PNM, advocacy groups differ on bond sale

·7 min read

May 24—When the coal-fired San Juan Generating Station fully closes in late September, Public Service Company of New Mexico customers could benefit from an immediate $7-per-month savings on their monthly bills.

At least, that's what the state Public Regulation Commission contemplated in 2020 when it approved PNM's request to abandon the plant and replace it with less-expensive, environmentally-friendly solar generation.

But now, PNM is locked in a contentious dispute with environmental and consumer advocacy groups over when the rate reduction should actually take place.

PNM wants to include those consumer savings in its next rate case, to be filed in December. But that means customers wouldn't see San Juan-related cost reductions on their bills until the case ends and new rates take effect, likely in January 2024.

In contrast, opponents want the PRC to order an immediate rate credit on customers' bills as soon as the plant fully closes.

Those issues will be hotly debated this week in public hearings at the PRC that began Monday, with roughly a dozen parties involved.

After the hearings conclude on Thursday, PRC case examiners will prepare a "recommended decision" for PRC commissioners to consider when making a final determination, likely in June.

The examiners will issue their recommendation quickly for commissioners to rule on the case before the scheduled June 30 shutdown of one of two generating units still operating at San Juan. The other unit will close in September.

"We'll issue our recommended decision ... in time for the commission to take action prior to the June 30 retirement of unit 1," hearing examiner Anthony Medeiros said last week.

Complex issues

The case has generated acrimonious backlash against PNM. During an online PRC forum last Thursday, about two dozen people lined up to demand that PNM immediately credit customers' bills after San Juan closes.

But the issues under debate are fairly complex, and steeped in legal arguments about what the law actually requires of PNM, and how best to balance customer interests while preserving the utility's financial well-being.

Opponents say PNM is reneging on firm commitments it made in 2020, when the PRC approved coal-plant abandonment to comply with the state's Energy Transition Act, which requires PNM to convert its grid to 100% non-carbon generation by 2045.

To assist in that transition, the ETA authorized a financial mechanism known as "securitization," which allows PNM to shut down San Juan years earlier than anticipated while still recovering its lost investments in the plant to maintain the company's financial stability.

Under securitization, PNM can sell low-cost bonds to investors to immediately recoup its losses in the coal plant, which customers would then pay back over 25 years through a surcharge on their monthly bills. That ensures PNM's recovery, while also benefitting customers through low-interest bonds that save ratepayers money compared to what they would have paid had San Juan remained in operation.

PNM also agreed to forego any profit on its investments, lowering costs for customers even more.

And, once the plant closes and all operating costs disappear, PNM has estimated that average customers would see an immediate, $7-per-month savings on their bills, plus an additional $3-per-month reduction from lower utility "fuel costs" as solar generation replaces expensive coal supplies.

Those promises were enshrined in a PRC "financing order" approved in 2020.

The problem now is, PNM wants to delay issuing the securitization bonds until after its upcoming rate case concludes to "true up" all the company's systemwide expenses, which includes some $2.2 billion in new grid investments. The promised San Juan savings would then be used to offset an expected rate increase to pay for those new investments, which include costs for the solar facilities that replace San Juan.

Unified opposition

Opponents, however, say the PRC financing order commits PNM to issue the bonds almost immediately after plant shutdown, allowing the low-cost bonds to rapidly replace San Juan expenses on customers' bills and promptly provide the promised $7-per-month savings.

By delaying bond issuance, PNM will postpone rate relief for at least 15 months until after the rate case concludes, and, in the meantime, customers will continue paying for a plant that's no longer operating, opponents say. Also, PNM will still earn a profit on its San Juan investments during that time, because its commitment to forego profits only begins once the securitization bonds are issued.

That means "double recovery" on PNM investments, opponents say, because, under securitization terms and conditions, the bonds must reflect the value of PNM's lost investments at time of plant closure, even if those bonds are issued 15 months later.

Moreover, the bond proceeds will provide $40 million to assist displaced San Juan workers, and to support economic development to buffer the impact of coal closure on local communities. A 15-month delay could deprive customers and communities of assistance they need now, said Noah Long of the Natural Resources Defense Fund.

"For PNM to delay those benefits directly contradicts the goals of the ETA and the PRC financing order," Long told the Journal. "The timing of that funding should not be at PNM's discretion. Times are tough, and ratepayers and communities need those bond benefits now."

Opponents want the PRC to order an immediate customer rate credit from PNM, or, at least, force the company to place all post-shutdown revenue from San Juan into an account to guarantee that those funds are given back to customers as part of the rate case, said New Energy Economy Executive Director Mariel Nanasi.

"PNM doesn't have the authority to withhold those benefits from customers," Nanasi told the Journal.

Oversimplifying issues?

PNM says those arguments ignore the complexities involved in balancing customer interests while also maintaining the utility's financial stability.

PNM hasn't had a rate increase since 2019, but it's invested $1.2 billion more in the grid, with another $1 billion planned for next year. And it won't start earning revenue back on those investments until after its next rate case.

PNM says it always planned to issue the bonds after concluding its rate case to fully "true up" all investments and expenses, with San Juan-related customer savings offsetting any new rate hike approved by the commission.

But the global pandemic and PNM's proposed merger with Connecticut-based energy giant Avangrid led PNM to postpone two previously planned rate cases in 2020 and 2021.

If PNM issues the bonds this fall after San Juan closes, it would lead to a rate "roller coaster" for consumers, with bills initially dropping, then rising significantly again following the rate case, according to PNM.

In any case, customers are currently experiencing a "net benefit" of up to $36 million annually because of PNM's rate-case delays, since PNM can't collect on its new grid investments until after the PRC approves new rates. But if the PRC orders an immediate rate credit upon San Juan shutdown, it would deprive the utility of needed revenue to help pay for its new investments before new rates take effect, adversely affecting credit ratings and driving up utility borrowing costs, which would hurt ratepayers more in the long term, PNM says.

In addition, although customers won't see San Juan savings on their bills until after the rate case, they will benefit from a $3-per-month savings in fuel costs after the coal plant closes.

"We understand the political arguments of all the parties, but running a regulated, publicly-traded utility during this time of immense transition is complex," PNM spokesman Ray Sandoval told the Journal. "We hold steadfast that our long-term plan provides the most benefit for customers."

Opponents, however, say those are self-serving justifications to delay the bonds, which, under the PRC finance order, are supposed to be issued immediately after plant closure.

"It's fundamentally a disagreement over when the bonds and rate credits for customers should be issued," said Pat O'Connell of Western Resource Advocates. "The stakes are high. Rate relief through an immediate rate credit is a big deal, and PNM is working hard to prevent it."