Topics Covered
Last fall, Blue Cross/Blue Shield of New Mexico filed for rate increases ranging from 0% to 30%, with an average of about 25% for customers of their individual (non-group) plans. PRC Insurance Division staff approved the rate increases based on their own review, but when the Commission learned about the increases in March, we requested that the Superintendent of Insurance re-examine the rates and conduct a public evidentiary hearing. The Superintendent at the time, Morris Chavez, set the matter for hearing and suspended the rate increases pending the hearing. Immediately prior to that hearing, the Attorney General, Insurance Division Staff, Jodie Neal Post (an individual consumer intervener), and Blue Cross reached a settlement that reduced the average rate increase to approximately 21%, and also created some new rights for Blue Cross customers with respect to future rate increase filings. The Superintendent accepted the settlement prior to the hearing.
Numerous questions were left unanswered when the April hearing was effectively preempted; e.g., whether appropriate medical expense trend factors were used; whether it is appropriate for premiums to be raised in order to further contribute to the insurer's reserves, when they are already several times greater than required; whether their administrative and overhead costs are reasonable and prudent; etc. This year’s rate increases followed on 20% increases the previous year, and the results are premiums that are just unaffordable for many of the 40,000 Blue Cross individual policy holders. We are talking about premiums going up, not by $10 or $50, but by hundreds of dollars a month.
In June, the PRC unanimously asked the acting Superintendent (Chavez had resigned) to consider holding another hearing in this matter, so that the factors underlying the rates could be vetted in public and a determination made based on factual evidence whether the settlement was in the public interest. The Superintendent subsequently ordered a new hearing, which sent Blue Cross running to N.M. Supreme Court with a petition to get the new hearing quashed. Last week, following an oral argument on the legal basis for a second hearing, the Supreme Court rejected Blue Cross’s petition and authorized the hearing to occur. It is scheduled for August 25, at the PRC’s offices in Santa Fe.
As some background, because of the way our insurance laws are drafted in NM, the PRC does not have any direct jurisdiction to issue orders on health insurance premiums. We can only act through the Superintendent. For more information, check links atwww.jasonmarks.com for a letter from Consumers Union identifying areas of concern and a link to a commentary I wrote in March for the Alibi weekly newspaper. Also check ww.NewMexicoIndependent.com, which has provided in-depth coverage of this topic.
In early July, the PRC issued an order fining PNM $371,000 for its handling of a 2008 gas leak in Albuquerque and for other pipeline safety deficiencies. The incident occurred while PNM was still operating the natural gas utility, making them liable for the fine. New Mexico Gas Company now operates the gas utility using substantially the same personnel, and Gas Company was a party to the case with respect to corrective actions aside from the fine.
The PRC’s Pipeline Safety Bureau, which investigated and brought a strong enforcement case, had negotiated a $66,000 fine with the company. The Commission rejected this amount as not proportionate to the very serious risk to life that had been allowed to persist for almost two months through PNM’s multiple acts of negligence. At my request, the PRC’s final order in the matter specifically called attention to a failure in the culture of safety at the gas company, based on the fact that multiple employees knew of explosive gas concentrations underneath one of Albuquerque’s busiest intersections (Montgomery & Carlisle), but for whatever reason, the problem was never elevated to upper management and was only resolved when a whistleblower employee, working through his labor union, reported it to the PRC.
The other violations for which PNM was cited were a failure to report a reportable leak in Santa Fe, and failure to properly odorize gas for extended period in two parts of the Albuquerque distribution system. IBEW, the labor union in question, actively participated in the Commission’s hearing and argued for increasing the original proposed fine of $66,000 in light of the facts.
For more information, click here for a more detailed explanation of what happened in the Montgomery and Carlisle gas leak.
On June 1, PNM filed an application with the PRC for increases to its electric rates. PNM is requesting an average rate increase of 22% for North and Central N.M. customers and 20% for former TNMP customers in Southern N.M. (Silver City and Alamogordo). Under PNM’s proposal, about 2/3 of the increase would come in April of 2011 and the remainder the following January. In addition, rates for residential customers would increase by more than the system average – about 25% in both zones.
