New Mexico Law Gives Private Utilities Unchecked Power Over Shift to Renewables

The ink’s barely dry on the Energy Transition Act (ETA), a new law in New Mexico enabling utilities to recoup costs as they transition away from coal, gas and nuclear plants.

While proponents of the bill have suggested it should be a template for the Green New Deal nationwide, its opponents see it as a pro-industry test case that must be nipped in the bud. They have now filed a complaint to the New Mexico Supreme Court to stop its implementation.

New Energy Economy, Inc., Citizens for Fair Rates & the Environment, Food & Water Watch, Physicians for Social Responsibility-New Mexico, Rio Arriba Concerned Citizens, and Navajo Council Delegate Daniel E. Tso filed the scorching complaint in Santa Fe on August 26, saying the ETA bypasses regulatory scrutiny that rests in the New Mexico Public Regulation Commission (PRC), is unconstitutional, and is unlawful.

When Gov. Michelle Lujan Grisham signed the ETA into law on March 22, she characterized the new legislation as “a promise to future generations of New Mexicans, who will benefit from both a cleaner environment and a more robust energy economy with exciting career and job opportunities.” While critics deride the ETA as an unnecessary and potentially dangerous public policy that moves the state away from checking corporate profit-making in the public interest, the administration views the legislation as a helpful toolkit to support energy transitions. At this long-awaited juncture, those who’ve held state power and those who seek to share that power are set to engage in a tense give-and-take. But the ETA takes from ratepayers and small-scale renewable energy producers in extreme ways that strip them of protections.

The administration has celebrated the fact that the ETA made concrete changes to the amount of electricity to be generated by renewables in New Mexico by adjusting the requirements and targets in the Renewable Portfolio Standard (RPS) upward. The RPS prescribes the state’s aims for the percentage of future electricity to be generated through solar, wind and geothermal energy. Under the ETA it has increased dramatically from 20 percent to 50 percent carbon-free electricity by 2030, 80 percent carbon-free electricity by 2040 and 100 percent carbon-free electricity by 2045. Even the critics of the broader legislation agree that adjusting renewables upward in the RPS is a positive, if inevitable and overdue, move in a sun-kissed and wind-blessed state. The provision in the law designating funds for worker severance and retraining and community economic development to mitigate economic impacts of plant closures was also well received.

Other aspects of the ETA, however, are more controversial, such as the framework it provides for the Public Service Company of New Mexico (PNM) to begin having ratepayers reimburse it for “any” costs in connection with the proposed 2022 closure of the San Juan Generating Station, a coal-fired electricity plant in northwestern New Mexico. On July 1, the day the ETA went into effect, PNM filed its application with the PRC to begin recovery of $360.1 million of abandonment and decommissioning costs such as cleanup, environmental remediation and worker retraining, plus its undepreciated assets (recouping all the investment and profits PNM would’ve received from ratepayers if the coal plant were to remain open until 2053).

Reimbursing Utilities for Stranded Assets and the Regulatory Compact

In this context, “stranded assets” is a balance-sheet term of art used to describe the investments utilities have made in coal or other nuclear infrastructure that have lost their value because solar and wind power technologies are less costly without the associated environmental risks. As states and public regulatory commissions throughout the nation continue to hash out evolving principles and formulae to fairly compensate utilities for their stranded assets, many utilize a financing concept called securitization. Bonds are sold in the capital markets with ratepayers guaranteeing the interest to investors by paying a dedicated charge that appears on their monthly bills until the debt is paid off over years. The process of determining which costs are applicable for reimbursement and how much may be recoverable to the utility is usually the purview of state regulators. But with the passage of the ETA, utilities in New Mexico will be allowed to predetermine their financing costs, and the PRC is reduced to rubber-stamping its approval, no questions asked.

