April 11, 2018
“The plan presented in the Application does not provide a net public benefit and it does not promote the public interest.”
— New Mexico Public Regulation Commission,
April 11, 2018
Recommended Decision 3-19-18
Final Decision, 4-11-18
Case No. 15-00312-UT
Today, the New Mexico Public Regulation Commission denied Public Service Company of New Mexico’s (PNM) application in install Smart Meters. In doing so, it adopted the Hearing Examiner’s Recommended Decision in its entirety.
From Hearing Examiner recommendations – Summary, p. 71-74
“The primary purpose of PNM’s project is cost savings. PNM’s proposal focuses on the elimination of 125 meter reading jobs, faster disconnections of late- and non-paying customers, and increased revenues by preventing tampering and diversion of service.
PNM designed its project without public input and without examining alternatives. Not surprisingly, all of the eight non-PNM parties oppose PNM’s requests.
PNM also emphasizes that the project is discretionary. PNM states that the project is not needed to provide adequate service or to comply with any Commission rules or other regulatory requirements. As a result, PNM will proceed with the project only if the Commission approves it on PNM’s terms in their entirety and without modification.
PNM cites no statute as direct authority for the approvals it requests and cites no direct authority for the standards the Commission should apply to its requests. PNM argues that the approval should be issued on the basis of its claim that the project’s benefits will exceed its costs over the 20 year estimated life of the meters.
The non-PNM parties in this case include advocates of residential, industrial, municipal, environmental, health and public interests. They include the AG, the City of Albuquerque, CCAE, CFRE, NMIEC, NMUS, WRA and Staff. All question the legal authority for PNM’s requests for approval of the project outside a CCN proceeding and for approval of advance ratemaking treatment. Most support the benefits that can potentially be achieved with smart meters, but they complain about the narrow focus of PNM’s plan, its cost, its unfair balancing of investor and ratepayer interests, and its inflexibility in addressing the concerns of PNM’s customers. They ask that PNN come back with a better plan, after obtaining input from the public.
The primary justification PNM offers for the project is the net savings it says the project would produce for ratepayers. PNM acknowledges that the immediate impact would be rate increases. But it says that, over the 20 year expected life of the AMI meters, it would eventually produce savings.
The non-PNM parties disagree with PNM’s savings estimates. They agree that the immediate impact would be rate increases, but they say the lifetime savings would not occur.
They recommend rejection, because they do not see any benefits sufficient to compensate for the rate increases. The non-PNM parties show that the immediate result of PNM’s $121.5 million plan would be rate increases (at least $5.9 million per year after the meters have been installed), that PNM’s projections of long-term savings are uncertain and that PNM ratepayers would likely pay more over 20 years with AMI meters than the existing non-AMI meters.
The terms of PNM’s plan include full cost recovery of the $95 .1 million cost of the new AMI meters, $24.9 million for PNM’s existing non-AMI meters that will be replaced and will no longer be serving customers, and $1.5 million in PNM’s customer education costs. In addition, while ratepayers would be paying more, PNM’s shareholders would earn a $42.8 million pre-tax return on the new AMI meters, a $11.0 million pre-tax return on the non-AMI meters that will be replaced, and a $183,000 pre-tax return on PNM’s customer education costs.
The Hearing Examiner agrees with the non-PNM parties that the plan does not fairly balance the interests of investors and ratepayers. Ratepayers should not bear 100% of the risk that PNM’s savings predictions will occur, while shareholders earn an additional return on the new investment and continue to earn a return on the replaced investment. In addition, the prudence of the $95 .1 million capital cost of the project is questionable, given the $6.2 million cost increase resulting from PNM’s re-bidding of the installation portion of the project. PNM re bid the installation work because the contractor it initially selected violated New Mexico’s contractor license requirements.
Further, PNM’s proposed $42.72 per month opt-out fee is too high. Several of the non PNM parties have raised concerns about the health impacts, safety, and security of the AMI meters. While PNM contests the validity of the concerns and PNM’s plan allows customers who have such concerns to choose not to receive an AMI meter, the magnitude of the monthly opt-out fee is too high to provide customers with a meaningful choice.
As a discretionary project, the timing is also not good. PNM hopes to achieve its predicted savings largely by laying off 125 employees who perform meter reading and related functions. In addition, PNM ratepayers have experienced a recent series of rate increases — an increase in October 2017 and an increase effective in February of this year. Further rate increases also appear to be on the horizon as PNM seeks unrecovered costs of coal plants that it plans to retire and new generating resources to replace them.
To be clear, the Hearing Examiner is not recommending that PNM be prohibited from adopting an AMI project. The recommendation is that PNM’s AMI project not be approved at this time in its current form. PNM should engage in the planning process it told the Commission in 2012 was necessary for a project of such a scope. The planning process should examine reasonable alternatives and solicit public input to develop a plan that fairly addresses the needs of its customers and its service territory.”
Reasons for recommendations include:
- No net public benefit, no evaluation of alternatives and the public interest
- PNM’s unlicensed contractor and PNM’s repeated inability to accurately specify the qualifications required for a contractor
- The uncertainty of savings for ratepayers: imminent rate increases, the risk that lifetime costs will exceed savings
- Disproportionate benefits for investors: elimination of financial risks for investors, immediate increase in investor earnings, PNM’s requests that the Commission find the AMI capital costs and expenses are reasonable and prudent, full recovery of undepreciated costs and customer education costs as regulatory assets
- Discretionary project — insufficient demonstration of need and no plans to use AMI for energy efficiency
- Opt-out fees do not provide meaningful opportunity to opt-out: unreasonableness of fees , health concerns, safety concerns
- Job losses
- Recent and future rate increases
p. 81 PNM’s 2012 report on advanced metering recognized the need for public input and a detailed implementation plan before coming to the Commission for approval of a project. PNM has not adopted that approach here.