Don’t-Miss Opportunity for Local Choice in Landmark Carbon-Free Bills — Episode 72 of Local Energy Rules Podcast

Mariel Nanasi is Executive Director of New Energy Economy in New Mexico. Her organization has been in the trenches at the legislature, the Public Regulation Commission, and even the State Supreme Court to defend New Mexico customers from the monopoly electric utility’s efforts to line shareholder pockets while sticking it to customers.

She joins me to talk about why we shouldn’t have to buy out incumbent monopolies to get clean energy. I’m John Farrell, Director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this Local Energy Rules, a podcast airing powerful stories about local renewable energy.

There’s so many different pieces here to try to tackle. Why don’t we start with the one about money, because that’s the thing that a lot of people pay attention to. The first thing is, and stuff that has been released by New Energy Economy, it sounds like this is going to be way more expensive than a competitive process for getting the state to clean energy goals.

The way that it does that is by selling these sales assets to bondholders, and then the bondholders give the money right up front to the utility, and then rate payers must pay that bond back over a certain period of time. In our case it’s 25 years at essentially a 4% interest rate.

So the deal is is that in our case the bonded amount will probably be around $1.3 billion, which is $400 million more than what it would cost under traditional rate making.

Now when these national securitization experts came they said we’ve done securitization 64 times in the United States and not one of those times has the utility been able to predetermine the amount that it wants, but in this case, in our case, it has done so.

So this is extraordinary and what they called unprecedented, and that’s their word to describe the Energy Transition Act, which is what we’re facing in New Mexico right now in the legislature.

So there is a clean securitization bill that is also going through the legislature, and that one we would support. So if there’s a way to lower the interest rate paid and they are actually insured that there is a benefit, a financial benefit for rate payers for lowering interest rates, we’d be open to that, but this bill does not do that.

Yet there are other places in other states … And you mentioned this, there are ways to do this that can have benefits for the public. I think Colorado actually has a bill right now or some legislation around this very thing. The idea is we take an expensive dirty power plant that is still on the utility’s books and we essentially like refinance it with public money, but at a lower interest rate than we would have to pay back to the utility, and in that case everybody can win.

The utility gets it off its books, they still get some money, but maybe not as much as they would have, and the public saves money because they’re now paying at a lower interest rate. Is that how a clean securitization bill would work for New Mexico?

But in the PRC, or in the regulatory agency, would determine that after a whole vetting process to see how much should the public be on the hook for to begin with, and that’s one of the main issues. Right now we have the best consumer protection agency that we’ve ever had in New Mexico, so this is an end run around that agency and their oversight and scrutiny.

It sounds like in addition to running around the consumer protection role of the regulator for securitization though, there are other parts of this bill that are running around that normal process in terms of how you would replace that dirty energy with clean energy. Is that right?

So they put out this request for proposals and the utility can compete, as well as independent power producers, in our case Pueblos. So Pueblos could come in and say we want to bid in 100 megawatts and serve Albuquerque or serve Santa Fe or whatever it is, where the load center is.

But PNM of course doesn’t want to compete. They want to enlarge or enhance their monopoly, so not only are they going to get this boatload of money right away, but then they’re going to take that money and then invest it in new resources. And when they put it in those new resources, some of which I think will be not wise, like more gas … But even if they invested in solar, evidence has demonstrated that when PNM owns the resource it is 49% higher than if independent power producer, you know, produced that same amount of energy.

So PNM rigged a bid so that they could own it, and they ended up owning it and saying that that was the most beneficial for rate payers. The hearing examiner sided with New Energy Economy and denied the resource, but in a slight of hand the then public regulation commission, which was corrupt, overturned her decision even though she was the only one who heard all the evidence and read all the briefs.

Anyway, I don’t want to go into the whole why they were corrupt, but what happened was is that PNM not only makes money on the electricity that it sells us from that 50 megawatt solar facility, but then it gets a 9.575%, which let’s just call it 9.5 … A 9.5% return on the solar panels themselves on the outlet themselves.

Then their newest brainchild was they said well, the land that the solar sits on is also an asset, and we want to get a 9.5% return on the land itself also. So that was another cost that they were going to … That was ultimately approved. That case is on appeal in the New Mexico Supreme Court.

