BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSIONIN THE MATTER OF PUBLIC SERVICE COMPANY OF NEW MEXICO'S ABANDONMENT OF SAN JUAN GENERATING STATION UNITS 1 AND 4

PUBLIC SERVICE COMPANY OF

NEW MEXICO,

Applicant.

) ) ) ) ) ) ) ) )

Case No. 19-00018-UTPUBLIC SERVICE COMPANY OF NEW MEXICO'S LEGAL MEMORANDUM IN

RESPONSE TO APRIL 1, 2022 PROCEDURAL ORDER

APRIL 20, 2022

TABLE OF CONTENTS

  • I. INTRODUCTION .............................................................................................................. 1

  • II. REMOVING THE COSTS OF SAN JUAN BETWEEN RATE CASES WOULD RUN COUNTER TO THE ETA, THE FINANCING ORDER, AND THIS COMMISSION'S OWN PRECEDENTS ......................................................................................................... 6

    • A. The ETA and the Financing Order Do Not Provide for A Rate Adjustment During

      the Period Between Abandonment and Issuance of Energy Transition Bonds ...... 6

    • B. Removing San Juan from Rates Between Rate Cases Would Constitute Single-

      Issue or Piecemeal Ratemaking ............................................................................ 10

    • C. The Commission Should Not Rely on the Pennsylvania Decision Cited in the

      Procedural Order ................................................................................................... 13

    D. The Claim That PNM Will Recover All Purchased Power Costs Is Flawed ........ 17

  • III. REMOVING THE COSTS OF SAN JUAN BETWEEN RATE CASES WOULD ARBITRARILY AND CAPRICIOUSLY PLUCK ONE SET OF COSTS FROM PNM'S RATE BASE WITHOUT CONSIDERING THE INVESTMENTS PNM HAS MADE SINCE ITS LAST RATE CASE ...................................................................................... 19

  • IV. A REGULATORY LIABILITY FOR SAN JUAN WOULD ALSO CONSTITUTE

    INAPPROPRIATE RETROACTIVE RATEMAKING ................................................... 20

  • V. CONCLUSION ................................................................................................................. 21

i

Public Service Company of New Mexico ("PNM") files this legal memorandum in

accordance with the Procedural Order of April 1, 2022 ("Procedural Order").

The Hearing Examiners issued a Procedural Order, which instructed that PNM should file

direct testimony by April 20, 2022, addressing a list of enumerated questions set forth in

Attachment 1 to the Procedural Order. The twentieth question in Attachment 1 asked parties to

address "the reasonableness of the Commission potentially requiring an interim rate reduction/rate

credit effective July 1, 2022 pursuant to 1.2.2.27 NMAC to remove the costs of San Juan from

customer rates."1 In that question, the Procedural Order contemplated a legal pleading by

providing that PNM may address the issue "in testimony and/or legal brief."2 As such, this Legal

Memorandum addresses the Question posed in the Procedural Order in the broader context of the

legal issues in this proceeding, explaining why the relief requested there should be rejected.

For the reasons stated herein and in the accompany PNM direct testimonies, the New

Mexico Public Regulation Commission ("NMPRC" or "Commission") should deny the relief

requested by the Joint Motion.

I. INTRODUCTION

The Joint Motion filed by Western Resource Advocates ("WRA"), Coalition for Clean

Affordable Energy ("CCAE"), and Prosperity Works (collectively, "Joint Movants") requests that

the Commission order PNM to show cause why its rates should not be reduced at the time San

Juan Generating Station Units 1 and 4 ("San Juan") are abandoned pursuant to the Energy

1 Procedural Order, Attachment 1, at 4 ¶ 20 (citing Pennsylvania Public Utility Commission et al. v. Metropolitan Edison Company, Docket No. I-79040308, 1979 WL 462104, 29 P.U.R.4th 502 (Pa. P.U.C. June 15, 1979) ("Pennsylvania Order"); Pennsylvania Public Utility Commission v. Metropolitan Edison Company, Docket No. I-79040308, 1980 WL 642586, 37 P.U.R.4th 77 (Pa. P.U.C. May 23, 1980))..

