Opinion Post from Farmington Daily Times. Paul J. Gessing, Rio Grande Foundation Published 5:33 a.m. MT Feb. 5, 2019 | Updated 12:51 p.m. MT Feb. 5, 2019.
Environmental groups, Governor Lujan-Grisham, and even Public Service Company of New Mexico want us to believe that their plans to rapidly increase renewable energy are cost-competitive.
New Mexicans voted for change in 2018 and, as a result, there are legislative initiatives to raise the State’s “renewable portfolio standard,” or RPS, from 20 percent to 80 percent. Unfortunately, what voters haven’t been told is that this extreme expansion of the RPS will dramatically increase our electric bills.
In order to make way for rapid expansion of the RPS and bolster shareholder profits, PNM has decided to shut-down the coal-fired San Juan Generating Station near Farmington more than 30 years early. For the last 50 years, PNM has credited this plant at the PRC as the reason why PNM has been able to provide New Mexicans with low-cost power for the last 50 years. The plant was also just retrofitted, at a cost of $635 million, to remove more pollutants from its emissions and is now one of the cleanest plants in the country. PNM even admits that closing SJGS will increase our electric bills.
Despite price declines in wind and solar, we believe the replacement of a coal-fired power plant with a combination of wind, solar, and gas (supplemented by battery backup with unproven effectiveness at large scale) will not be cheap. A 2016 study produced by the Foundation estimated that from 2011 to 2020, New Mexico’s RPS would cost rate payers an astonishing $2.3 billion above and beyond what they would otherwise pay for electricity.
We stand by this report and note that other sources indicate New Mexico’s electricity prices rose about 30% since the RPS took effect in 2005. This increase is attributable to the RPS because it occurred at a time when the prices of traditional electricity generation sources, like coal and natural gas, have declined.
The cost of switching to “cheaper” sources of renewable electricity shouldn’t be borne by ratepayers or taxpayers. One would hope that Governor Lujan-Grisham, the Legislature, and PRC share this view. After all, they represent average New Mexicans and ratepayers, not just utilities and environmental groups.
One other thing that needs to be considered is the economic viability of the Four Corners area of our State. We at the Rio Grande Foundation embrace free-market economics and have no qualms about market corrections and corresponding impacts. But closure of SJGS is different. PNM is shielded from market corrections because it has a monopoly over its customers and a guaranteed rate-of-return. In exchange, PNM is bound to provide customers with reliable low-cost electricity and to conduct its business in a manner that is not detrimental to the public interest.
Here, not only does PNM admit our bills will increase, but PNM’s actions are also detrimental to our state’s budget.
If the market truly is pushing PNM towards other electricity sources, policymakers, taxpayers, and ratepayers should welcome that transition, but they shouldn’t be forced to foot the bill in case their assertions prove to be wrong.
For the good of New Mexico’s economy and ratepayers, any effort to provide PNM a financial bailout for its move out of San Juan Generating Station should also include basic protections for New Mexico ratepayers. The best protection is a hard cap on electricity rates during the rapid RPS expansion.
Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.
The rationale for utility stranded cost recovery is controversial. This rationale for recovery is predicated on the concept of the “regulatory compact.” The specifics of such a “regulatory compact” is not explicitly defined nor generally agreed upon by the various stakeholders (company, shareholders, regulators, customers, legislators, environmental advocates, etc.).
However, the general idea is that because public utility prices are set by regulators, utilities are entitled to recovery of cost that become stranded (unable to be recovered through rates because of changing market or regulatory conditions). Whether utilities are indeed “entitled” to recovery all or even a portion of their stranded costs is hotly debated on all sides.
PNM argues that it is entitled to recover its stranded costs in the San Juan Generating Station based on the analysis in PNM’s most recent Integrated Resource Plan. This is despite a dramatic change in strategy by PNM relative to the San Juan plant over the past few years. During these years, PNM invested large amounts of money in the plant which has made the amount of stranded costs much larger. Whether these recently expended costs by PNM are subject to stranded cost treatment is particularly controversial.
Another difficult issue for PNM as it seeks the ability to recover stranded costs related to the San Juan Generating Station is whether this plant has value in the hands of another owner (likely an unregulated wholesale power producer). PNM is so completely convinced by the conclusion of its recently filed Integrated Resource Plan that San Juan Generating Station has no value that the company has made no attempt to seek willing buyers for the plant.
