Notes from PRC public hearing - Rio Grande Chapter

By Camilla Feibelman, Rio Grande Chapter Director

December 17, 2019

Thanks so much to all of you who attended last Monday’s public hearing. So many of you stood up for climate justice to transition from coal to clean energy and save electric customers money while still paying for worker and community transition.

Some of you may have listened to the testimony and cross examination that took place last week at the PRC (that will continue next week) and tried to make heads or tails of what is being said. First, remember that this case is dealing exclusively with whether to allow PNM to leave the San Juan coal plant, refinancing the outstanding debt on the plant at low rates, forcing PNM to take a loss on its future approved profits, and funding $40 million for worker and community transition support. The issue of how the energy at San Juan will be replaced comes in a separate case that will be heard in January.

There were some key points to take home last week. Tribal activists noted the total lack of transition support in Arizona, where coal-fired Navajo Generating Station and Kayenta coal mine just shut down. In Arizona, workers are left adrift and community leaders are trying to identify some alternative. The AZ legislature and Public Utilities Commission have provided no transition support, and organizers are left trying to work directly with the utilities. Here in New Mexico, the ETA gives us the chance to do better and provide support to workers and communities as we transition away from dirty coal to clean energy.

Also, though the PRC is not the agency that oversees environmental requirements at San Juan (an issue I’ll discuss in more detail below), PNM witnesses stated that Sierra Club lawsuits over the years have forced PNM to comply with environmental laws and address the pollution from the San Juan plant. Now, with your help, we are finishing the job by moving New Mexico away from coal and toward a renewable future.

Finally, testimony showed that in the first year after the plant closes, customers will save $80 million on the San Juan plant and shareholders will lose $18 million in profits. These customer savings and losses for shareholders will continue for years to come.

We are, however, concerned about a few serious points of misinformation we’ve heard, so the next part of this requires a closer read and we are happy to answer any questions you might have.

It’s important to understand that many agencies are involved in a coal plant closure and that’s always been the case. The New Mexico Environment Department and the federal Environmental Protection Agency are the agencies that determine what PNM must do to comply with environmental laws for plant decommissioning and mine reclamation. The PRC is not, and never has been, the agency in charge of cleanup at the plant or mine. If these environmental agencies order PNM to deal with coal ash or any other aspect of the pollution from burning coal at San Juan, PNM must comply (as must the other owners of the plant). If they don’t, environmental groups, including the Sierra Club, are likely to sue to force cleanup, as we have many times in the past. Again, the PRC doesn’t make decisions on these clean-up issues.

The bottom line is that the PRC cannot limit PNM’s liability to clean up pollution from the San Juan plant and mine. The PRC does, however, play a role in determining what PNM can charge ratepayers for decommissioning and reclamation, but, again, the ETA does not limit PNM’s liability for complying with environmental requirements. PNM and the other San Juan owners have already collected a large amount of money for decommissioning and reclamation. In this case, the Commission might decide PNM has already collected enough to cover the work that needs to be done and doesn’t need to use the financing tool available under the ETA. Or the Commission might say PNM may collect more money from ratepayers to comply with environmental requirements, and could then allow PNM to include money for decommissioning and reclamation in the financing of abandonment. The ETA caps the amount PNM can receive in a financing order for plant decommissioning and mine reclamation to $30 million. PNM might later return to the commission and say it had to spend more (because of the environmental agencies’ requirements) and can request to add those costs to rates, but the PRC can deny that request, and the company’s shareholders will have to pay for that remaining amount. Again, the PRC has jurisdiction to decide how much to charge customers and not over PNM’s total liability for clean up. The ETA didn’t change this at all, it just allowed the PRC to use low cost bonding for up to $30 million of clean-up costs.

In the first year PNM leaves San Juan, ratepayers save $80 million on the costs of San Juan and shareholders lose $18 million in profits. This is the whole point of the concept called securitization in the ETA. Right now, we all pay PNM each month for our share of the San Juan plant. If the plant ran until 2053, as it’s currently scheduled to, we’d each pay around $13 a month on our bill for San Juan until the plant closed. By refinancing the costs of San Juan, we save money each month on our bills even while financing around $40 million for worker and community transition. Customer savings from this balance are almost identical to the proposal favored by some of requiring PNM to lose half their investment (which included no worker and community recovery funds), but still earn on the remaining half (this was the settlement the PRC accepted for the first two units of San Juan).

You might ask why PNM favors taking a loss on profits over a loss on their investment. When they take what some call a “writeoff” or a loss on their books, their credit rating goes down, making future investments more expensive for them and for ratepayers. By losing their profits on coal, but reclaiming their investment, they have the possibility of finding new ways to invest those resources in clean energy, if authorized by the PRC.

The ETA is the only option for paying for worker and community transition. The low-rate bonds available under the ETA will pay for $40 million of worker and community transition funding. And even with this transition funding, ratepayers will pay less for San Juan than they are now. Yes, ratepayers will help pay for community transition. That’s part of our responsibility as the users of the energy from San Juan. But the idea that you can save money on rates and still help pay for transition is why we like this plan so much. Again, PNM shareholders take a loss on the profit they currently make on San Juan.