Public Hearings: The PNM’s rate increase request has been set for an evidentiary hearing to be held beginning on December 1 in Santa Fe. Between now and then, PRC staff, along with interveners opposing PNM’s rate request, will have the opportunity to obtain additional information from PNM using a legal discovery process, to analyze the numbers and facts, and prepare their own testimony for the case. I plan to schedule additional hearings to receive public comment on the rate request in my Albuquerque district, and expect that similar hearings will set in other parts of the state. (Please check with my office in October or November to get an update on the schedule for hearings.)
Following the hearings, our designated hearing examiner will issue a recommended decision on the rate request to the Commission. I would expect the Commission to take final action in late spring or early summer of 2011.
My Promise to Constituents: Today, our country is experiencing the worst financial conditions since the Great Depression. Many in New Mexico are out of work, working less hours, or earning less pay. Others are on fixed incomes. I know that many households will have trouble absorbing another large PNM rate increase, and I will keep this in mind as the case proceeds. By law, the PRC must allow utilities an opportunity to recover through rates their reasonable and prudently-incurred costs of providing services and constructing facilities. I promise to closely scrutinize PNM’s facts and figures, as well as the information put forward by opponents of the rate increase. I will not support granting one dollar more than the law requires - under today’s circumstances, we can’t afford to give PNM the benefit of the doubt.
For more information, click here for a more detailed explanation of the factors underlying PNM’s request, or contact my office for a printed copy of the detailed statement.
2010 finds our state off-track on several important fronts in the clean energy transition.
1) Important Solar Project Dies a Lonely Death
The contract for New Mexico’s largest planned solar energy plant, a 92 MW solar thermal plant that was to be built by eSolar to serve customers in Las Cruces, was recently cancelled. This is a very disappointing development on several fronts. First of all, 92 MW would have been large enough to supply the electricity needs of around 35,000 customers, and is likely significantly more solar energy than the sponsoring utility, El Paso Electric Company, is likely to propose to acquire through alternative projects in the near term.
Just as important as scale, however, is the technology.
Solar thermal generating technology uses mirrors to collect heat from
the sun and turn it into steam that can spin a turbine. The
most attractive thing about solar thermal technology (aka concentrating
solar power or CSP) is that solar energy can be stored in the form of
heat before being converted into electricity. Such storage
is orders of magnitude less costly in terms of both equipment costs and
conversion losses than batteries and other technologies being discussed
as possible storage solutions for intermittent renewable sources like
wind and solar PV. Experts believe that the only plausible
model for transitioning to an electricity supply in the Southwest that
is 50% or more renewable-based relies on solar thermal with overnight
storage.
While the eSolar plant that was cancelled did not include extended
ancillary storage, it would have had thermal latency or inertia from
the heat carried in its transfer fluid. This would have
substantially smoothed the ramps up and down with cloud cover and made
it a much more useful resource on the utility’s system than the same
quantity of solar PV. Fifteen years from now, when we’re
pushing to get to an electricity supply that’s mostly renewable, this
would be a plant that we would have been very glad to have in the
ground and operating already.
What happened with the eSolar plant? eSolar sold several of their utility power purchase agreement to NRG Energy, a large N.J.-based company that develops wind and solar projects and also operates a fleet of nuclear plants back east. NRG decided that the profit on the New Mexico solar thermal plant would not be high enough unless it got a federal loan guarantee under the stimulus act. The project was turned down for a guarantee in the first round of DOE approvals, but was invited to reapply. NRG’s contract with El Paso Electric (EPE) was not contingent on a federal loan guarantee being granted or any other financing issues; i.e., NRG was contractually obligated to build the plant regardless. However, NRG indicated it intended to breach the contract and instead proposed to EPE that it do a substitute 20 MW PV project on the same site at the same price, 13 cents/kwh.
