Retake has been slow to offer comment on SB 489 Energy Transition Act, a bill we feel could be the single most important in the Roundhouse this session. It is immensely complex, took months to develop, and has enjoyed the support of an Alliance of environmental organizations, but there are things about the bill that aren’t right. We held our fire, until now. Let’s take a look.
SB 489 Another PNM Bailout That Also Guts the PRC of Its Regulatory Authority: This is a HUGE Deal
Before I begin analysis of the shortcomings of SB 489, Energy Transition Act, I don’t want to sell it entirely short. An Alliance of over a dozen environmental organizations worked with legislators to craft SB 489 and it has some important elements worth retaining. Most prominent among the positive parts are the strong RPS requirements. Given that PNM must reach 20% renewables by 2020, the SB 489 mandate to reach 40% renewable by 2025 represents a doubling of renewable energy in its portfolio in just five years. Given that PNM has previously done virtually nothing to move the RPS needle, this is a tremendous thing and, no doubt, is a key reason the environmental Alliance supports SB 489.
The bill also calls for $20M to be spent on internships, training, and economic development in affected communities, and $30M as a start at funding remediation costs. But there are far too many escape hatches through which PNM can avoid Public Regulation Commission (PRC) oversight and foist 100% of the costs on ratepayers. Avoidance of the Commission’s scrutiny is very important to PNM now that the PRC membership is far more critical of utility claims. PNM sees its future at the PRC and is seeking legislative shelter. But let’s acknowledge that the RPS element of the bill is something to fight to retain, and that with adjustments in how they are paid for, the remediation and training monies are welcome and necessary. At the end of the post, we provide contact info for Senator Wirth, Speaker Egolf, Governor Lujan Grisham and all three SB 489 sponsors. They need to hear from you tomorrow. Again, this and the Health Security Act may be the two most important bills in this legislative session. We need to push hard on this. it is a promising bill that badly needs amendments and we provide the specifics about what you should ask for.
But for about an hour today, the PRC heard testimony from three experts who have been involved in over 20 utility securitizations across the country. I include excerpts below from their company profiles to assure you that these folks know their stuff. These are not environmental activists, but rather people who have spent their lives developing securitization plans, so they understand this terrain in ways that no legislator could. So, feel free to skip past their bios to get to the point, but rest assured that this was a highly qualified team.
- Joseph S. Fichera, is one of the founders and the current chief executive officer of Saber Partners, LLC, a New York financial advisory firm for corporations and government regulators. His areas of expertise include corporate governance, financial markets, capital markets finance, and effective regulation. He provides independent expert advice to corporate and municipal finance issuers, investors, regulator, and brokerage firms. In addition, in 2018, the National Regulatory Research Institute (NRRI) selected Mr. Fichera as a national Fellow.
- Dean Criddle from Orrick-Harrington, a senior counsel in the San Francisco office, is a member of the Tax Group. Concentrating his practice in electric and gas utility finance, he serves as both tax and finance counsel to utilities, underwriters, financial advisors, special purpose issuers, developers, and state public utilities commissions in utility financing.
- Becky Klein is Principal of Klein Energy, LLC, an energy and water consulting company based in Austin, Texas, and a member of the Saber Partners Advisory Board. Over the last twenty-five years she has worked in Washington, DC and in Texas in the energy, water, and national security arenas.
In short, these three have a combined experience base that would cause anyone to carefully consider their recommendations.They testified that:
- SB 489 is the only securitization bill they have EVER seen where the utility (PNM) is allowed to establish the costs of stranded assets and then prevent the PRC from reviewing and approving those estimates. In essence, PNM would have a blank check to specify the costs they felt they were entitled to recover.
- It is nothing like recent securitzation bills they have reviewed in Kansas, Missouri,Texas, or Colorado. Colorado legislation seeks a 50-50 split of costs for stranded assets instead of putting all of the financial responsibility on ratepayers.
- It removes virtually all PRC authority over financing and replacement power decisions — a critical factor and not an accident, as we will see below.
- The competing bill, SB 492, is much more aligned with what has been done in other states.
- There is no audit provision in the bill, apparently leaving open the possibility that PNM would go unaudited in determining their expenses. These experts elaborated on how many circumstances where a utility claim for expense could and should be challenged. SB 489 provides no provision for such an audit and review while SB 492 does include an audit function.
The experts provided the PRC with copies of amendments they feel could make the bill more aligned with best practices.They also provided a side by side comparison of SB 489 and SB 492, the latter known as “the clean securitization” bill. I hope to get copies of these amendments and the comparison chart tonight and will share them in a future post.