Whether a buyer could be found and what price they would be willing to pay is currently not known due to PNM’s sole focus on shut-down and stranded cost recovery. If the plant were sold even at a very low price, it would provide an arm’s length verification of the plant’s value. The valuation in a sale would be much more reliable that the potentially self-serving assumptions and analysis done by PNM in its Integrated Resource Plan calculations.
Shutting down the plant when it could be sold, also provides the potential for an additional windfall to PNM. By structuring its exit from the San Juan Generating Station as a plant shutdown with stranded cost recovery, PNM will reap the long-term benefit of a wholesale power market void of the power from the San Juan Generating Station, thereby making its remaining generating assets and any future investments in replacement power more valuable than they would have otherwise been.
If it can be show that San Juan Generating Station could have been sold, and PNM chooses not to do so, the increased market value of PNM’s existing and any future electric generating capacity due to lessened competition should offset any stranded costs to be recovered. Under such a scenario the value of this reduced competition could potentially serve as the sole form of stranded cost recovery to which PNM would be “entitled.”
PNM will no doubt craft arguments against attempting to sell the San Juan Generating Station to a potential willing buyer. However, unless the company pursues such an action, its arguments for being entitled to stranded cost recovery are dramatically weakened, likely to the point of justifying no stranded cost recovery from rate payers.
Listen to Germaine Chappelle’s discussion on the Rio Grande Foundation’s Tipping Point New Mexico Podcast. Germaine addresses a variety of issues with hosts Paul Gessing and Dowd Musca. Hear about the issues related PNM’s plan for San Juan Generating Station including “stranded costs”, the cost of adding “renewables”, how electric rates will be impacted, and how the plan will hurt the Four Corners region.
Podcast: Play in new window | Download
Wall Street Journal
By The Editorial Board
Updated Oct. 19, 2018 7:32 p.m. ET
Progressive money man Tom Steyer has many causes—impeaching Donald Trump, electing Senate Democrats, and this year ballot initiatives to impose renewable-energy mandates on voters who don’t realize how their electricity bills will rise.
Mr. Steyer’s NextGen Climate Action first targeted Michigan, where utilities agreed to higher renewable quotas if Mr. Steyer dropped his initiative. Next was Nevada, where referenda need to pass twice to become law. Nevada utilities are rolling over this year to save for a ballot brawl in 2020.
This year’s ground zero is Arizona, where Mr. Steyer’s Proposition 127 would require utilities to produce 50% of electricity from renewable sources by 2030. This would more than triple Arizona’s current mandate of 15% by 2025. The Steyer mandate would also bar utilities from counting obvious forms of renewable energy, such as nuclear (now 29% of the state energy mix) and most hydropower (6%).
The latter provision shows that Prop 127 is really one more subsidy for solar and wind power. Sunny Arizona is third in the country for solar power, according to the Solar Energy Industries Association, while it’s in the middle ranks for wind power. The strange hostility to nuclear would probably require the closure of the Palo Verde nuclear plant—the nation’s largest clean energy facility. Nuclear would have to be replaced with natural gas plants necessary to backstop intermittent wind and solar.
Hardest hit would be Arizona pocketbooks. Since the state adopted its current mandate in 2006, Arizona utilities have expanded renewable electricity to 7% from 1% of their electricity mix. But according to Energy Information Administration data, this has raised Arizona electricity prices by 30%—compared with 19% for the nation over the same time period. The Heartland Institute says that “at that pace, ramping up the mandate to 50 percent would cost the average household an additional $2,179 per year compared to present electricity costs.”
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Editorial board, Arizona Republic Published 6:08 a.m. MT Oct. 25, 2018
Opinion: The debate surrounding Arizona’s Prop. 127 has been needlessly complicated. The clean energy mandate comes down to just four words: Right idea, wrong tool.
One day Arizona will be powered by the sun.
We enjoy such abundant natural light that we seem destined to throw a harness around the sun and use it to pull the greater share of our state economy.
But that day is not here. Not yet.
For now we are moving in the direction of the sun with new knowledge and new technology.
Crusaders for clean power have put on this year’s ballot a proposal to massively accelerate Arizona’s ascension to virtually 100-percent clean energy. But there are reasons to doubt it.
What would Proposition 127 do?
Utilities are now under Arizona Corporation Commission mandate to produce 15 percent of their electricity from renewable sources by 2025.
Proposition 127 would bump up those requirements to 50 percent by 2030, an increase the utilities say would greatly increase costs that would then be passed on to ratepayers.
Opponents, led by APS, contends the proposal’s economics would force the closure of Palo Verde Nuclear Generating Station, which produces power for about 4 million people.
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