That 50 megawatts was 49% more costly for rate payers than an independent power producer’s 50 megawatts that occurred like four months … There was a four month time span difference, and

And was also approved by the public regulation agency. So, that’s crazy. So at minimum, the utility gets a 10% higher cost, but there is an incentive, a perverse incentive for them to make as much money, because when they charge us more, they make more money.

And that was the trade that was made. And, one of the problems in that trade was that the utilities said, well, we don’t want to have to build all the renewable energy, or buy the renewable energy from customers in New Mexico. We want to for instance, be able to buy RECs, renewable energy credits. So literally, the renewable energy could be built in Colorado, or Arizona, or Texas or anywhere, and then all the utilities have to do is buy the renewable energy credits associated with that actual energy production. But it doesn’t even have to be in New Mexico.

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Thanks again for listening, now, back to the program.

There’s the sort of predetermination of prudency to use the technical term, but basically saying that the commission, the regulators don’t get a chance to review the cost of these renewable energy systems the utility would build. What’s at the center of this? This is about a big coal plant that is kind of at the heart of this that the utility has owned for a long time. And tell me a little bit more about that.

Because there was so much uranium mining and so much coal production there, and they have really borne the brunt of disproportionately of our electricity usage. So it’s spewing there, 300 miles away from Albuquerque and Santa Fe that have some of the cleanest air the country. And you might have heard there is a methane cloud also over that same area in the four corners that they say is the size of the state of Delaware.

So, and the San Juan Mine, the mine associated with San Juan Plants generating station is the second greatest methane emitter in New Mexico. So, it’s a very dirty plant, and people might have heard that there was a new report that just came out a couple of days ago by Earth Justice that talks also about that most of the coal plants in the United States are leaking coal ash into waterways, and that we believe is also happening at the San Juan Generating Station.

So this is a toxic waste dump. And, it’s costing customers right now today, more in electricity than renewable energy because, we have abundant renewable energy resources in New Mexico, and yet PNM and one of the other investor owned utilities, El Paso Electric has very little actual renewable energy in their energy portfolio that produces electricity for us.

And so, this plant has been the target by environmental organizations for 10 years or more to try to close it. And so, we’re really glad that it’s going to be closing. New Energy Economy, the organization that I run fought extraordinarily hard to close it. Back in 2015, PNM took the position that oh, we’ll close half of the plant, but we’ll have the plant continue indefinitely.

And then one year later, they agreed with New Energy Economy and said, you know what, actually it’s not cost effective, you are right and we should close it down in 2022. And so, we’re glad that it’s closing down, we wish it was earlier. If they had in fact closed it earlier, we would’ve given them 100% of their “undepreciated assets”. So that’s like another huge wonky term. And what it means is essentially they have a mortgage, like you have a mortgage on your house and you start paying it on day one and 30th year, you own it outright.

And you know, even if the house costs $350,000, it might ultimately with all the interest really be costing you $800,000 but you’ve had that time, you have that 30 years to pay it off. Well, this plant by 2022 will be a 50 year old plant. You would think we would have paid it all off by then. There is no plant in the United States that has been around for 85 years, but PNM, we believe imprudently had it on their books, literally their financial accounting books as mortgaged out till 2053.

And so they said, well, if we close it in 2022, we still want all the money that we were going to collect from rate payers between 2022 and 2053. Well that’s essentially 31 years and more of collecting from us. But we will have received nothing, zero, not a kilowatt of electricity from that, and yet they want to get the money from us. And so that’s another part of why we would rather have this fight in front of the public regulation commission.

Because we can say, hey, in 2015 you said this plant was cost effective and now you’re saying, no, it’s got to close really soon, but you still want the money. And it would have been one thing if we had paid you back for everything in 2015, but now you extended, and you’ve invested more in the plant, and we don’t want to pay that and that’s unfair.

And there’s a law that is not only New Mexico law, but is pretty standard regulatory law in the country that says when there is some kind of financial burden like this, or like an unexpected boiler breaks or something like that and it’s a lot of money. There is law that says there should be a sharing of the burden between investors and rate payers, which kind of just makes sense.