At my request, the PRC held a hearing on the possible cancellation in
June. It was learned that EPE had separately solicited bids for
substitute PV projects and was planning on pursuing negotiations with a
supplier who bid 10.3 cents. Neither NRG nor EPE showed any
enthusiasm for keeping the original thermal project alive while a new
application a loan guarantees was pursued. Renewable energy
advocacy groups elected not to intervene in the case and speak up for a
plant that was important to New Mexico’s renewable energy
future. Utility Division Staff recommended deferring action
until EPE’s forthcoming annual renewable procurement case.
The
Commission entered an order approving the cancellation of the solar
thermal plant and immediately approving the substitute PV contract with
NRG. I dissented from this order on due process grounds
(the hearing was not noticed for approval of the substitute contract,
which was not even put in the evidentiary record) and because I thought
it was the wrong action to take. In essence, NRG was rewarded for
breaching its solar thermal contract by being given a new contract
without having to go through the competitive bidding process or even
beat the price of the winning bidder. Commissioners
supporting the replacement 20 MW contract with NRG wanted to get a
solar project going forward. However, the evidence was that the
contractual in-service date with NRG’s PV project would not be any
sooner than the winning competitive bidder’s project.
A more detailed version of this briefing, including more information about why solar thermal plants are important to our energy future is posted here.
2) PNM’s Solar Plan is Subject of Intense Litigation
While the EPE/eSolar hearing did not attract a lot of attention, another pending renewable case has been the subject of intense litigation, and has attracted the attention of the media and the public. In PNM’s revised solar plan, renewable energy advocacy groups (CCAE and WRA) and others have worked to support of a stipulation they negotiated with PNM on the scope and shape of that utility’s solar program. The Attorney General and others concerned about costs are opposing the stipulating parties’ plan.
The joint proposal from the stipulating parties calls for the end of net-metering. Under net-metering, customers use the output of their solar panels to meet their own electricity consumption needs, offsetting power that they would have otherwise have bought from the utility at the retail rate. Under the proposal, this would end and instead customers that owned solar systems would have to sell all their power to PNM at a fixed rate on a long-term contract, while continuing to buy the electricity they use in their home or business from PNM at whatever the current rates happen to be.
The
joint proposal also included several blocks of company-owned
“distributed” PV, at somewhat higher costs than what other two New
Mexico investor-owned utilities have presented (in other cases).
Because the overall cost of the joint proposal is so high that it
couldn’t fit under our renewable energy budget caps (the “reasonable
cost threshold” or RCT), the stipulating parties proposed that PNM be
given 2 for 1 credits for their solar projects – effectively cutting
PNM’s solar requirement in half and reducing the total amount of
renewable energy it needs to acquire in order to comply with the
Renewable Portfolio Standard law. Way to go,
renewable energy advocates!
Having studied the evidence and legal arguments and having participated in a portion of the public hearing in this case, I expect that I will oppose the joint proposal. Instead, I expect to support modest reforms to PNM’s existing programs for customer-owned solar that keep net-metering in place, while putting in place procedures that gradually reduce the incentives we pay on top of net-metering as the cost difference between distributed solar power and retail electric rates shrinks. This case will come to the Commission for final action during the month of August.
By the way, Southwestern Public Service Co. also has a solar case that is pending, but in that case, the company says it can meet its solar requirement and overall renewable energy requirements under the RCT without double-counting.
3) Energy Efficiency Incentives
Energy efficiency is our most cost-effective means of reducing our dependence of fossil-fuels and reducing greenhouse gas emissions. We have a state law requiring utilities to offer cost-effective efficiency measures to their customers, and these include programs like refrigerator recycling rebates, rebates for efficient appliances, and programs that reduce the purchase price of energy-saving compact fluorescent light bulbs. By law, the utility doesn’t pay for these programs. Customers do, through a surcharge on all bills that is now about 2%..