The ETA applies only to coal plants. The cost recovery and securitization provisions of the Energy Transition Act apply only to coal-fired power plants. The ETA does not allow PNM, or any other utility, to refinance its investments in gas or nuclear plants.

There is a provision in the bill, which has been misunderstood by some, that grants the PRC authority to force a utility to retire a previously approved source of electricity if the replacement will lower emissions. In that circumstance, the PRC can determine a closure is in the public interest, but it can’t also require the utility to be forced to take a loss on the investment the commission previously approved. This applies only if the PRC forces a utility to shut down a previously approved resource.

Why is the debate so heated? I’m honestly not totally sure. We’ve battled PNM and the San Juan Mine operators for years, suing over toxic coal ash (and winning $10 million in cleanup), mercury and other pollutants (requiring PNM to install millions of dollars worth of pollution controls that slashed mercury, nitrous-oxide and sulfur-dioxide emissions), and suing under the Clean Air Act, leading the first two stacks to shut down.

We understand wanting to punish PNM for investing in coal. And the ETA does force PNM to give up its profit on its investments in San Juan, thereby saving customers millions of dollars. That’s why PNM would receive roughly the same amount of money for San Juan under the ETA as under the approach preferred by the ETA’s opponents.

But the ETA is the only option that provides critically needed funds for workers and community transition, and the only law that has strong renewables requirements that mandate a transition to clean energy. No other option is on the table and opponents seem willing to walk away from the ETA with no clear plan to exit coal, reinvest in the community, or transition to clean energy. We are baffled.

With the ETA, we can combine a nation-leading renewable-energy standard, reduced rates and funds for an equitable transition. We call that a groundbreaking, nation leading win.

December 19

Testimony at the Public Regulation Commission on the coal-to-clean-energy transition has continued throughout the week and ended just an hour or so ago.

Below we lay out the extensive testimony supporting the benefits of closing the San Juan coal-fired power plant and financing the closure through securitization with low-interest bonds. But I also recognize that following utility law is a little like learning a new language. After summaries of witness testimony, I’ve also tried to explain a few technical terms that will help you interpret what’s being said, like what does “abandonment” mean in this context? I’ve put an ** in the body of the email where there is a term that’s described in more detail later in this note.

Finally, remember that this case is discussing whether PNM can leave ownership of (**abandon) the remaining two stacks at the plant, and if they do, how we will pay for the remaining investment (**stranded assets) there.

The next case on replacement energy for San Juan will be heard on January 21st at 9:30am at the PRC.

Here are some of the highlights from witnesses:

Witness Anthony Sisneros, member of **PRC Staff — Chuck Noble, a lawyer for the Coalition for Clean and Affordable Energy, cross-examined Sisneros. Sisneros admitted that his testimony on PNM leaving ownership the first two stacks at San Juan in 2015 was different than his testimony on PNM’s leaving the last two stacks at the plant. Sisneros first denied having filed testimony in the 2015 case. Noble showed him the testimony in which he recommended that PNM should be able to recover half of its investment in the plant and all of the profits on the half of its investment that the commission allowed PNM to recover. PNM would take a loss of the other half of its investment. In the current case Sisneros argued that the commission could force PNM to take a loss on both its investment and its profit, which is fundamentally different from his testimony in this case and gives the incorrect appearance that the ETA would have a greater total cost than it does.

Witness Steven M. Fetter, New Energy Economy expert — Fetter conceded that PNM would not be getting 100% cost recovery at SJGS under the ETA. This is because, under **securitization, PNM forgoes its previously approved profit.

Fetter could not identify a single cost at SJGS that was **imprudent and testified that prudently incurred costs should be recoverable from ratepayers. He was not aware that the one imprudent cost he did identify, a $50 million pollution control, had previously been deemed imprudent and was not included in the amount to be securitized. In other words, the argument that ratepayers would save more without the ETA because the commission could disallow imprudent investments has been undermined by the witness’s failure to identify any imprudent investments.

The ETA could apply to PNM leaving the Four Corners plant, which they have a smaller holding than in San Juan Generating Station. Fetter also could not identify any part of the ETA that would prevent the PRC from addressing the prudence of PNM’s Four Corners Power Plant participation. If the PRC found PNM ownership in Four Corners Power Plant to be imprudent, they could adjust the amount allowed for securitization accordingly.

Fetter also said securitization is a good tool to reduce customer’s costs.

Witness Andrea Crane for the New Mexico Attorney General – testified that application of the ETA and abandonment of San Juan Generating Station will benefit PNM customers. Both Crane and Western Resource Advocates witness Dr. Doug Howe also recognized that ignoring the ETA and disallowing costs instead, as some have advocated, would put a chilling effect on utilities’ willingness to come forward and propose to close uneconomic coal and gas plants.

