It sounds complex, technical and tedious. Perhaps a topic for a banking conference or the mortgage industry. In a newspaper article, it certainly runs the risk of making readers’ eyes glaze over.
But wait, before that happens, read on. The word may sound dull, but in New Mexico it’s become quite significant — and contentious.
In fact, it’s set off a squabble that’s reached the state Supreme Court. The fight could jeopardize New Mexico’s landmark clean energy law that is intended to help finance the closing of the aging, coal-fired San Juan Generating Station near Farmington and calls for electric utilities to get 100 percent of their power from carbon emission-free sources by 2045.
“I never thought it would be this difficult to retire that plant. I’m amazed,” said Ron Darnell, senior vice president for public policy at Public Service Company of New Mexico, the electric utility planning to shut down the San Juan plant. “I guess I was just naive.”
So, what exactly is securitization, how did it become part of the law, and why all the fuss about it?
In essence, securitization is a more decorative way of saying “loan financing” and a concept similar to refinancing a mortgage or student loan. In the context of utilities, it can lower costs for customers and help close coal power plants by addressing interest rates and outstanding principal owed.
It’s far from new, as utility companies in a number of states have used the financial strategy for years.
In New Mexico, it was first proposed as a bill last year, before the clean energy goals were added in 2019 and the legislation became the Energy Transition Act.
Darnell said he first came across the concept in the late ’90s when he was working for an electric company in Texas. At the time, the state was passing a deregulation bill that allowed for the securitizaton of oil-fired and coal-fired facilities that were inefficient.
Years later, at a conference in Santa Fe, he was listening to an attorney speak about transitioning utilities in the state away from coal, and he remembered what Texas had done. PNM and others started conceiving a plan.
“When we and other stakeholders began thinking about how to exit coal, securitization was a really rational, well-thought-out and proven vehicle,” Darnell said.
They weren’t the only ones with the idea.
“I remember pitching it to a number of Western utilities, including PNM,” said Noah Long, who is in charge of the nonprofit Natural Resources Defense Council’s clean energy initiatives in the interior west and northwest, “and then being happily surprised they were working on a legislative proposal.”
A tool to shift to clean energy
State Sen. Jacob Candelaria sponsored the 2018 bill, which proposed that the utility issue bonds to recoup the costs of closing the plant.
That effort didn’t work, so the Albuquerque Democrat and the bill’s other supporters pressed on.
“The bill died in 2018 with the expectation that we could continue to work on it in the interim and hopefully have a bill in 2019 that had enough support,” said Steve Michel, deputy director of the clean energy program at the nonprofit Western Resource Advocates. Michel also happens to be the attorney Darnell heard at that Santa Fe conference.
And that’s what happened. Lawmakers, the utility, members of the administration, labor unions, environmental groups and others held a series of meetings to refine the legislation in the lead-up to proposing it this year’s session.
What came out the other end was a proposal to ease the financial hit on PNM investors and ratepayers and to provide $40 million to help workers and communities near the San Juan power plant make the economic transition away from coal.
The new law creates a system to sell bonds that would make up for the money the company would lose by closing the facility in 2022, and the bonds would be paid off by PNM’s customers through electric bills.
“What New Mexico did is we looked at the securitization model and said, ‘How can we use this tool to transition away from a fossil-fuel economy to a green economy?’ ” Candelaria said. “That’s why we’re unique — our proposal doesn’t just deal with responding to debt issues but tries to create a framework for addressing the social economic harms and costs associated with disclosure.”
The Legislature passed the bill, and Gov. Michelle Lujan Grisham signed it in March.
Opponents on several fronts
Yet, throughout the process, there was opposition afoot, and it came from several directions.
First, there’s the New Mexico Public Regulation Commission, which oversees electric utilities. While it didn’t formally oppose the bill, the commission in January ordered PNM to submit a plan for closing the San Juan plant, despite the utility’s request to wait until the Legislature considered the new bill.
Lawmakers from San Juan County also strongly opposed this year’s bill. Sen. Bill Sharer, R-Farmington, led a filibuster against the bill in March, arguing it would destroy his community.
And then there are groups such as Santa Fe-based New Energy Economy, a clean energy advocacy organization that has long criticized PNM’s proposals for the aging power plant. The group has argued the Energy Transition Act removes the Public Regulation Commission’s authority to determine whether investments PNM has made in the San Juan plant were prudent.
Even with the opposition, few proponents thought during the session the law would become as disputed as it has this summer.
“I’m surprised by the level of contentiousness around whether the ETA needs to be enforced,” Michel said.
In August, the Public Regulation Commission delayed a much-anticipated decision on whether the Energy Transition Act applies to PNM’s plan to close the coal-fueled plant.
Then it voted to require the utility to declare whether it would be willing to “stop the clock” on procedural deadlines in the abandonment cases in order to give the commission more time to discuss which law should apply.
The utility refused and asked the state Supreme Court to force the commission to follow the new law.
In the midst of all this, New Energy Economy asked the Supreme Court to declare certain provisions of the Energy Transition Act unconstitutional.
“I don’t think I anticipated the actions of the commission,” Long said. “It’s quite rare that a regulatory agency stands up to the Legislature and says, ‘We don’t want to implement what you’ve passed.’ ”
Others, like Candelaria, said they could see it coming.
“They’ve been engaging in this erratic, arbitrary and capricious behavior since the beginning of 2019 session,” Candelaria said of the commission. “It’s entirely inappropriate for them to be acting in the fashion they are.”
Weaker ratepayer protections?
Strangely, many of the law’s opponents were mum when asked to comment for this story.
Sharer, Rep. Rod Montoya of Farmington and Sen. Steven Neville of Aztec did not respond to phone and email requests for comment Friday.
Commissioners Jefferson Byrd, R-Clovis, and Valerie Espinoza, D-Santa Fe — two of the three panel members who voted in August to delay their decision on the San Juan plant — also did not respond.
But Commissioner Cynthia Hall, who used to oppose securitization in the law but now favors it, said Friday her colleagues “believe they’re protecting the ratepayers.”
“I think they want to be scrupulous about doing a prudence review,” said Hall, D-Albuquerque. “For me, it’s not so much of a priority. It’s more important that the bill be implemented as quickly as possible.”
One opponent, New Energy Economy’s executive director, Mariel Nanasi, picked up the phone. She said she agrees with the idea of refinancing in order to lower interest rates but said the law turns “the regulatory process upside down” and allows PNM to go unchallenged in its efforts to impose new electricity rates.
“Most bills have enhanced regulatory authority; they don’t remove regulatory authority,” Nanasi said about other states’ efforts to implement securitization. “We don’t have consumer protection here.”
She also pointed out that her organization wasn’t included in the meetings to craft the legislation.
“PNM considers New Energy Economy their chief adversary,” Nanasi said. “They don’t like us at the table.”
Yet Candelaria said the arguments put forth by the commission and New Energy Economy were already heard during the session, and lawmakers decided they were “without merit.”
“Just because they didn’t get their way doesn’t mean they get to jeopardize the energy future of this state,” he said.
So, what happens next?
That’s for the Supreme Court to decide, and in the meantime, those involved are preparing for multiple scenarios.
“All of the parties have to pursue two paths — one that assumes the Energy Transition Act and one that doesn’t,” Darnell said. “Hopefully, the Supreme Court will straighten this out sooner rather than later.”