This predetermination mechanism, opponents say, runs roughshod over the longstanding arrangement between utilities and ratepayers — the “regulatory compact,” in which states agree to grant utilities geographic exclusion from competition in recognition of both the scale of the investment required to build and operate such facilities, and the public service provided. In exchange, the utilities agree to be regulated by commissions according to rules and legal precedent so that any monopolistic tendency to take advantage of its captive audience can be checked, and the ratepayers protected. The regulatory compact has evolved in case law such as Morningstar Water Users Association v. New Mexico Public Utility Commission (1995) which states:

Regulation protects the utility’s consumers. Because it is a monopoly the utility must be regulated so that it cannot take advantage of its position or its customers. In exchange for submitting to oversight by the Commission, the utility is permitted to operate as a monopoly within its service area.

Additionally, there are many law review and regulatory articles that have helped flesh out the concept over time. The ETA, however, upends the regulatory process and gives utilities blanket authorization to decide how much to charge consumers for undepreciated investments and decommissioning costs.

No More Standard of Prudent, Just and Reasonable

The usual measures of whether rates are “just and reasonable,” or whether the interests between shareholder investors and ratepayers have been balanced, or whether the utility’s investment was “prudent” in the first place and even eligible for reimbursement or not, no longer apply. The petition filed before the New Mexico Supreme Court cites sworn testimony by expert witness Steven M. Fetter, who testified before the New Mexico Public Regulation Commission (NMPRC) on July 15, 2019, that the ETA is a significant departure from other securitization laws in a way “that undermines the core importance of the NMPRC’s existence – to regulate on behalf of the public to ‘reasonably protect ratepayers from wasteful expenditure.’”

A former chairman of the Michigan Public Service Commission, former utility advisor employed by the Fitch credit rating agency, and three-time former expert witness for PNM, Fetter also says, “The ETA is ‘unprecedented,’ as it would be the only securitization bill in the country that allows the regulated entity to define and set the amount of recoverable cost for itself, without the benefit of Commission oversight.”

Tom Manning, director of Citizens for Fair Rates and the Environment, a group of ratepayer advocates in Silver City, New Mexico, puts it even more acutely:

The ETA replaces one type of regulation (regulated utility oversight) with another (regulated utility theft). We became a Petitioner because we do not believe that we need to undermine our democratic institutions in order to move us to a future powered by renewable energy.

Under-Regulation of Corporate Contaminators Has a Long History in the State

“New Mexico has a history of corporate meltdowns and community cleanups,” Corrine Sanchez, executive director of Tewa Women United, a Native women’s advocacy and liberation nonprofit, told Truthout.

For three decades, Tewa Women United has worked in northern New Mexico, not far from the Los Alamos National Labs. Los Alamos — the historical site of the Manhattan Project where the atomic bomb was developed — has operated continuously since 1943 and expanded greatly. Unmediated contamination from experimentation with radioactive and other toxic materials over eight decades is the on-the-ground reality in which Tewa Women United addresses and engages.

Recently, Tewa Women United has conducted a sampling project to track contamination, and has found proof of major contaminants. These contaminants, she says, are “in our very homes, disproportionately affecting women and children, whose bodies are more susceptible to absorbing contaminants through their fatty tissue.” Sanchez says this work, along with memories of the Church Rock Uranium Spill in 1979, the worst in U.S. history, fueled her desire to join the legal action. “It has never been properly cleaned up,” she says.

Naturally, this leads to grave concern in northern New Mexico about what will happen to the millions of tons of coal ash stored underground in unlined coal mine pits at the San Juan Generating Station, set to close in 2022. Coal ash is highly toxic with heavy metals injurious to human, watershed and ecosystem health. With the stakes so high, there’s a groundswell of feeling that this is not the moment to let PNM call the shots on anything, unilaterally.

“There are rulings coming down concerning us,” Sanchez says. “So, we are advocating for public input and accountability for monopolies.” Sanchez feels it’s only fair that people living in the communities where PNM makes its money have a say in how the utility makes decisions about how it will impact their land, water and air.

“Entities that self-regulate have and will continue to leave out the voices of Indigenous, core-impacted communities. We’re petitioning to have our voices come to the center of these discussions,” she explained. She hopes the lawsuit will get PNM’s attention and that better lines of communication can be established. “We need a forum where we are not left out and without voices,” she added.

