The Energy Transition Act (ETA) is a keystone piece of climate and just transition legislation that was passed into law in 2019. Thanks to this policy, New Mexico has adopted a transformative clean energy standard calling for New Mexico to be 100% carbon neutral by 2045. The ETA will save rate-payers money, improve our environment and provide important economic relief to communities impacted by coal plant closures. It also establishes a pathway for an energy transition in the Four Corners area by providing $40 million in relief to workers, local communities and tribes in San Juan County, where the state’s remaining coal-fired facilities are located.
The ETA is working exactly as it is supposed to.
- For updates on the progress of the ETA, read this great OpEd about the successes of the ETA by Chuck Noble, a retired environmental and public utility attorney who represented Coalition for Clean Affordable Energy (CCAE) during their successful effort to replace the coal-fired San Juan Generating Station (SJGS) with 100% solar + battery storage.
- Watch the Sierra Club’s webinar on “ETA successes and beyond” with details about what the ETA was designed to do and why, how it is working in practice, and ways the ETA is bringing equity and a Just Transition into decision-making around climate change and clean energy in New Mexico.
Myths and Facts About the Energy Transition Act (ETA)
There is a lot of misinformation being spread regarding what the ETA does and doesn’t do. The ETA is a large and complicated statute. Clearly, some of the misinformation is the result of a misreading of the language in the ETA. There is also some confusion because the Public Regulation Commission (PRC) makes decisions about utility proposals based not only on the ETA, but also under other statutes related to electric utilities, such as the Renewable Energy Act and the Public Utility Act.
MYTH: The ETA is unconstitutional.
FACT: This is False The ETA is consistent with the state Constitution, which provides that “the public regulation commission shall have responsibility for regulating public utilities… in such manner as the legislature shall provide.” The legislature has always passed laws regarding the PRC’s work. In fact, one of the major victories around the ETA was the elimination of legislative loopholes that allowed utilities to reduce the amount of renewables they were required to provide customers with. The ETA’s best outcomes are the result of an act of the Legislature giving the PRC certain responsibilities for regulating public utilities within the framework of meeting aggressive clean energy targets and providing incentives for early transition to renewable energy sources.
MYTH: The ETA limits how the PRC interacts with public utilities in the state.
FACT: This is False. Some parts of the ETA apply only to abandoning coal-fired power plants. More generally, the ETA sets goals for transitioning to renewable energy (the Renewable Portfolio Standards), allows the PRC to force utilities to transition to lower/zero emission facilities if necessary, allows the PRC to review multiple proposals for replacement power not just the proposal preferred by a utility, allows the PRC to use bond refinancing of allowable recovery costs as an incentive to utilities to transition from coal earlier and with lower interest rates that lower customers’ bills, and provides guidelines for the PRC to balance ratepayer interests with environment/climate impacts, community impacts, and labor impacts.
In a recent case, a PRC Hearing Examiner cited the ETA’s renewable energy targets in recommending denial of El Paso Electric’s application to build an unnecessary 228-megawatt natural gas generator in northeast El Paso that would serve New Mexico customers. The Hearing Examiner also stated that El Paso Electric had underestimated the costs of the gas plant and overestimated the costs of renewable energy sources, which meant the proposal was not in the ratepayers’ interests. In addition, the Hearing Examiner cited air quality concerns in an area already suffering from poor air quality; environmental impacts is one of the criteria the PRC can use when evaluating a new energy facility.
MYTH: The PRC is required, under Section 31(C) of the ETA, to allow recovery of any undepreciated investments or decommissioning costs by a utility.
FACT: This is False – except in rare circumstances. Section 31(C) of the ETA refers to amending part of the Renewable Energy Act and applies only if the PRC forces a utility to stop serving New Mexico customers with an existing facility and begin using a facility that has fewer or zero emissions. In that case, the PRC cannot prevent the utility from recovering previously approved costs and costs of decommissioning. This is fundamental private property law and there would be immediate – and successful – legal action against the forced abandonment. The ETA allows the PRC to do this if doing so would help meet the 100% renewable energy goal of the Renewable Portfolio Standards. However, there is no indication that the PRC intends to force abandonment of a facility. If a utility voluntarily decides to abandon a facility, then the PRC has the authority and responsibility to review the terms of exit from the facility. The PRC has loan authority to evaluate and rule on the prudence of utility investments, nothing in the ETA changes that. The Public Utility Act – a separate statute – governs the abandonment and cost recovery of natural gas and nuclear powered facilities. Finally, surface mine decommissioning cost recovery was capped by the PRC and PNM has noted that they have already reached the cap. Any future decommissioning cost will be borne by shareholders.
MYTH: The ETA refinancing provisions apply to power generating facilities that use natural gas or nuclear energy.
