Public Service Company of New Mexico v. New Mexico Public Regulation Commission, S-1-SC-36115

• Docket Nº: NO. S-1-SC-36115
• Citation: 444 P.3d 460
• Case Date: May 16, 2019
• Court: Supreme Court of New Mexico

444 P.3d 460

PUBLIC SERVICE COMPANY OF NEW MEXICO, Appellant,
v.
NEW MEXICO PUBLIC REGULATION COMMISSION, Appellee,
and
New Energy Economy, Inc., New Mexico Industrial Energy Consumers, and Albuquerque Bernalillo County Water Utility Authority, Interveners-Appellees/Cross-Appellants,
and
Western Resource Advocates, New Mexico Attorney General, and Coalition for Clean Affordable Energy, Interveners-Appellees.

In the Matter of the Application of Public Service Company of New Mexico for Revision of its Retail Electric Rates Pursuant to Advice Notice No. 513, NMPRC Case No. 15-00261 UT

NO. S-1-SC-36115

Supreme Court of New Mexico.

Filing Date: May 16, 2019
Released for Publication July 9, 2019

PNM Resources, Inc., Patrick V. Apodaca, Stacey J. Goodwin, Albuquerque, NM, Miller Stratvert, P.A., Richard L. Alvidrez, Albuquerque, NM, Keleher & McLeod, P.A., Thomas C. Bird, Albuquerque, NM, for Appellant

Michael C. Smith, Santa Fe, NM, for Appellee

New Energy Economy, Mariel Nanasi, Santa Fe, NM, for Intervener-Appellee/Cross-Appellant New Energy Economy

Peter Jude Gould, Santa Fe, NM, for Intervener-Appellee/Cross-Appellant New Mexico Industrial Consumers

Stelzner, Winter, Warburton, Flores, Sanchez & Dawes, Nann M. Winter, Albuquerque, NM, Dahl L. Harris, Santa Fe, NM, for Intervener-Appellee/Cross-Appellant, Albuquerque Bernalillo County Water Utility Authority

Steven S. Michel, Santa Fe, NM, for Intervener-Appellee Western Resources Advocates

Hector H. Balderas, Attorney General, Joseph M. Yar, Assistant Attorney General, for Intervener-Appellee New Mexico Attorney General

Charles F. Noble, Santa Fe, NM, for Intervener-Appellee Coalition for Clean Affordable Energy

Jones, Snead, Wertheim & Clifford, P.A., Jerry Todd Wertheim, Carol A. Clifford, Santa Fe, NM, for Amicus Curiae El Paso Electric Company

VIGIL, Justice.

444 P.3d 466

{1} This appeal arises from the final order of the New Mexico Public Regulation Commission (Commission) granting part, but not all, of the increase in retail electric rates sought by the Public Service Company of New Mexico (PNM) in Case No. 15-00261-UT. The Commission’s final order is appealed by PNM and cross-appealed by the Albuquerque Bernalillo County Water Utility Authority (ABCWUA), New Energy Economy (NEE), and the New Mexico Industrial Energy Consumers (NMIEC). On appeal, PNM, NEE, ABCWUA, and NMIEC all raise numerous issues with the Commission’s final order. In this opinion we address challenges made to the Commission’s decisions regarding Palo Verde Nuclear Generating Station, the installation of balanced draft technology at San Juan Generating Station, the new coal supply agreement at Four Corners Power Plant, the inclusion of Rate 11B in rate banding, PNM’s prepaid pension asset, and the adoption of Method A.

{2} With respect to Palo Verde, PNM appeals the Commission’s denial of recovery in its rate base for (1) the repurchase of 64.1 MW of Palo Verde Unit 2 capacity at a valuation of $2,550/kW; (2) $49 million in improvements made to Palo Verde Unit 2; and (3) future recovery for nuclear decommissioning costs. In separate cross-appeals, NEE and ABCWUA each challenge the Commission’s decision to allow PNM to recover for the repurchased 64.1 MW at a net book value of $1,306/kW and for the cost of renewing five leases at Palo Verde. We additionally address ABCWUA’s argument that the Commission violated its right to due process by refusing to reopen the proceedings to allow replies to PNM’s response to a bench request regarding Palo Verde.

{3} We also answer the remaining challenges to the Commission’s final order: PNM’s appeal to the Commission’s decision to deny recovery of $52.3 million for the installation of balanced draft technology at San Juan Generating Station; NEE’s claim that the Commission acted unreasonably and unlawfully by allowing recovery of $19.5 million for the new coal supply agreement at Four Corners Power Plant; ABCWUA’s challenge to the Commission’s decision to reject PNM’s proposal to exclude Rate 11B from rate banding; and NMIEC’s arguments that the Commission acted unreasonably or unlawfully by allowing recovery of $137.8 million for PNM’s prepaid pension asset and by adopting the Method A rate adjustment.

{4} We reject each of the arguments on appeal except one: we conclude that, by denying PNM any future recovery for its nuclear decommissioning costs related to the Palo Verde capacity at issue in this case, the Commission denied PNM due process of law. Therefore, we declare all other aspects of the Commission’s final order to be lawful and reasonable, yet must annul and vacate the final order in its entirety pursuant to NMSA 1978, Section 62-11-5 (1982). See Hobbs Gas Co. v. N.M. Pub. Serv. Comm'n , 1993-NMSC-032, ¶ 6, 115 N.M. 678, 858 P.2d 54 (concluding that the Court may declare parts of an order to be reasonable and lawful while vacating an order in its entirety pursuant to Section 62-11-5 ). We remand the case to the Commission for further proceedings as required and the entry of an order consistent with this opinion. See Hobbs , 1993-NMSC-032, ¶ 6, 115 N.M. 678, 858 P.2d 54 (recognizing that on remand "the Commission may properly enter an order embodying those provisions in the earlier, vacated order that have been declared reasonable and lawful"); Pub. Serv. Co. v. N.M. Pub. Serv. Comm'n , 1979-NMSC-042, ¶¶ 13, 24, 92 N.M. 721, 594 P.2d 1177 (remanding to the Commission for the entry of an order based on substantial evidence and acknowledging that the Commission may conduct additional hearings as necessary).

I. BACKGROUND

{5} The complexity of this case compels us to begin our opinion by setting forth a brief overview of the procedural history as well as the relevant legal background. See New Energy Economy v. Pub. Regulation Comm'n , 2018-NMSC-024, ¶ 2, 416 P.3d 277. