The Energy Transition Act is an important new law that transitions New Mexico’s electric utilities from their coal-fired past to a clean energy future. Despite widespread support, however, the law has been opposed by New Energy Economy and the coal industry’s Power the Future. Their claims about what the new law does are untrue. It is time to set the record straight.
The ETA provides millions of economic development dollars to lessen the local impacts of coal plant closures. In 2023, the ETA will save an average Public Service Company of New Mexico customer $80. It enacts one of the strongest renewable and clean energy standards in the country. And it enables low interest bonds to finance the cost of retiring coal plants. Consistent with the most current climate science, the ETA requires New Mexico electric utilities to completely decarbonize their systems by 2045.
The falsehoods advanced by ETA opponents focus on PNM’s exit from the San Juan coal plant in 2022. At that time, PNM will have unrecovered San Juan plant costs of $280 million. The ETA calls for these “stranded costs” to be paid off using low interest, AAA-rated bonds (“securitization”).
Opponents, New Energy Economy in particular, claim that this provision of the ETA gives PNM 100 percent cost recovery, takes away the Public Regulation Commission’s power to disallow stranded costs and denies the commission an opportunity to evaluate the prudence of PNM’s San Juan investments. The opponents are wrong, and the claims are false.
The ETA does not allow PNM 100 percent cost recovery. Securitization means PNM is denied its cost of capital, which includes earnings and is why many utilities oppose securitization. In 2023, PNM will lose $14 million, and over time PNM will lose $200 million, from what it would have earned if the coal plant kept running. For ratepayers, this outcome is the same as if PNM’s $280 million investment was cut to $160 million. You can check this with an internet “mortgage calculator.” Simply compare a 25-year, $160 million loan at 9 percent (PNM’s cost of capital) with a $280 million loan at 3 percent (today’s AAA bond rate). The payment is the same.
With regard to PRC authority, the New Mexico Constitution does not provide the commission unlimited power to regulate utilities any way it wants. Rather, it requires the PRC to regulate only as the Legislature prescribes. Throughout the commission’s history, lawmakers have established the policies under which New Mexico utilities are regulated and costs are recovered. For example, during the deregulation movement of the 1990s, lawmakers addressed and established the recovery of stranded costs resulting from competition. The ETA follows that tradition.
Finally, the prudence issue is bogus. Recovery of San Juan’s prudent costs as well as disallowance of imprudent costs, has already been decided by the Public Regulation Commission in case after case over the last 40 years. During that time, through litigation and approved settlements, the commission has disallowed hundreds of millions of PNM’s San Juan costs — including coal costs, mine reclamation costs and plant investments. As an example, in 2016 Western Resource Advocates challenged a $50 million San Juan investment called “balanced draft.” That investment was not needed and made little sense given the uncertainty of San Juan’s future. The commission agreed and denied the cost recovery.
Today we face grave risks with climate change. The false claims of ETA opponents, designed to stoke anger and distrust, threaten perhaps the most important New Mexico climate legislation of our time. We must not let that happen.
Steve Michel is the Western Resource Advocates Clean Energy Program deputy director. Camilla Feibelman is the Sierra Club Rio Grande Chapter director.
This op-ed is endorsed by: Conservation Voters New Mexico, New Mexico Building & Construction Trades Council, IBEW Local 611, Prosperity Works, Sierra Club Rio Grande Chapter, 350 New Mexico, Western Environmental Law Center, Western Resource Advocates