FACT: This is False. The ETA’s bonding, or low-interest refinancing tool, can only be used for coal-fired power plants. The bill defines a “qualifying generating facility” as a “a coal-fired generating facility in New Mexico” and furthermore states that one goal of the Public Regulation Commission is “a reduction in the generation of electricity by coal-fired generating facilities.”
MYTH: PNM will use the ETA for the Four Corners Power Plant (FCPP), natural gas plants and nuclear power without review.
FACT: This is False. The ETA does not remove the PRC’s authority and responsibility to review. The PRC is actively involved in PNM’s abandonment of its share in the FCPP. PNM has just filed its notice of abandonment of the FCPP and the PRC is still weighing whether some of the costs PNM wants to recover should be allowed or not. The PRC will be deeply involved in a possible financing order for any allowable costs at the FCCP and in issues regarding the location of replacement power, the source of that power, and the size and scope of the community and worker assistance funds built into any refinancing mechanism for coal-fired plants – just as with the San Juan Generating Station. At the end of 2019, the PRC ruled that El Paso Electric’s proposed new gas-fired plant was not in the ratepayers’ interest and also would eventually violate the requirement to have 100% renewable energy by 2045, leaving the company with foreseeable stranded assets for which New Mexico ratepayers should not be liable.
MYTH: PNM does not make its shareholders share the cost of its actions.
FACT: This is False. PNM hopes to use the ETA to make an early exit from the Four Corners Power Plant (FCPP) and is using $75 million of shareholder money – not ratepayer funds – to buy out of their coal contract seven years earlier than they previously planned, by 2024 rather than 2031. In its last rate case, PNM agreed to a limited return on its recent capital investments in costly pollution control equipment at FCPP and the PRC has been asked to consider further disallowances. In PNM’s exit from the first two FCPP stacks – before the ETA – the PRC allowed PNM to recover half of its investment from customers in addition to full profit on that half. In the case of the exit from the second two stacks – under the ETA – PNM is only allowed to recover its undepreciated investment through refinancing bonds, foregoing all expected profits or even a debt return. PNM recovers its investment but it has to use those funds for utility operations (not profit). Because of the ETA’s nation-leading renewables requirements, that money is more likely to be invested in renewables. It might be possible to force the utility to take a loss on it’s books, but that would lower their credit rating, making future energy more expensive for ratepayers.
MYTH: Amending the ETA will prevent PNM from unfairly reaping billions in costs from ratepayers.
FACT: This is False. Supposedly, utilities (particularly PNM) would ruthlessly charge ratepayers billions of dollars more than they deserve because the ETA prevents the PRC from intervening. Unfortunately, there is no free money floating around that the PRC can legally recover. The billions sometimes referred to is money we all already pay through our bills as a result of past rate-setting agreements between utilities and the PRC – long before the ETA took effect. In other words, it is money already promised to the utilities; taking it away would result in legal action that the PRC would lose. What the ETA does that is good for customers is provide a mechanism to refinance coal-fired power plant costs – that are already on the books – at a lower rate, which saves customers money on their bills. In fact, thanks to the ETA, customers will save an estimated $7.45 a month, on average, from PNM leaving San Juan Coal and replacing it with renewables.
MYTH: Amending the ETA will provide the PRC with needed regulatory flexibility.
FACT: This is False. Since the full application of the ETA applies only to coal-fired energy generation, it will have no impact on PNM’s two coal-fired generating facilities. The SJGS has already been dealt with and PNM has already filed for abandonment of the Four Corners Power Plant, which means that a future amended ETA would not apply to any decisions made by the PRC in these two energy transition cases. New legislation cannot affect ongoing cases in front of the PRC. And, to repeat: the Public Utility Act – a separate statute – governs the abandonment & cost recovery of natural gas and nuclear powered facilities.
MYTH: Amending the ETA will benefit customers.
FACT: This is False. Customers (ratepayers) benefit from the ETA. For any utility, the PRC determines that certain investment costs are “prudent and reasonable” and these are recovered through rates that customers pay. When PNM voluntarily abandons a coal-fired power plant early and it has years of remaining cost recovery associated with it, the ETA allows for refinancing those approved costs. PNM currently gets ~9% profit on their cost recovery, but the ETA allows using renewable energy bonds that have a much lower interest rate (currently ~3%). As the El Paso Electric case shows, the PRC is perfectly capable of making decisions that favor ratepayer interests using the ETA. Furthermore, amending the ETA – especially the refinancing components – will degrade bond ratings and raise ratepayer costs. Even discussing amending the ETA injects uncertainty into the marketing and sale of the bonds and bondholders will expect a higher return (a higher interest rate) to cover that risk.
MYTH: Amending the ETA will benefit the community and workers.