And then, sometimes that’s just straight up determined as a 50/50 split, and sometimes after a hearing, maybe it’s 70/30, or 20/80 depending on what the situation is. But here again, PNM is going running to the legislature, which by the way, they give a lot of money to those legislators for their election campaigns, and say, hey, just give us 100% without any vetting whatsoever.

And these legislators don’t know what the issues are surrounding this coal plant and all the associated liabilities. And so that’s one of the big problems that we’re having is that in most situations, when the best practice is implemented, it’s after a hearing at the PRC, not before. And so that’s another major problem with SB489.

I wanted to mention actually, I was going to do his earlier. This bill reminds me a lot of one that has been introduced in Minnesota. It’s under the title Clean Energy First. But I think its full name should be Clean Energy First, Shareholders Second, and Customers Last, because it has the exact same kind of language that you’ve raised as a concern about utilities getting to own all of the replacement energy for the stuff that they shut down, without any competitive bidding. Given the price premium that PNM charges, that seems like that would be similarly problematic.

Is there anything else that we should know about this act?

But now we have a new way. The new way is that we can have distributed energy. Especially in a place like New Mexico. Where we could put up solar next to the biggest cities. Or we could even put wind. But much closer to where actually the load center are. To double down on the old way, which is centralized plants, it’s sort of like, “Yeah, dial up telephones were great compared to calling an operator. But no one who has a cell phone today would ever want to go back to dial up”.

Essentially these bills that double down and increase, enlarge, enhance, exacerbate the utility monopoly structure, cheat us. Cheat the people of lower costs, decentralized energy. The reason why this is so important is because it’s sort of like a one percent, 99 percent issue. It’s like, why do we still want to give all the money to the monopoly utility? Rather than investing in all sorts of kind of cool local choice energy situations. In that way I can just now go into the community solar really quickly. That is a structure, I think that you all have the best community solar bill in the country. We really looked to you for that, and modeled our community solar and I think enhanced it. Even made it even better. If this community solar bill gets passed, it probably will be the best in the country, and hopefully we’ll have a lot of investment in New Mexico to do it.

That is, community solar is essentially what rooftop solar is, except that it’s not on your premise. It aggregates many different subscribers, and those subscribers buy subscriptions to the extent that they need that electricity. But all of the subscribers together can buy solar for cheaper. Our solar bill allows up to 10 megawatts, and that’s particularly good for cities that want to do solar for low income. For businesses. I think that probably the two entities that would benefit the most are low income and businesses. Because those groups are the most sensitive to price volatility and electricity rate increases.

This would be a hedge against rising electric utility rates. It’s gone very well. It’s passed the house. It’s passed its first senate committee. It’s going to its second senate committee this coming Saturday. Then I think it will go to the senate floor. That will be a real benefit to local communities, to businesses, to low income, to cities that want to produce and sell solar itself. Instead of literally sending money to the investor owned utility, which goes ultimately to Wall Street shareholders. That money will stay in the community and will be repurposed.

Especially for pueblos or cities that do this kind of work, then the money that’s generated from the community solar, they will literally have more money to spend on other community needs. Whether that’s healthcare or homelessness or all the other problems that we are facing.

What he’s essentially saying there is that regulators who think they are judges are assuming that everybody who gets to come and participate in those very complex and opaque legal proceedings is sufficient to determine what the public interest is. Even though it’s very difficult, as you well know, to participate in a public utilities commission process. That the parties that are involved have a lot of self interest, and not the public interest.

I don’t know if you have any further thoughts on that, but I just thought that essay was a terrific description of the problem that many commissioners have. Seeing themselves as somehow sitting between the public interest and the private interest, rather than representing the public interest.

In order to really step in and make major changes, which we have to do in order to support the people who are really hungry for radical change, is to start investing back into the community. That means taking away, removing the license of these monopolies to run ramshod over our environment, our health, and our economy.

In our 2016 interview with Mariel for example, she notes how poor public oversight of the monopoly resulted in the utility’s earnings rising 461 percent from 2008 to 2014, even though the area’s median household income fell by 6.4 percent. For more information on the battle for energy democracy in New Mexico, sign up for updates from New Energy Economy.

While you’re at our website finding those other interviews with Mariel, you can also find more than 70 past episodes of the Local Energy Rules podcast. Until next time, keep your energy local, and thanks for listening.