Witness Dr. Doug Howe, Longtime regulatory expert and former NMPRC Commissioner and witness for Western Resource Advocates – testified that PNM’s application for securitized financing will provide PNM customers essentially the same benefits as a 50% loss of PNM’s stranded investment.

Dr. Howe also called Commission Staff’s proposal to deny PNM’s abandonment in favor of a $1.3 billion investment in a carbon capture project “irresponsible.” And he said that the Commission’s refusal to say whether it will apply the ETA to PNM’s case has served no good purpose, and has created unnecessary uncertainty for New Mexico.

Witness Dhiraj Solomon for Commission Staff – admitted that Staff is the only party that opposes abandonment. Mr. Solomon claims that PNM should have analyzed installing carbon capture at San Juan. But Mr. Solomon admitted he did not read PNM’s rebuttal testimony, in which PNM found that it would be between $343 million and $1.3 billion more expensive to install carbon capture at San Juan than to abandon and replace the plant. Nor did he read the Sierra Club’s rebuttal testimony against leaving the plant open and installing carbon capture.

Terms to understand:

Abandonment – The PRC is considering PNM’s application to “abandon” its ownership in the San Juan generating station. What does this mean? Do they just walk away with no liabilities or responsibilities? No, the word abandonment simply means that the utility wants to leave ownership of San Juan Generating Station and has to work out the terms of doing that at the PRC which regulates the utility. The PRC decided how to pay for the early closure of the plant, but other environmental agencies oversee what plant owners have to do for clean up of the plant. All but one of the other four owners at San Juan want to leave their ownership at the plant too. Each of those utilities have to work out the financial terms of leaving the plant with their respective regulators as well.

Stranded asset – When a utility gets permission to build a source of electrical generation from the PRC it also gets permission to recover construction cost plus some profit from utility customers (ratepayers). This is done in rate cases where the utility will present the amount and justification for what it wants to charge customers over time until the investment is paid off. So for example, the San Juan Generating Station was approved to run until 2053. And PNM was approved to recover investment and ~9% guaranteed profit from customers through that time. But now that coal has gotten more expensive, PNM wants to close the plant early. They have to figure out how to recover their investment, and pay off their outstanding debt if the plant closes and is no longer providing energy. In that case the plant is a stranded asset. What is at question now at the PRC is how to pay off that investment.

Securitization – This is a financial tool provided to the PRC by the Energy Transition Act that allows a utility to use federally backed bonds (currently at ~3% interest rate) to pay off the remaining, prudent investment in the plant. This will save ratepayers money on the closure and through the ETA, provides $40 million in funding for workers and community transition funds.

PRC Staff – Staff provide their own analysis in a given case and present it before the Hearing Examiner just like every other party.

Imprudent – The PRC must determine which costs a utility is allowed to pass on to their customers in utility rates based on whether they find the costs “reasonable and prudent.” If the PRC decides a utility has taken on a cost that is not appropriate to pass along to ratepayers, it is determined to be “imprudent” and ratepayers do not have to pay for it in their utility rates. A recent investment at SJGS in balanced draft technology was disallowed by the PRC, only prudent investments can be recovered.

Ratepayer – This is just a fancy word for a utility customer, ie the people that use PNM electricity. Our rates include the cost of producing the electricity, the cost of building and maintaining the generators of the electricity, and a profit for the company. How much we pay is worked out in rate cases that take place before the PRC.

These are additional terms you may heard during discussion of the Energy Transition Act:

Write-Off – This is a really weird term that I’ve struggled with. This term is used to mean “to take a loss on.” This is when the PRC says that the utility and shareholders will not be able to recover a given amount from customers (ratepayers). This amounts to a loss on the books for the company and can affect the company’s credit rating, making future investments more expensive (for customer BTW).

Intervenor – When a case like the proposed “abandonment” of SJGS is before the PRC various interested parties get involved with the case. These are intervenors and can include groups like the Sierra Club, Prosperity Works, the Attorney General etc. These intervenors participate in the case by bringing testimony via witnesses, cross examining other parties witnesses and summarizing our views to the **Hearing Examiner.

Ex Parte Communication – PRC Commissioners are essentially judges in a legal case. Any communication they have with intervenors about a case has to be heard by all other commissioners and intervenors in a case. So the Sierra Club, as an intervenor, can’t go sit down with individual Commissioners to talk about the case. We have to communicate our views through the formal process. An ex parte communication is when a party to the case communicates privately with a commissioner or hearing examiner.

Hearing Examiner -Hearing Examiners serve as judges in PRC cases. They hear testimony from witnesses, cross examination of witnesses and look at the evidence presented by the witnesses. They provide a recommended decision to the Commission which can be approved or disapproved. So while some Commissioners are listening in on the hearings this week, they are not required to be there.

Decommissioning and Reclamation – When a plant shuts down it has to be decommissioned and in this case there will also be mine reclamation. These terms refer to the clean up required at both sites. It is New Mexico Environment Department and the federal Environmental Protection Agencies that oversees this process and requirements. The PRC only oversees how the clean up required by these agencies will be paid for.

As always, I’m available for any questions.

Questions? Comments? Concerns?