The New Mexico Public Regulation Commission’s recent decision to soften renewable-energy diversity mandates for public utilities may soon wind up in court.
The PRC voted 3-2 on Nov. 20 to double the value of credits utilities receive for placing solar energy on their systems, and triple it for things like geothermal or biomass. That will make it easier for utilities to comply with requirements to diversify their resources, rather than load up the grid with cheap wind-generated electricity, say commissioners who support the changes.
But environmentalists and clean-energy advocates say the commission overstepped its authority, because the changes mean utilities now will need to produce less alternative energy overall than is mandated under the state’s renewable portfolio standard.
“The PRC is charged with implementing the law through rulemaking, but it can’t change the standard,” said Camilla Feibelman, director of the Sierra Club Rio Grande Chapter. “By awarding more credits in the revised rule, the PRC has effectively reduced the standard, because it gives utilities credit for more than they’re actually producing.”
Feibelman said her organization and others, such as the Coalition for Clean Affordable Energy, will fight to overturn the new rule, either through administrative channels at the PRC or through the courts.
“We’re looking at all our legal remedies now, but we will definitely challenge this decision,” she said.
The changes in diversity credits, plus a PRC decision to include more potential costs when calculating how much utilities are spending on clean energy, aim to buffer the impact of renewable procurements on ratepayers, according to commissioners who voted for the new rules.
The changes are the latest twist in a five-year effort by the PRC to establish a standard methodology for determining the annual price of utility compliance with the renewable portfolio standard.
Under the RPS, utilities must derive at least 10 percent of their electricity from renewable sources now, 15 percent by 2015 and 20 percent by 2020. And, to diversify the portfolios, the PRC requires at least 30 percent of each utility’s clean energy to come from wind, 20 percent from solar, and 5 percent from “other” sources such as geothermal.
Nevertheless, to limit the impact on consumers, utilities can request waivers from the requirements if complying with them in any given year would violate a cost cap, or reasonable cost threshold, which limits renewable procurements to 2.25 percent of a utility’s total retail sales now and 3 percent after 2015.
The problem is that utilities, consumer advocates and clean-energy organizations have clashed for years over how to accurately calculate the cost of renewable procurements, bogging the PRC down in ongoing, often-acrimonious discussion of the issue since 2008.
In the latest round of debate, utilities and industry groups argued that the calculations should include “hidden” costs for renewables, such as expenses that utilities incur to keep backup generation available from coal or natural gas plants for when wind and solar plants are down.
In addition, the state Attorney General’s Office and New Mexico Industrial Energy Consumers asked commissioners to eliminate diversity requirements, which they said force utilities to acquire more expensive resources like solar just to meet artificial quotas.
The debate culminated in a hearing in September, where about 100 environmentalists, clean-energy advocates and others demanded that the commission reject the proposed changes.
But in the end, the anti-diversity and hidden-cost arguments won over Commissioners Ben Hall and Pat Lyons, both Republicans, and Theresa Becenti-Aguilar, a Democrat. Commissioners Karen Montoya and Valerie Espinoza, both Democrats, voted against the changes.
The commission didn’t eliminate diversity mandates outright. But it significantly lowered the threshold, allowing utilities to purchase less than the required amount of those resources by doubling and tripling the credits they earn for each kilowatt hour of solar or “other” renewables that they produce.
And, regarding the hidden costs, the commission expanded the list of things that utilities can include when calculating renewable price tags. They include operation and maintenance expenses for backup generation and transmission systems, or lost opportunities to sell electricity from fossil fuels on wholesale markets because they instead place it in reserve for when renewables are unavailable.
‘Need to balance’
Lyons said those changes are necessary to protect ratepayers.
“I’m just looking at customers’ bills and trying to hold costs down,” he said.
“These were difficult decisions, but I ruled in favor of the modifications because ratepayers are hurting,” she told the Journal . “We need to balance the renewable portfolio standard with the best interests of consumers.”
Critics, however, say the RPS and diversity compliance costs have been greatly exaggerated in PRC deliberations. For one thing, the price tag for solar energy has declined dramatically in the last few years, making extra credits for utilities unnecessary, Montoya said.
“I voted against that because I disagree that it will help consumers with costs,” Montoya told the Journal . “The costs for solar electricity have come down about 80 percent since 2009. It’s actually becoming a very valuable energy solution for utilities.”
In fact, the overall cost for all renewables added to date to Public Service Company of New Mexico’s system currently costs the average residential ratepayer about $1.83 per month, said Bruce Throne, attorney for the Renewable Energy Industries Association. That will increase to about $2.75 per month next year if PNM’s proposed renewable procurement plan for 2014 is approved.
“The current rate rider costs about $22.03 for the average PNM customer for an entire year,” Throne said. “That would increase to about $32.94 next year under PNM’s new plan. That’s less than the cost of a tank of gas.”
Some utilities are having difficulty meeting the diversity requirements, such as El Paso Electric Co., which has been unable to procure much wind generation in part because of transmission problems.
Instead, that company has relied more heavily than others on solar generation, driving up costs in recent years and leading to a request for a waiver from meeting RPS requirements in 2015.
Why waivers exist
But that’s why waivers are available, Throne said.
“If there’s a conflict with the renewable cost threshold and diversity, then the utility doesn’t have to comply with it that year,” Throne said. “All the utilities have bumped up against the threshold at different times, and they’ve asked for waivers and gotten them in the past.”
Nevertheless, environmentalists and clean-energy advocates say their biggest concern about the PRC’s rule changes is that they weaken the RPS overall, overstepping the commission’s legal authority.
The Sierra Club estimates that, if utilities receive double and triple credits for meeting solar and “other” diversity requirements, in effect the actual amount of renewable electricity they generate in 2015 would be 13 percent rather than 15 percent, and 17.4 percent rather than 20 percent in 2020.
“It provides a windfall to utilities with thousands of extra renewable energy credits that they can bank and use for future compliance without actually adding new renewable resources,” Throne said. “At this point, we’re all discussing what to do about this, whether to seek a rehearing or whether to go to the Supreme Court.”
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