New Mexico Attorney Gen. v. New Mexico Pub. Regulation Comm'n

• Citation: 309 P.3d 89
• Decision Date: 29 August 2013
• Docket Number: No. 33,393.,33,393.
• Parties: NEW MEXICO ATTORNEY GENERAL and New Mexico Industrial Energy Consumers, Appellants, v. NEW MEXICO PUBLIC REGULATION COMMISSION, Appellee, and Public Service Company of New Mexico, Coalition for Clean Affordable Energy, and Western Resource Advocates, Real Parties in Interest.
• Court: Supreme Court of New Mexico

309 P.3d 89

NEW MEXICO ATTORNEY GENERAL and New Mexico Industrial Energy Consumers, Appellants,

v. NEW MEXICO PUBLIC REGULATION COMMISSION, Appellee,andPublic Service Company of New Mexico, Coalition for Clean Affordable Energy, and Western Resource Advocates, Real Parties in Interest.

No. 33,393.

Supreme Court of New Mexico.

Aug. 29, 2013.

Gary K. King, Attorney General, Jeffery S. Taylor, Assistant Attorney General, Santa Fe, NM, for Appellant New Mexico Attorney General.

Peter Jude Gould, Santa Fe, NM, for Appellant New Mexico Industrial Energy Consumers.

Margaret Kendall Caffey–Moquin, Santa Fe, NM, for Appellee.

Benjamin Phillips, Albuquerque, NM, Cuddy & McCarthy, L.L.P., Patrick T. Ortiz, Rebecca D. Dempsey, Santa Fe, NM, for Real Party in Interest Public Service Company of New Mexico.

Charles F. Noble, Sante Fe, NM, for Real Party in Interest Coalition for Clean Affordable Energy.

Steven S. Michel, Santa Fe, NM, for Real Party in Interest Western Resource Advocates.

Hinkle, Hensley, Shanor & Martin, L.L.P., Jeffrey L. Fornaciari, Dulcinea Z. Hanuschak, Santa Fe, NM, for Amicus Curiae Southwestern Public Service Company.

OPINION

DANIELS, Justice.

{1} This case addresses whether in determining public utility electricity rates the New Mexico Public Regulation Commission (PRC) has authority to consider expenses incurred by a public utility for energy efficiency programs. Appellants, the New Mexico Attorney General and New Mexico Industrial Energy Consumers, ask us to vacate and annul the final order in PRC Case No. 11–00308–UT (Case 308 Final Order) because it permits Public Service Company of New Mexico (PNM) to earn returns on the operating expenses incurred from energy efficiency programs. Appellants argue that such returns are inconsistent with New Mexico law. We hold that the Case 308 Final Order is consistent with the PRC's ratemaking authority under the New Mexico Public Utility Act, NMSA 1978, §§ 62–3–1 to –5 (1967, as amended through 2009) (PUA), and the New Mexico Efficient Use of Energy Act, NMSA 1978, §§ 62–17–1 to –11 (2005, as amended through 2013) (EUEA), and with our holding in Attorney General v. New Mexico Public Regulation Commission ( AG v. PRC 2011 ), 2011–NMSC–034, 150 N.M. 174, 258 P.3d 453. We also hold that the Case 308 Final Order is supported by substantial evidence and is neither arbitrary nor capricious. Accordingly, we affirm the Case 308 Final Order.

I. BACKGROUNDA. Statutory and Regulatory Background

{2} Enacted in 2005, the EUEA calls for the PRC to identify and eliminate regulatory disincentives or barriers for public utility expenditures on energy efficiency and load management measures “in a manner that balances the public interest, consumers' interests and investors' interests.” See§§ 62–17–2(E), –3, & –5(F); see also § 62–17–4(F) & (H) (defining “energy efficiency” to include “energy conservation measures, or programs that target consumer behavior, equipment or devices to result in a decrease in consumption of electricity and natural gas without reducing the amount or quality of energy services” and describing “load management” as “measures or programs that target equipment or devices to result in decreased peak electricity demand ...”). To implement the EUEA, the PRC promulgated its energy efficiency regulations, 17.7.2 NMAC (03/01/2007, replaced 05/03/2010). In relevant part, the regulations require utilities to file proposals with the PRC to remove disincentives or barriers to energy efficiency programs that utilities believe exist. See17.7.2.9(K) NMAC (03/01/2007).

{3} The Legislature amended the EUEA in 2008 to specifically require the PRC to give utilities an opportunity to earn a profit on cost-effective energy efficiency and load management resource development. See§ 62–17–5(F) (2008). After the 2008 amendments to the EUEA, the PRC issued an order to conduct a rulemaking proceeding to revise 17.7.2 NMAC through a series of workshops with interested parties. See AG v. PRC 2011, 2011–NMSC–034, ¶ 4, 150 N.M. 174, 258 P.3d 453. The workshops produced a proposed amendment to the regulations known as Alternative A. Seeid. ¶ 5.

{4} Alternative A would (1) temporarily allow utilities to recover an Interim Adder at rates of $0.01 for each kilowatt hour saved and $10.00 for each kilowatt reduced from the annual demand due to approved energy efficiency programs, (2) require utilities and interested parties to file proposals for a permanent solution to eliminate disincentives to energy efficiency programs, and (3) after the temporary Interim Adder expired, allow utilities to continue receiving a Reduced Adder at rates of $0.005 for every kilowatt hour saved and $10.00 for each kilowatt reduced from the annual demand due to approved energy efficiency programs. See id.

