net public benefit.
PNM estimated it would incur about $29 million in capital costs and expenses, including for 19 new staff positions and computer systems.
“No party objects to the most obvious interpretation [of the reasonableness request], i.e. that PNM seeks approval to join the EIM. But PNM states that it is not seeking commission approval to join the EIM,” Hearing Examiner Ashley Schannauer wrote in her recommended decision, which the PRC’s five commissioners unanimously adopted.
PNM contended it didn’t need the PRC’s approval to join the EIM because it wasn’t necessary for the provision of adequate service, nor was it required by any commission rule or regulatory mandate.
What the utility wanted, Schannauer wrote, amounted to a guarantee that it would get reimbursement of its expenses plus a return on its investment in the form of profits. The hearing examiner concluded PNM was trying to shift the financial risk of joining the EIM from its shareholders to ratepayers.
“PNM asks that it be allowed to recover its costs as long as they are consistent with the estimates provided in this case and as long as the specific costs it incurs are reasonable,” Schannauer wrote. “Ratepayers would be required to pay all of those costs whether the EIM actually produces savings or not.”
The commission agreed with Schannauer that it lacked legal authority to approve “ratemaking treatment in advance of a rate case.” Regulators in other states hadn’t granted their utilities such preferential treatment for joining the EIM, the PRC noted. In a 2014 filing with Oregon regulators, PacifiCorp, the EIM’s first member, asked to defer until a future general rate case the recovery of $20 million in start-up costs required to bring its six-state system into the market.
PNM issued a statement saying it was “profoundly disappointed” that the PRC hadn’t clearly acknowledged the prudency of joining the EIM.
“Membership in the EIM has resulted in cost savings exceeding a half billion dollars for utility companies’ customers since 2014,” PNM said. “In New Mexico, that would produce savings conservatively projected at $10 million annually for PNM customers, increasing to over $20 million annually in the next decade.”
The case has taken a series of unexpected turns since PNM declared its intent to join the EIM last August. (See PNM Seeks to Join Energy Imbalance Market.) Initially it seemed as if the utility were merely looking for a nod of approval from regulators, along with a mechanism for eventually recovering its upfront costs.
The EIM is entirely voluntary and largely noncontroversial. Proponents have credited the intra-hour, interstate market with increasing the exchange of electricity among Western states, especially power generated from wind and solar resources, and with saving its participants nearly $565 million in the past five years.
On Dec. 19, the commission approved PNM’s application to join the EIM and said the utility’s next general rate case would bear the burden of showing its costs were reasonable and consistent with the estimates presented to the PRC. (See New Mexico Regulators Say PNM Can Join EIM.)
In that decision, the PRC acknowledged staff’s recommendation “that the commission make clear that approval to create the regulatory asset is not a guarantee that the actual costs will be found to be reasonable or prudent. Staff notes that PNM will have the opportunity to support the reasonableness of those costs during its next general rate case and further notes that PNM has acknowledged that the commission will retain final ratemaking review and authority over costs in PNM’s next rate case.”
Then, in mid-January, the Albuquerque Bernalillo County Water Utility Authority, which had opposed the creation of a regulatory asset all along, asked the PRC to reconsider its December order. The commission granted that request Feb. 6 after two new commissioners were sworn in. The news had worried EIM backers that it could delay PNM’s membership in the market for another year and cost ratepayers $10 million in projected annual benefits. (See State Regulators to Re-examine PNM’s EIM Membership.)
The PRC dealt with the matter on an expedited schedule to meet the April 1 deadline.
In its Wednesday order, the PRC said it “does not oppose” PNM joining the EIM, and it gave PNM authority, in the form of an accounting order, to create a regulatory asset to record its expenses and to seek compensation.
However, the commission said the utility’s EIM-related costs and the reasonableness of its expenditures should be decided in the future rate case.
“Preapproval of reasonableness at this juncture in the case would be premature, given that a future determination ultimately must be made that such costs are proven to be reasonable or unreasonable,” the commission said.
It ordered PNM to file annual reports of its EIM costs and savings and CAISO’s quarterly reports on EIM benefits.
PNM did not say if still intended to move forward with joining the EIM in 2021. (See New Mexico Moves Toward Clean Energy, EIM Participation.) “We will not have any further comment until we have time to fully review and evaluate the final order,” the utility said in an email.