2 Id.

Transition Act ("ETA")3 and to otherwise enforce the April 1, 2020, Final Order on Request for

Issuance of a Financing Order ("Financing Order") in this case.4 PNM filed its Verified Response to the Joint Motion on March 14, 2022. Joint Movants and New Mexico Affordable Reliable

Energy Alliance and Bernalillo County (filing jointly) replied to PNM's Response. The Office of the New Mexico Attorney General ("NMAG"), New Energy Economy ("NEE"), and the Utility

Division Staff ("Staff") of the Commission filed motions to file replies out of time, but were accepted for filing.

The principal reason to reject the argument of the Joint Motion is that removal of the costs of San Juan from customer rates through an interim rate reduction/rate credit would violate the terms of the ETA and the Financing Order. In addition, removing San Juan from rates outside of a general rate case would also contravene established New Mexico law and past Commission precedent.

Before turning to PNM's legal responses, it is helpful to identify the Joint Motion's factual inaccuracies and unsupported assertions. These inaccuracies are discussed in more detail by the witness testimony being filed concurrently with this legal memorandum.

First, the Joint Motion claims that PNM is denying customers, through purposeful delay, the benefit of bond financing for paying San Juan's abandonment costs as opposed to a rate of return at the Company's weighted average cost of capital ("WACC").5 This is incorrect. There has been no "delay" because there was never a date certain timeframe for issuing energy transition

  • 3 NMSA 1978, §§ 62-18-1 to 62-18-23 (2019).

  • 4 See Final Order on Request for Issuance of a Financing Order, Case No. 19-00018-UT (April 1, 2020), approving and adopting Recommended Decision on PNM's Request for Issuance of a Financing Order, Case No. 19-00018-UT (Feb. 21, 2020) ("Financing RD").

5 Joint Motion at 2, 4-5.

bonds. Indeed, PNM has consistently stated that the bonds would be issued to coincide with

PNM's next rate case. Neither the ETA nor the Financing RD provide any specific time period by

which PNM must issue bonds after retirement of a qualifying generating facility. The Commission

has recognized this fact.6 Additionally, PNM has made substantial capital investments since its

most recent rate case that have not yet been reflected in rates. Consequently, customers have

benefitted from lower rates resulting from any purported delay estimated to result in annual

customer savings of between $23 million and $36 million.

Moreover, PNM never claimed that energy transition bonds would be issued by a date

certain.7 Although PNM stated that it intended to issue energy transition bonds near in time to the

abandonment of San Juan, PNM also stated that it intended to issue the bonds to coincide with its

next rate case such that San Juan costs would be removed from rates at the same time energy

transition charges would begin.8 However, PNM's planned rate case filings have ultimately been

pushed back in light of the COVID-19 pandemic and its attendant economic impacts and in

accordance with a proposed regulatory commitment in Case No. 20-00222-UT, whereby PNM

agreed through the settlement process that PNM would delay its next rate case until December 1,

6 Order on PNM Notice and Request for Modification to or Variance From Abandonment Date of San Juan Generating Station Unit 4 ("Order on Notice"), ¶ 26 at 9, Case No. 19-00018-UT (Feb. 23, 2022) (noting that Financing Order "does not require that PNM issue the Energy Transition Bonds . . . by any specific date.").

7 See, e.g., Hr. Tr. Vol I (12/10/2019), at 254:4-8 ("My high-level understanding of this I-- and, again, these are -- if we go into depth, it's probably questions for Elisabeth Eden -- but the bonds would be issued around June 30, 2022, which is the abandonment date." (emphasis added)) (Ronald Darnell); Hr. Tr. Vol. IV (12/13/2019), at 1030:15-18 ("I also want to say that the plant can shut down even though the bond issuance hasn't happened. They don't have to correspond at the same time or happen at the same time." (emphasis added)) (Elisabeth Eden).

8 Financing RD at 71 ("In PNM's original filing, PNM stated that it intends to file a general rate case to reflect the abandonment of the San Juan coal plant for rates to go into effect at the same time as the Energy Transition Charge are collected from customers.").

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PNM Resources Inc. published this content on 20 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 April 2022 01:11:09 UTC.