Clean energy policy is sweeping the states in 2019, with numerous bills setting targets of 100 percent carbon-free electricity by 2050. While these climate-friendly policy proposals have many advocates excited, some utility companies also see them as a golden opportunity.
With advocates laser-focused on climate instead of how renewable energy is deployed and by whom, utility shareholders can win rich rewards by locking in ownership of billions of dollars of new clean energy infrastructure at a hefty price premium to customers.
Mariel Nanasi, executive director of New Energy Economy in New Mexico, joined ILSR’s Director of Energy Democracy, John Farrell, in March 2019, for a new episode of the Local Energy Rules podcast, to discuss the state’s proposed Energy Transition Act and its big giveaways to one of New Mexico’s incumbent monopoly utilities, PNM. The two also discussed the pitfalls of state policy that ignores how rooftop solar and other distributed energy offer huge opportunities to share the wealth of a climate-friendly energy system.
Listen to the episode, and explore highlights and resources from the conversation, below.
A Gold-Plated Low-Carbon System
Mariel Nanasi first picks apart the cost of the proposed Energy Transition Act, noting that the bill’s handout to PNM –– which guarantees utility ownership of new clean energy assets –– is far more expensive than competitive clean energy options. A recent study showed utility-owned solar power plants cost New Mexico customers nearly 50 percent more than independently-owned generation. The utility’s 9 percent shareholder return on its capital expenses — a common expectation of utility monopolies in 30 states — is mostly to blame for this enormous difference. PNM inflates costs by demanding shareholder return not just on its power plants, but also on the land under them (this proposal is currently pending in front of the New Mexico Supreme Court).
“There’s an incentive, a perverse incentive for them to make as much money because when they charge us more, they make more money,” says Nanasi.
The bill also offers the utility a way to retire its financial ties to old coal plants, a process called “securitization.” The policy works like mortgage refinancing, allowing the utility to get a lower interest rate on its remaining costs and save customers money. Or, that’s how it’s supposed to work. Securitization experts testified that the Energy Transition Act’s favoritism to utility shareholders –– by stripping public regulators of the right to review the amount the utility is reimbursed, among other things –– is “unprecedented.”
Lawmakers don’t have to accept PNM handcuffs proposed in this policy — an alternative public interest securitization bill is also circulating.
All for One And… Just for One
Despite historically high costs, the Energy Transition Act also doubles down on monopoly ownership of power generation, allowing PNM to replace the dirty, refinanced power plants solely with utility-owned generation. In the past, Pueblos or independent power producers have bid in less expensive resources to supply New Mexicans with clean electricity. In the Energy Transition Act, that practice would be prohibited.
New Mexico customers would get their power from PNM at whatever price.
The bill has echoes in other states, like in Minnesota, where the proposed “Clean Energy First” legislation would be more aptly named “Clean Energy and Utility Shareholders First,” leaving independent power producers out in the cold, and customers holding the bag.
The 18th Dirtiest Coal Plant
The Energy Transition Act’s centerpiece is the San Juan coal-fired power plant, built in what former President Nixon called an “energy sacrifice zone” on Navajo land. The power plant holds the title of the 18th dirtiest of 500 coal plants in the country. The adjacent mine that supplies the plant creates a methane cloud the size of Delaware hanging over the Four Corners region. Just four years ago, PNM finally agreed to close half the plant, but shifting economics in the energy sector have made operating San Juan too costly, and now the company wants to close it by 2022.
The catch is an accounting oddity. Despite most coal plants retiring at 50 or 60 years of service, PNM had financed the plant on an 85-year mortgage. The utility company now wants to collect on the remaining payments for two decades after the plant ceases to provide any electricity. As in most states, New Mexico law says that the financial burden of large assets like an expensive power plant should be shared between the utility and customers. Nanasi explains how PNM doesn’t care to share in these costs and is using its political muscle to avoid doing so:
“When there is a financial burden like this or like an unexpected boiler breaks and it’s a lot of money. There’s a law that says there should be a sharing of the burden between investors and customers. Sometimes it’s just straight up determined as a 50-50 split and sometimes after a hearing maybe it’s 70-30 or 20-80, depending on the situation. But here PNM is running to the legislature––by the way, they give a lot of money to those legislators for their election campaigns––and saying ‘hey, just give us 100 percent without any vetting whatsoever.’”
The Moment Calls for Local Choice, Not Monopoly
Nanasi is adamant about the way the proposed legislation undercuts the opportunity of this moment to address climate change by deploying local, clean energy that builds wealth in New Mexico communities.
“Now, we have a new way. The new way is that we can have distributed energy, especially in place like New Mexico, where we can put solar up next to the biggest cities, or we can even put up wind, but much closer to where the load centers are. To double down on the old, old way which is centralized plants. It’s kind of like–yeah, dial up phones were great compared to calling an operators, but no one who has a cell phone today would want to go back to dial up,” she points out.
“These bills that double down and increase, enlarge, enhance, exacerbate the utility monopoly structure cheat us, cheat the people of lower cost, decentralized energy,” says Nanasi. “It’s sort of like a 1 percent – 99 percent issue. Why do we still want to give all the money to the monopoly utility instead of investing in all sorts of cool, local choice energy situations.”
Nanasi went on to describe another piece of pending legislation that would move New Mexico toward “local choice” energy instead –– community solar. Modeled on Minnesota’s nation-leading policy, but improved, this bill would make it easier for the average electricity customer to supply some of their own electricity from solar energy, hedge against rising electricity prices, and enable communities to keep their energy dollars local.
A Call to Regulators to Do Their Job in the Public Interest
While the problems of the Energy Transition Act stem from the utility monopoly having too much power to influence policy, Farrell shares why state officials are also culpable. Drawing on perspective from regulatory expert Scott Hempling, Farrell explains how public regulators are exercising too little power on behalf of the public interest.
The problem is that public regulators too often see themselves as judges deciding between the private interest of utilities and public interest of advocate organizations, forgetting that their charge is instead to represent and defend the public interest, period. Nanasi couldn’t have agreed more, insisting regulators do their job:
“They’re supposed to be regulating on behalf of the public. What’s really been sacrificed here in New Mexico is the common good,” says Nanasi on her state’s utility regulators. “That’s what’s gotten us to this moment of a climate crisis and a crisis of income inequality. In order to make major changes…in order to support the people…means taking away, removing the license of these monopolies to run ramshod over our environment, our health, and our economy.”
For more information on the Energy Transition Act, SB 489, check out coverage by New Energy Economy. For another example of a monopoly utility milking the legislature for resources, check out our commentary on the Becker, Minn., coal plant replacement in 2017 and also John Farrell’s tweet thread on utility monopoly.
This is the 72nd edition of Local Energy Rules, an ILSR podcast with Energy Democracy Director John Farrell that shares powerful stories of successful local renewable energy and exposes the policy and practical barriers to its expansion.
Featured Photo Credit: Curt Smith via Wikimedia Commons (CC by 2.0)
John Farrell is the Director of Democratic Energy at the Institute for Local Self-Reliance and widely known as the guru of distributed energy.John is best known for his vivid illustrations of the economic and environmental benefits of local ownership of decentralized renewable energy.John Farrell can also be found on Twitter @johnffarrell, or at email@example.com.