Petitioner Daniel E. Tso, a delegate in the Navajo Nation Council, is concerned that the tens of thousands of Navajos living in Albuquerque and surrounding urban areas will see their rates go up if the court doesn’t prohibit PNM from predetermining its own financing costs without meaningful regulatory oversight. He also worries that the opportunity for democratizing participation in energy generation afforded by this long-awaited moment of transition to renewables will be squelched. The vision of many diverse local providers of renewable power generation joining in a widely distributed network will never come to be if PNM, under cover of mitigation, can determine as sole arbiter how it will replace the power at the San Juan Generating Station, which it owns.

“I’ve been thinking about solar arrays lately, too, and the prospect of PNM being able to set the rates on the replacement energy just takes away a lot of choices,” Tso says. He thinks the ETA sacrifices Navajo communities, like his, that are looking at installing solar as a revenue generator for their chapter communities. “The ETA monopolizes it for PNM. We want local choice energy so we can develop our own energy, sell it and keep the money regenerating for us at home.”

Risking Backlash, the Petitioners Take a Principled Stand

The petitioners have no beef with securitization as a whole, but they view the predetermination provisions as a wild overreach, and their 48-page petition argues that they deprive New Mexico consumers of their constitutional rights to public regulation, due process, separation of powers and freedom from interference in pending cases.

Their main grievance is that the ETA requires the commission to issue a financing order for the energy transition bonds if PNM’s application meets all ministerial requirements. In this scenario PRC functions as a clerk rather than a regulatory body, merely collecting the exhibits from PNM, checking they’re all there and complete, but is foreclosed from weighing in on their content and evaluating their legitimacy in any meaningful sense. In the legislature’s Fiscal Impact Report for the ETA the New Mexico Attorney General’s Office commented on this departure, noting that it “potentially [compromises] the commission’s constitutional responsibility of regulating public utilities by precluding it from reviewing the substance and appropriateness of the financing order and instead allows the utility to self-regulate.”

Even with this warning from the attorney general and similar ones from PRC staff, the governor’s office thinks that seeing ETA as a shift toward deregulating protections for ratepayers to the advantage of PNM’s shareholders is a misperception. According to the governor’s communications director, Tripp Stelnicki, the “ETA doesn’t change the amount of the San Juan plant that the PRC previously approved for recovery. It does authorize a different way to pay for it.”

A Different Way to Pay for Retiring the San Juan Generating Station

Attorney Mariel Nanasi is the executive director of New Energy Economy, the advocacy group that’s taken the lead on the court challenge, along with attorney Ty Tosdal, a seasoned regulatory lawyer from California.

Nanasi told Truthout she’s glad the governor agrees that the PRC is the arbiter of ratepayer protection. “New Mexicans have only one shield against monopoly predation,” she said, “and that’s review and regulation by the PRC.”

Tosdal and Nanasi share the analysis that the ETA exposes ratepayers to hundreds of millions of dollars in costs that would, under its provisions, escape regulatory oversight and be arbitrarily assigned to ratepayers rather than utility stockholders.

“That constitutional protection cannot be bargained away by legislators, no matter how noble their overall goals,” said Nanasi.

She said the organization had no choice but to file suit on behalf of New Mexico ratepayers and the environment. In her view the ETA is a “test case for the ability of a privately owned electric utility monopoly to foist all costs, including cleanup costs for the abandonment of coal and gas plants and nuclear investments without any meaningful review or oversight by the public regulation commission.” She added that expecting a corporation to police itself “leaves the door open for gross financial and environmental abuse” — a door she’s counting on the court to close firmly on the troubling provisions.

Giving kudos to the governor’s commitment to a clean-energy economy and future generations, Nanasi concluded: “Our suit seeks to remedy specific constitutional and procedural problems that harm ratepayers and jeopardize the regulatory process, while leaving the Renewable Portfolio Standard in place.”