PNM's Solar Dilemma

On a windswept hill in Albuquerque's south valley, rows of metallic blue solar panels gleam beside a humming control center. The energy they capture from the sun's rays goes into orange containers stacked with special lead batteries that store the energy for use after the sun goes down.

The project, funded by a US Department of Energy grant, is the first of its kind in the nation. It's one of 16 sister projects testing combinations of different renewable energy sources and storage technologies, but is the only solar-battery center, and the first of the projects so far to come online. Called the Prosperity Energy Storage Project, the installation is spearheading the effort to resolve some of renewable energy's biggest challenges. Representatives from national and international trade groups and regulatory bodies have visited Albuquerque to see the project in action, and students from the University of New Mexico and Northern New Mexico College are using it to conduct research. Yet the company behind the project isn't known for its forward-thinking energy policies: Public Service Company of New Mexico, otherwise known as PNM, has a reputation for fighting renewable energy requirements, not embracing them.

Two years ago, a common refrain among the state's environmentalists and alternative energy advocates was that PNM didn't own any renewable energy resources. It bought wind energy "credits" from a plant in southern New Mexico, owned by a Florida company, while continuing to sink money into the air-polluting San Juan Generating Station near Farmington. Today, however, PNM operates five solar plants in addition to the Prosperity Energy Storage Project. Projects like the Santa Fe Community Convention Center's new solar installation—expected to meet 10 percent of the facility's energy needs—are popping up through partnerships between PNM and private solar companies. And with good reason: This year, the Solar Energy Industries Association ranked New Mexico fourth in the nation for its 2011 solar energy production. But while PNM has undoubtedly come a long way toward joining the solar energy revolution, in some ways, it's still clinging to a fossil-fueled past.

PNM likes to brag that it was moving toward renewable energy before the New Mexico Renewable Energy Act required it to, by buying renewable energy credits from the New Mexico Wind Energy Center. That plant is associated so closely with PNM—partly because of the utility's publicity effort—that it's often known at the PNM Wind Energy Center. But PNM doesn't own the plant; in fact, to say it started buying wind power credits before the state Legislature forced it to is disingenuous. Although PNM began its partnership with the New Mexico Wind Energy Center in 2003, and the Renewable Energy Act wasn't passed until 2004, PNM had to comply with a previous law requiring it to get 5 percent of its energy from renewable sources.

"When you listen to PNM's public relations effort, they constantly remind us that they invested in wind long before there was anything called the renewable energy portfolio requirement," says Gary Vaughn, a vice president at the New Mexico Solar Energy Association. "That's their constant refrain. It just doesn't happen to be true."

And despite PNM's early start, the company is still out of compliance with current renewable energy requirements—even with its five new solar plants and the Prosperity Energy Storage Project.

Under New Mexico's Renewable Energy Act, utilities must draw a certain amount of their total power from renewable energy sources, with specific percentages coming from wind, solar and other sources. But the law also requires that utilities achieve these renewable energy quotas without spending too much money. (Since utilities pass on infrastructure costs to ratepayers, the law limits how much they can spend.) By law, PNM should have more than its current 22 megawatts of utility-scale solar power—enough to power between 18,000 and 22,000 homes—but it managed to skirt that requirement because of this second part of the law: the rate cap. PNM simply showed that the cost of producing more solar energy would exceed its spending limits and threw up its hands about the renewable energy requirements.

The Renewable Energy Act seems to be putting PNM in a tricky position, requiring it to expand its energy portfolio, but giving it a limited budget on which to do so. But many other utilities seem to have no trouble meeting such obligations.

Publicly regulated utilities in Colorado, for instance, have to get more of their electric power from renewable energy than New Mexico utilities, and must adhere to an almost identical rate cap. Yet Colorado’s Xcel Energy is exceeding those requirements, relying even more heavily on renewables than the law requires. So is Southwest Public Service Company, under the same legal requirements that seem to elude PNM.

New Mexico Public Regulation Commissioner Doug Howe says part of the blame lies with PNM's decision to opt for a costly type of solar installation on its five new plants.

"I think the problem here was, in this particular instance, [that] the 22-megawatt [facilities were] probably too expensive," Howe says. "I think that there were probably cheaper alternatives available to them at the time."

To some, this is evidence of a certain fuzzy method of accounting PNM has when it comes to renewable energy.

"PNM's cost accounting for what it is costing them to do renewable energy…is very creative, let's put it this way," Vaughn says.

PNM spokeswoman Susan Sponar, however, explains that building the five new plants required up-front expenses that will eventually diminish.

"Building new plants can be expensive initially, but decrease in cost over time," she says.