Sitting in the room were 5-6 Roundhouse Legislative Analysts who were quite obviously compelled by what they were hearing, as if they had had Oz’s curtain pulled away and they were seeing for the first time what was at stake and what was being forfeited with this bill. These analysts sat slack-jawed as they heard that, without amendment, passage of SB 489 would:
- Require ratepayers to be responsible for 100% of PNMs underappreciated assets at San Juan (estimated byPNM at $320 million), leaving PNM and its shareholders to pay NOTHING;
- Require ratepayers to be responsible for 100% of securitized remediation costs at San Juan ($30M), leaving shareholders and PNM to pay NOTHING, and the bill is silent on how the remaining, far-larger remediation costs will be addressed;
- Require ratepayers to be responsible for 100% of the cost of training and economic development ($20M), leaving PNM and shareholders to pay NOTHING;
- Remove restrictions that would prevent PNM from building a gas-powered plant to replace some of the 497 MW of power currently generated from coal. In other words, with the opportunity to replace coal energy with wind and solar, this bill would allow PNM to build a gas plant in San Juan. Indeed, I have seen PNM drawings from Oct and Nov 2018 of property in San Juan where they are testing the soil for the feasibility of constructing a gas plant;
- Remove the PRC’s authority to determine the split of liability for stranded assets, an important clause as the PRC has determined previously that PNM would get no more than 50% of these costs from ratepayers, with 50% borne by shareholders;
- Remove PRC’s authority to review and approve the kind of power that will replace coal, directing the PRC that it “shall grant all approvals” for replacement resources selected by the utility.
On Monday night I listened in to a Sierra Club-sponsored lobbying call focused on SB 489. They expressed confidence that the PRC could prevent any gas from being used as part of the replacement power. However, Speaker Brian Egolf apparently didn’t get that memo. It is clear that Democratic Party leadership are on board with natural gas as a replacement power source, as evident from the following excerpt from Speaker Egolf’s analysis of the bill.
Once abandoned, the plant may be used for any purpose, whether generating power or otherwise, as long as any energy generated by the plant meets the new air quality standard in the ETA and emits less than eight hundred and forty-five pounds of carbon dioxide per megawatt-hour. This is equivalent to the emissions from a typical combined cycle gas plant.” Emphasis mine.
The three experts testifying before the PRC precisely identified the gutting of PRC authority over financing (i.e. who pays ratepayers or shareholders) and replacement power as the most egregious problems with SB 489. I have not yet seen the amendments they propose, but I am guessing they will address this issue. But it is very clear what PNM’s intent has been all along, and it is evident that at least some in Democratic Party Leadership are fine with their plan. Yesterday, Mariel Nanasi, New Energy Economy Executive Director worked the halls of the Roundhouse and found little willingness to even hear concerns. At that point, both she and I thought any effort to amend the bill was doomed. Until today. The testimony before the PRC was powerful and unequivocal. Commissioner Espinoza closed the hearing by saying: “SB 489 would entirely remove the PRC of its authority to exercise its legal responsibilities and it would leave ratepayers naked. It entirely removes us from the review process and throws out public interest altogether.” Bingo. Precisely the point.
There are other troubling choices of words sprinkled throughout the bill, like references to ‘carbon free’ energy, and a recent tweet from Gov. Lujan Grisham in support of the bill used the term ‘reduced carbon.’ Both sound good at first glance, but then you realize that the reference is to nuclear, hardly a renewable energy source and hardly without disastrous environmental consequences. After 50 years, we still don’t know what to do with spent radioactive fuel. Oh, I forgot, they did figure that out — they just send it to New Mexico.
Look for more on this in the coming days. But for now, it is time to call Senator Wirth, Speaker Egolf, and Governor Lujan Grisham, as well as the three bill sponsors and let them know what you think of SB 489. Be sure to mention the bill number and name: SB 489: Energy Transition Act. Specifically, tell them that you want to see language prohibiting gas from being part of the replacement power mix and that you want all authority over financing and replacement power returned to the PRC. Phone and email are provided below.
Click here to watch the entire hearing. It begins at 10:04 on the video.
To voice your concerns about the bill, please call the governor’s office between 8 a.m. and 5 p.m. at (505) 476-2200 or email her Constituent Services staff at Tina.Archuleta@state.nm.us.
Speaker Brian Egolf, also a sponsor
- Capitol Phone: (505) 986-4782
- Capitol Room: 104 (if you want to stop by and register your views personally)
- Email: email@example.com
Senate Leader Peter Wirth
- Capitol Phone: (505) 986-4727
- Capitol Room: 119
- Email: firstname.lastname@example.org
And Bill Sponsors:
District 26. Sen. Jacob Candelaria, Sponsor
- Capitol Phone:(505) 986-4380
- Capitol Room:218B
- Office Phone:(505) 847-5079
District 17 Senator, Mimi Stewart, Sponsor
- Capitol Phone: (505) 986-4726
- Capitol Room: 120
- Office Phone: (505) 275-2355
- Email: email@example.com
District 13, Rep. Patricia Roybal Caballero, Sponsor
- Capitol Phone: (505) 986-4248
- Capitol Room: 206B
- Office Phone: (505) 710-5996
- Email: firstname.lastname@example.org
District 36 Rep. Nathan Small, Sponsor
- Capitol Phone:(505) 986-4438
- Capitol Room:413B
- Home Phone:(575) 496-9540
Paul & Roxanne