We have received a fair number of questions from our customers and prospects about the recent ruling by the PRC that address certain aspects of its renewable energy regulations. The PRC voted on November 20 of this year and published an Order on that same date. We will lay out the regulatory framework of the ruling, as well as how it can be expected to affect solar projects in New Mexico in this two‑part blog on the topic.
Part 1: Putting the November 20 Ruling into Context – What Was Ordered?
To the outside observer, and frankly, even the inside observer, the role of New Mexico’s Public Regulation Commission (“PRC”) can be somewhat confusing. At the risk of over‑simplifying, their role is actually fairly simple, even if the subject matter of their rulings can be rather complex.
During the 2004 legislative session, the New Mexico legislature passed a statute, which is referred to as the “Renewable Energy Act.” It is located in the New Mexico Statutes at §§62‑16‑1 through 62‑16‑10. Perhaps the most important part of the Act, and the provision which made it significant for the New Mexico economy and, in particular, caused a shift in the adoption level of renewable energy in New Mexico is what is known as the renewable portfolio standard (RPS). This section is the “teeth” of the Act. The renewable portfolio standard requires increasing levels of renewable energy as a percentage of the total amount of energy sold by investor‑owned utilities (sometimes referred to as “IOU’s”). The major adoption levels as a percentage of each utility’s total retail sales was set by the Act at 5% by 2006, 10% by 2011, 15% by 2015 and 20% by 2020.
The Renewable Energy Act delegates to the PRC the job of drafting specific technical rules that are to give effect to the Renewable Energy Act itself. The main rule that accomplishes this is Rule 17.9.572 NMAC, which is often referred to in the industry as “Rule 572.” Rule 572 has been modified from time to time over the years, but largely remained intact. The PRC examined the Rule and specifically determined whether to make changes to the Rule in 2012 after extensive study of various proposed changes. The Commission, voting at the tail end of 2012, decided against making those changes. Not long after that ruling, however, the issue was revisited when the Commission, composed of two new members, decided to reopen the discussion, a discussion that took the form of PRC Case No. 13‑00152‑UT, and it was litigated throughout most of 2013. Ironically, the decision reached now, a second bite at the apple instigated by Commissioner Patrick Lyons (who favors an RPS met as much as possible by the wind developers located in his district), was reached by the change in vote of Theresa Bicente-Aguillar who is up for reelection in 2014 who sadly seems to have soured on the jobs created by renewable energy, many of which have been created in her own district.
After extensive briefing and public comment, the Commission made the following decisions with respect to amendments to Rule 572:
- The Commission examined whether to return to a policy of giving weighting to different sources of renewable energy, essentially giving more credit to some forms and less credit to others. This essentially undermines the Act itself by arbitrarily creating a technical fiction whereby one kilowatt-hour produced by, in this example, solar, is given a weighting of 2X, and treated as if it were really two kilowatt hours of energy, when of course, it’s still just one kilowatt hour of energy. The net result is less energy, which seems to fly in the face of the statute and the will of the legislature. Rule 572 contains what is called a “diversity requirement” which interprets the Act’s requirement for a diversified portfolio (See §62-16-4 (A)(4)). To give that requirement effect, Rule 572 requires utilities to derive at least 30% of their renewable energy from wind, 20% from solar, and 5% from “other” sources, such as geothermal or others. Furthermore, there is an additional requirement under the Rule that the utilities obtain a certain percentage of their renewable energy from “distributed generation,” which is defined as “electric generation sited at a customer’s premises, providing electric energy to the customer load at that site or providing electric energy to a [utility].” Essentially, distributed generation refers to rooftop, or “customer generated” (not necessarily on a rooftop) solar. What the PRC did here in November was essentially water down the requirement for generation of renewable energy by giving each solar renewable energy certificate (“REC”) a 2:1 weighting to the Rule and, therefore, decreasing the amount of solar that is needed for utilities to meet the mandate. The Rule also gave distributed generation a 2:1 weighting, further undermining the amount of renewable energy that must be created in the form of distributed generation or rooftop solar, although this requirement likely won’t matter in PNM territory because PNM has met the DG requirement easily for several years.
- The Commission was also asked to provide a more specific formula for stakeholders to determine what costs and benefits should be included in determining what is referred to in the Renewable Energy Act as the Reasonable Cost Threshold (“RCT”). This is an important part of the Rule, because the utility is not necessarily required to meet the renewable portfolio requirements if doing so would exceed what the Act refers to as the Reasonable Cost Threshold. In other words, it serves as the upper limits of what the utility must do in procuring renewable energy. The concept seems simple enough, but the various stakeholders have, for nearly a decade, sparred over how to calculate the RCT. As one might expect, the issues are extremely technical and complicated, but in essence boils down to a debate over whether the calculations should include what utilities and various industry groups argued were “hidden” costs for renewables. Those costs include the cost of maintaining backup generation, the loss of opportunity to sell excess energy due to the need for maintaining backup generation, and other equally difficult‑to‑calculate costs. In the end, the PRC voted to allow the utilities to include those somewhat nebulous costs in calculating the Reasonable Cost Threshold, while at the same time making it more difficult for clean energy advocates to include reductions in that calculation for specific savings that should naturally also be included.
- The Commission also examined whether to change the definition of a “renewable energy certificate.” A renewable energy certificate, or “REC,” is simply the documentation necessary to establish a utility’s compliance with renewable portfolio standard requirements. The change in the definition does not appear to be all that significant to the issues but was nevertheless adopted by the Commission.
In the next blog segment, we will provide some analysis as to how these changes will affect our customers and prospects in terms of their own renewable energy projects. At the end of the day, it appears likely that the Rule will be challenged in court and may not remain in place as recently changed by the Commission. Clean energy advocates should thank Commissioners Montoya and Espinoza for their support of the industry and their support of maintaining the Rules as written. And those with concerns about the Commission’s vote to dilute the statute’s requirements should voice them to Commissioner Becenti‑Aguilar who has traditionally not been hostile to renewable energy. Commissioners Hall and Lyons would be unlikely to change their votes.
Last month’s vote does not end that matter, and it is likely that it will result in an appeal, perhaps preceded by a request for rehearing.