{5} On April 8, 2010, the PRC adopted the proposed Alternative A in a final order. See N.M. Pub. Regulation Comm'n, Final Order Repealing and Replacing 17.7.2 NMAC, Case No. 08–00024–UT (April 8, 2010) (Case 024 Final Order), available at http:// www. nmprc. state. nm. us/ (follow hyperlinks: “Case Lookup Edocket” under QUICK LINKS and then “Documents Search” under Search). The revised energy efficiency regulations became effective on May 3, 2010. See17.7.2.5 NMAC (05/03/2010).

B. Factual and Procedural Background

{6} On June 23, 2011, the PRC issued a final order further reducing the Reduced Adder rates by sixty percent to accomplish the requirements of the EUEA and 17.7.2 NMAC with respect to PNM. See N.M. Pub. Regulation Comm'n, Final Order Partially Adopting Recommended Decision, Case No. 10–00280–UT (June 23, 2011) (Case 280 Final Order), available at http:// www. nmprc. state. nm. us/ (follow hyperlinks: “Case Lookup Edocket” under QUICK LINKS and then “Documents Search” under Search). On July 27, 2011, we issued AG v. PRC 2011, vacating the PRC's Case 024 Final Order adopting the revisions to 17.7.2 NMAC because in its rulemaking the PRC had not “adequately balance[d] the investors' interests against the ratepayers' interests when adopting Alternative A.” AG v. PRC 2011, 2011–NMSC–034, ¶¶ 1, 18–19, 150 N.M. 174, 258 P.3d 453.

{7} Subsequently, on August 16, 2011, the PRC docketed a case to investigate whether PNM's adder rates approved in Case 280 were consistent with our ruling in AG v. PRC 2011. The PRC issued the Case 308 Final Order on November 3, 2011, N.M. Pub. Regulation Comm'n, Final Order, Case No. 11–00308–UT (November 3, 2011), available at http:// www. nmprc. state. nm. us/ (follow hyperlinks: “Case Lookup Edocket” under QUICK LINKS and then “Documents Search” under Search), wherein it found that PNM's approved adder rates were not based on the PRC's vacated Case 024 Final Order replacing 17.7.2 NMAC and were consistent with our holding in AG v. PRC 2011. See Final Order, Case 308, ¶¶ 30, 36. On January 19, 2012, Appellants filed a notice of direct appeal of the Case 308 Final Order to this Court. SeeNMSA 1978, § 62–11–1 (1993) (“Any party to any proceeding before the [PRC] may file a notice of appeal in the supreme court asking for a review of the [PRC's] final orders.”).

II. DISCUSSION

{8} Appellants argue that the Case 308 Final Order is inconsistent with New Mexico law because it is contrary to our opinion in AG v. PRC 2011. Appellants read our holding in that case as a mandate to the PRC to use only traditional ratemaking principles, specifically the so-called return-on-rate-base method—which establishes a utility's revenue requirements by determining operation costs, net value of the utility's capital investment (“rate base”), and the rate of return—for setting utility rates.¹See2011–NMSC–034, ¶ 17, 150 N.M. 174, 258 P.3d 453. Because Appellants interpret AG v. PRC 2011 as a specific mandate limiting the methods the PRC may use for determining just and reasonable utility rates, they necessarily conclude that the PRC acted outside the scope of its authority in approving adder rates that were not determined using a traditional return-on-rate-base method. Further, Appellants argue that the Case 308 Final Order is unsupported by substantial evidence because, rather than conducting additional fact-finding hearings, the PRC relied on the factual determinations in the record from Case 280 to support its legal determination in Case 308. Finally, Appellants argue that the rationale articulated by the PRC to justify its Case 308 Final Order is inappropriate and unreasonable and therefore arbitrary and capricious. For the reasons stated in this opinion, we disagree.

A. Standards of Review

{9} We review an administrative order “to determine if it is arbitrary, capricious, or an abuse of discretion; not supported by substantial evidence in the record; or, otherwise not in accordance with law.” Rio Grande Chapter of Sierra Club v. N.M. Mining Comm'n, 2003–NMSC–005, ¶ 17, 133 N.M. 97, 61 P.3d 806;accordRule 1–075(R) NMRA. “The burden is on the parties challenging the agency order to make this showing.” AG v. PRC 2011, 2011–NMSC–034, ¶ 9, 150 N.M. 174, 258 P.3d 453;accordNMSA 1978, § 62–11–4 (1965). We “have no power to modify the action or order appealed from, but [must] either affirm or annul and vacate the same.” NMSA 1978, § 62–11–5 (1982).

{10} “A ruling by an administrative agency is arbitrary and capricious if it is unreasonable or without a rational basis, when viewed in light of the whole record.” Rio Grande Chapter of Sierra Club, 2003–NMSC–005, ¶ 17, 133 N.M. 97, 61 P.3d 806. “In making these determinations, we must remain mindful that in resolving ambiguities in the statute or regulations which an agency is charged with administering, the Court generally will defer to the agency's interpretation if it implicates agency expertise.” Id. (internal quotation marks and citation omitted). “However, we will not defer to the [agency's] or the district court's statutory interpretation, as this is a matter of law that we review de novo.” Id.

B. The Case 308 Final Order Is Reasonable and...