The law also requires that the PRC eliminate “regulatory disincentives” that efficiency programs create for utilities and also for the PRC to offer utilities positive financial incentives. The main “regulatory disincentive” is essentially that, because of the way that electric rates are set, the utility makes more profits by selling more kilowatt-hours (kwh) and makes less money if customers use less power.
After extended workshops at the PRC, utilities and environmental advocates came up with an interim compromise under which utilities would collect an additional surcharge on customer bills based on one cent per kwh of energy efficiency, based on the estimated lifetime energy savings from each efficiency program. This one cent was supposed to equal the amount of lost profit attributable in the short term to the reduced energy use; i.e, the “regulatory disincentive.” (Note, this is not a $0.01/kwh increase to retail electric rates, it’s a calculation of $0.01 x total projected lifetime kwhs saved ÷ total annual kwh sales.)
At the urging of the Attorney General, the PRC held an evidentiary hearing on the proposed one cent rule. The evidence presented was that the one cent mechanism produced revenues for PNM of approximately 130% of its lost profits, significantly less than projected lost profits for El Paso Electric, and a windfall of almost 400% of lost profits for Southwestern Public Service Company. Because of this arbitrary result, I could not support the final rule with the one-cent method. I proposed an alternative that would have met the PRC’s obligation to not further delay addressing utilities’ lost revenues. Other Commissioners supported the rule as presented with the one-cent method and it passed. The AG and N.M. Industrial Energy Consumers opposed the one-cent rule in the hearing before the PRC and have taken an appeal of the Commission’s order to the Supreme Court.
Regardless of how this case plays out, the one-cent rule will likely be partly replaced with revenue decoupling in a year or two. Decoupling is a rate design that completely solves the problem of utility disincentives, while being fair to ratepayers and providing ratepayers with the continued opportunity to significantly reduce their bills by being more efficient. Unfortunately, at such time as something like decoupling comes in to address utility disincentives, the PRC’s new rule requires that utilities will then get one-half cent per kwh indefinitely as an incentive on top of the make-up revenues from decoupling.
4) A personal note
When I first ran for the PRC in 2004, I was not strongly motivated by environmental concerns. I supported renewable energy because voters liked it, but I didn’t know a lot about it. If I had heard about climate change and CO2 regulation, I had not paid much attention. But in the process of becoming informed about issues I might get asked about while campaigning, I started learning. After I became a Commissioner, I read more and more about these issues in filed testimony, in publications, and on the internet. I listened to experts at conferences and visited with them one-on-one. The more I learned, the more concerned I became.* I realized that our society faces catastrophic financial and environmental risks if we do not dramatically change how we produce and use energy, and that anyone in a position to affect energy policy needs to be part of the solution. This is why I have pushed strongly for more use of renewable energy, strong energy efficiency measures, and for regulation of greenhouse gas emissions. Those in Washington, D.C. who have blocked action in this area should be ashamed that they have chosen to expose our children and grandchildren to the risk of severe climate disruption, sea level increases, agricultural devastation, and so on in order to serve short-term political goals and to avoid upsetting big oil and coal interests.
But because these “green” energy policies are so important to our future, we also have an obligation to do them right. Just because something is green should not be an excuse to throw money at it without accountability. We cannot afford to undercut public support for energy efficiency and renewable energy in New Mexico by pushing programs, rates, and tariffs that are not well designed, not sufficiently cost-effective, or lead to excessive profits. It also should be obvious that if we can spend less per unit, be it a kwh of solar energy or a kwh of avoided energy consumption, then we can procure more renewable energy on the grid and more energy savings for the same amount of ratepayer money.
*My research includes listening to the views and evidence
of climate change “deniers.” While I don’t find their evidence
particularly persuasive, I am more troubled by their policy positions,
which are akin to making an “all-in” bet that mainstream science will
be proven wrong. Such an approach is irrational when the risks of
being wrong are so huge, and the costs of hedging the bet through
gradually escalating greenhouse gas regulation are relatively modest.
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