FACT: This is False. The ETA – through the refinancing mechanism for abandoning coal-fired plants – provides not only for lower rates to customers, but also provides three funds, one for community assistance, another for worker transition and job training and a third for tribal assistance. Amending the ETA in a way that removes refinancing or structures it in a way that drives possible bondholders away, will negatively affect those three funds. For the San Juan Generating Station, that represents about $40 million; for the smaller Four Corners Power Plant, it will be about $16.5 million. However, since both power plants are already under abandonment, any amended ETA will not apply to them, so the issue is irrelevant..
The Results Speak for Themselves
- In May 2020, the PRC approved PNM’s early exit from the polluting and expensive coal-fired San Juan Generating Station. This, plus the 100% solar-and-storage replacement of that energy, will LOWER rates by an estimated $7.45 per month for the average PNM customer.
- Why? Because clean energy sources are cheaper than coal and because the ETA allowed debt from the plant that customers have been paying back to PNM at a 9% rate of return to be paid off through renewable energy bonds at around a 3% interest rate instead.
- PNM foregoes all future profits on the power plant – profit that PNM would have continued to earn for another 30 years under the last schedule approved by the PRC for San Juan Generating Station.
- In July 2020, the Public Regulation Commission approved a 100% solar-and-storage replacement for PNM’s coal-fired San Juan Generating Station. The ETA was key to this outcome, granting new powers to the PRC to select and approve alternative replacement resources instead of PNM’s preferred natural gas replacement portfolio.
- Under prior law, the PRC had only a utility’s energy replacement resource selection to approve or reject. But the Energy Transition Act expanded the PRC’s authority to allow it to evaluate different, competitively-selected, replacement resource portfolios prioritizing low cost, low environmental impact and investment in the impacted workers and communities
- The 100% solar and storage replacement will result in $1.1 billion of new clean energy investment in the same school district as the retiring coal plant in San Juan County, and in McKinley and Rio Arriba counties.
- The ETA’s guidance on location and environmental impact of replacement power made the 100% solar-and-storage portfolio the clear choice because it places between $588 and $618 million of investment in the school district impacted by the plant closing – almost triple the investment of an alternative gas-heavy portfolio that the Commission was also considering.
- Under prior law, the outcome could easily have been PNM’s gas-heavy plan, which, when factoring in environmental impacts and community tax base investments, was projected to be far more expensive. That would have resulted in more fossil fuels, higher energy bills, more pollution and more CO2 – but not more jobs.
- Supporters of the clean energy replacement power portfolio included:
- Shiprock High School students, who encouraged the PRC to approve the 100% solar-and-storage plan because of the tax income it will provide for their school.
- Jicarilla Apache Nation President Darrell Paiz, who testified about the economic boost from the Hecate solar facility that will be built on Jicarilla land in Rio Arriba county.
- Local officials from McKinley County, who commented in support of the solar-storage project in their part of Northwest New Mexico – an area that is also hurting from the economic impacts of the exit out of coal and from Covid.
- A recent opinion piece in the New York Times on clean energy and climate referred to the Energy Transition Act as “an excellent new law” and said “[r]ecent events in New Mexico show what can happen when power companies are asked to weigh all options.” The authors stated that “Every utility executive and regulator in the country needs to study this example.” The ETA and the authority that it gives the PRC is what made this possible.
- The ETA will attract further and continuing clean energy investment in the state. The recent announcement that Avangrid – a major investor in wind energy – will purchase PNM and invest in the infrastructure necessary to make New Mexico a regional supplier of renewable energy is a direct result of the ETA and the PRC’s recent decisions.
- A panel of tribal and San Juan County leaders is reviewing proposals for local economic-development projectsthat will be funded by the Energy Transition Act bonds.
- Once bonds are issued to refinance the debt remaining in the plant, $20 million of funds for these projects will be available. You can see proposals for these funds at https://www.dws.state.nm.us/ETA. A public meeting to review these proposals took place on December 17th.
- There will also be another $20 million of severance pay and retraining funding for both plant and mine workers. Mine workers are not PNM employees and would not have had access to these funds without the ETA.
- This summer, the Rio Arriba County Commission announced that despite pandemic-reduced revenue, the county wouldn’t have to cut public services or employee hours because of $1.6 million in payments in lieu of taxes from solar developers who are building one of the solar-battery projects approved by the PRC to replace coal
- On Nov. 16, 2020, a PRC hearing examiner cited the Energy Transition Act’s requirements in recommending denial of El Paso Electric’s application to build an unnecessary 228-megawatt gas generator that would further pollute already-unsafe air on the New Mexico-Texas border near Chaparral.
- The Energy Transition Act requires 50% renewable energy in New Mexico by 2030; 80% by 2040; and 100% carbon-free energy by 2045. Those mandates are for our state’s investor-owned utilities (PNM, El Paso Electric and Southwestern Public Service). Co-ops get five years longer to comply with the 100% requirement. That is powerful progress toward protecting our children from the biggest crisis facing humanity, and toward diversifying our economy.