Still, while PNM's press materials suggest that the company is embracing renewable energy, its resource plans reveal a different perspective, suggesting that PNM considers renewable energy only in terms of its drawbacks and doesn't account for benefits such as a reduced reliance on fossil fuels.

"PNM's approach is very aggressive on the 'it costs us money' side and kind of not accounting for any benefits at all," Vaughn says. "As far as PNM is concerned, officially, in their statements, there are no benefits to this for PNM ratepayers."

But the amount of sunshine New Mexico receives makes solar power a no-brainer. A solar irradiance map, which shows the amount of sunshine received annually in different parts of the country, demonstrates that New Mexico, like Nevada, Arizona and California, is uniquely positioned to take advantage of solar power (see page 21). What's more, the price of installing solar energy has been declining, making the technology increasingly accessible to businesses and consumers.

Last year, almost 2,500 PNM customers used the utility's residential solar program. The customers pay to install their own solar panels, and then pay PNM only if they use more electricity than they get from their solar systems. In addition, PNM gets credit toward its own renewable energy requirements, and pays solar customers in exchange.

But in 2010, PNM tried to contest this arrangement. The utility argued that normal customers pay PNM not only for the power the utility distributes, but also for everything that goes into distributing that power, including upkeep of infrastructure like power lines and generating stations. Even though solar customers pay to install their own solar panels, they can defray much of their power bill by creating their own electricity—which means PNM isn’t getting the extra dollars it needs for infrastructure. PNM argued before the PRC that this is a losing proposition, and sought to charge solar customers an interconnection fee—in essence, a fee for using PNM’s power infrastructure—of 8 cents per kilowatt-hour of solar energy. (The average house in New Mexico uses about 660 kilowatt-hours of electricity per month, so the total charge for a customer who generates half of her power from solar energy would be around $26.40.)

Another publicly regulated utility company in New Mexico, Southwest Public Service Company, located in the southern part of the state, actually requested a similar interconnect fee, but instead of asking for 8 cents per kilowatt-hour, SPSC asked for one half of 1 cent per kilowatt-hour—even though its territory has even more solar energy than PNM's.

"That's a big difference," Vaughn says. "So how is PNM justifying this? It's magic accounting. That's as politically correct as I can be."

PNM backed down when an expert witness showed that the utility actually gains, not loses, through its relationship with residential solar owners. Although PNM's solar customers avoid paying about $5.6 million in electric bills each year, they save PNM $9.8 million in defrayed fuel and other costs.

Utilities in several other states have tried similar maneuvers, but each ultimately acknowledged that customers who use solar power benefit utility companies more than they burden them.

But PNM hasn't given up. In its next rate case, the utility will argue for a different interconnection charge, Sponar tells SFR.

"They can come up with the numbers to justify that in their own bookkeeping; the problem is, you can't find any confirmation from that from any other utility," Vaughn says.

But utilities often win such arguments, Regina Wheeler, the CEO of solar provider Positive Energy, tells SFR, because it's much easier for a multimillion-dollar company to fly in experts and present evidence than it is for solar customers and representatives of the solar energy industry to do so. In addition, a portion of PNM's rates goes to paying the expenses associated with such regulatory hearings.

"There's not a level playing field," Bruce Throne, a lawyer who has represented solar energy companies in numerous cases before the PRC, tells SFR. "I've represented the Renewable Energy Industries Association of New Mexico, but this is a voluntary nonprofit organization made up of relatively small solar companies. They don't have the wherewithal to bring in outside experts who can take apart utilities' spreadsheets."

This inequity has drawn the attention of the PRC, which, during the 2012 legislative session, was instrumental in helping pass a House Memorial to study the idea of creating a ratepayer advocacy office. The office would create a fund, drawn from PNM's electricity fees, to help other stakeholders present evidence and witnesses at PRC hearings.

"PNM's legal budget, when it comes in for a rate case, is probably a million dollars or more, and far exceeds what the PRC's budget and the [Attorney General's Office] budget is, and what the budget of all the intervenors is…," Howe notes. "Many other states have such a thing as a ratepayer advocate, such as Colorado, and we think it's time we did as well."

Howe says he and fellow commissioner Jason Marks expect to present such a plan at the 2013 legislative session.

Meanwhile, another change is scheduled to affect the economics of residential-scale solar, as well as larger systems such as the Santa Fe Community Convention Center's. PNM is in the process of reducing the renewable energy credit payments, or RECs, that it makes to solar customers—in other words, the money PNM pays its customers in order to take "credit," under the state's renewable energy requirements, for the solar power they produce. El Paso Electric pays over twice as much to solar customers in renewable energy credit payments—but even El Paso's payments, Vaughn says, pale in comparison to other states'.

