Public Service Co. of New Mexico’s customer bills could drop by an average of 11% per month for a year if the state Supreme Court and regulatory authorities approve a settlement regarding closure of the coal-fired San Juan Generating Station.
That settlement agreement, which PNM and nine other parties involved in the case filed at the Supreme Court on Friday, would mean average PNM residential ratepayers would receive a $9.28 credit on their monthly bills for 12 months.
The settlement is payback by PNM to customers for continuing to charge them for coal plant operations even after San Juan permanently closed on Sept. 30, 2022. A total of $115 million would be returned to ratepayers under the agreement, which, among others, included the New Mexico Attorney General’s Office and a number of environmental and consumer advocacy organizations.
“This settlement could not come at a better time for ratepayers affected by weather and the rising cost of food, housing and other basic needs,” Attorney General Raúl Torrez said in a statement. “Our team worked around the clock to get the best deal for ratepayers and I believe we have achieved that goal.”
The issue arose early last year, well before the San Juan plant shutdown, as disputes arose over PNM’s plan to recover about $360 million in previous investments it made in the plant once the facility ceased operations, plus other costs to assist laid-off workers and surrounding communities that had benefited from plant operations.
PNM closed the plant largely to comply with the state Energy Transition Act, or ETA, which requires public utilities to replace fossil fuel generation with renewables like solar and wind to achieve 100% non-carbon electric production by 2045. The utility is now working to replace San Juan with solar farms and backup battery storage technology.
To facilitate that transition to renewables, the ETA authorized PNM to issue low-cost “securitization bonds” to recover its previous investments in the plant, which customers would pay off through a monthly charge on their bills over 25 years.
Once sold, the bonds would provide PNM with upfront investment recovery. And customers would benefit because charges for San Juan would immediately be dropped from their bills and replaced with a lower monthly payment on low-interest bonds. Ratepayers would also benefit from cheaper and cleaner renewable generation.
But as San Juan closure approached, PNM announced that it would delay issuing the bonds until after the state Public Regulation Commission updates its electric rates through a new rate case that PNM eventually filed with the PRC in December 2022. The commission is now reviewing PNM’s new rate request, with public hearings scheduled to begin on Sept. 5.
But by not issuing the bonds, customers have continued paying for the coal plant, even though the facility is no longer operating, costing ratepayers about $98 million a year.
PNM said it couldn’t remove the plant from its rate base without PRC approval through a new rate case. And it said all the additional money it collects from customer payments on San Juan would still be paid back, or “trued up,” for customers by applying those savings to offset any new hike in customer rates.
But consumer advocates and environmentalists said customers should receive immediate relief for a plant that is no longer functioning, and that PNM was violating the terms and conditions on securitization bonds, which they said required the utility to immediately issue the bonds upon plant closure. The five-member elected commission at that time agreed with those arguments, and it ordered PNM last summer to immediately remove San Juan from customer bills as San Juan shut down, whether PNM chose to issue the recovery bonds or not.
PNM appealed that order at the Supreme Court, which then suspended the PRC’s order for PNM to immediately credit customers’ bills, and the case has been tied up there ever since.
Now, under the new settlement filed at the Supreme Court, PNM has agreed to pay back $115 million it will have collected from ratepayers by January 2024, when any new electric rates approved by the PRC would take effect. And customers won’t have to wait for the $9.28 per month credit to appear on their bills, because PNM would apply that credit within 30 days after the settlement agreement is formally approved.
For that to happen, parties in the case are now asking for the court to suspend all legal proceedings and remand the issue back to the PRC, which must then review the settlement for final approval.
Apart from the credit on bills, the settlement also restricts PNM from charging customers any more than a 5.5% interest on the securitization bonds once it issues them. That’s because interest rates have increased exponentially since last year.
“I am gratified that we were able to work with PNM to get a full rate credit and to protect ratepayers from higher interest rates,” Torrez said.
Environmental groups involved in the case, such as Western Resource Advocates, also praised the settlement, as did PNM itself.
“I’m pleased that after working together with a diverse group of advocates, PNM will now credit its customers with the costs of a coal plant that ceased operation nearly a year ago,” said WRA clean energy senior attorney Cydney Beadles in a statement.
PNM CEO Pat Vincent-Collawn said the agreement helps close the door on San Juan and continue the transition away from fossil fuels.
“We have been working towards this transition for many years and appreciate the collaborative effort from parties to reach a unanimous settlement to complete the final steps,” Vincent-Collawn said in a statement.