"New Mexico has sort of slid down to the bottom tier...We're not on the cutting edge of promoting solar any more," Vaughn says.


But PNM may have an undeservedly poor reputation when it comes to helping usher in New Mexico's renewable energy future.

Not everyone agrees that the decline in renewable energy credit payments is unreasonable, for instance. The idea behind the decline is that as solar technology becomes cheaper to acquire and install, customers need less payback to make using them worthwhile. Another reason for the decline is that as PNM's normal electricity rates increase, solar customers will be saving more money by avoiding them. El Paso Electric's REC payments are 12 cents per kilowatt-hour for smaller systems and 10 cents per kilowatt-hour for larger systems; PNM's are scheduled to go down to 4 cents and 2 cents, respectively. Similarly, though it can be difficult to compare REC payments between states because of different types of renewable energy programs and legislation, many utilities in other states have refused to reduce their REC payments to customers, despite the increasing affordability of solar power.

Sponar says the biggest reason for the decline is the falling cost of solar panels, which she says has plummeted 44 percent over the past three years.

"It makes sense for the [Public Regulation] Commission to be lowering the REC incentive over time, as the cost of installing these things declines over time," Throne agrees. "The lowering of the REC incentives is a sound policy; there's nothing about that that, in my view, is unreasonable."

Sponar points out that the REC program is more popular than ever, even though the payment amounts began declining in 2010.

"Last year, our customers installed more solar than in the five previous years combined, despite the drop [in REC payments]," Sponar says. "The program has been growing by leaps and bounds."

Sponar also notes that PNM has more energy from residential-scale solar than the 1.5 percent required by state law—and by 2013, PNM expects to get 11.5 percent of its renewable energy from residential-scale solar.

To achieve that, however, PNM ratepayers will have to chip in. Last month, the utility introduced a new "pay as you go" system for funding renewable energy development through consumser rate increases. But this system flips PNM's usual funding mechanism on its head, requiring ratepayers to front PNM extra money ahead of time so it can afford to build renewable energy infrastructure, rather than waiting until after the new additions are operational.

Some critics decry the idea for requiring consumers to hand over the cash before they see the results. According to PNM, though, the plan will save consumers money in the end. Without rate increases to pay for the up-front costs, the utility will have to borrow money to build its renewable energy infrastructure. Taking out a loan has the same drawbacks for a multimillion-dollar utility as it does for an individual consumer: interest payments. And since PNM will pass on the total cost of the new infrastructure to its customers anyway, it's in the consumer's interest to keep the total cost of PNM's renewable expansion as low as possible.

"Right now, the way we recover costs for the investments we make in renewable energy, it's as if we weren't paying our credit card on time..." Sponar explains. "I think [the pay-as-you-go] approach is really a much better fit for the state's renewable goals and policies, because it makes them more affordable."

Although some alternative energy advocates disagree, Vaughn says it checks out.

"There's nothing inherently wrong with that...in all likelihood it's a good thing, though the devil's always in the details," he says. "It's not like PNM is trying to charge their customers for costs that they're not incurring; they just want to charge their customers sooner instead of waiting two years and then starting to charge their customers. No other business operates that way, [so] why should PNM have to operate that way just because it's a regulated utility?"

The PRC is in the process of evaluating the pay-as-you-go plan; PNM customers' bills could be affected as early as August.

The good news is that PNM's newest energy plan will put the utility in compliance with the state's renewable energy requirements without exceeding the cost cap.

"What we're proposing to do is add another 20 megawatts of utility-scale solar," Sponar says. "We have five different sites around the state where we already have solar. We'll add solar to those sites or to another site we've already looked at, and that would give us about 42 megawatts [total] of utility-scale solar."

PNM is also considering adding 10 megawatts of geothermal energy from a plant south of Lordsburg—further evidence of the utility's steady, if slower than some advocates would prefer, march toward ushering in New Mexico's renewable energy future.

"I think they're back on the path of getting themselves into compliance," Howe says. By 2015, Sponar says, PNM will be in compliance with the state's requirement that 15 percent of its energy come from renewable sources.

According to PNM's most recent resource plan, the utility will continue to add renewable energy infrastructure and will not add fossil-fueled projects of any kind. Additionally, as PNM obtains data from the Prosperity Energy Storage Project, its existing and new solar plants may be on the leading edge of making solar power even more economically viable—an innovation even PNM's harshest critics should be able to get behind.  

SFR

Santa Fe Reporter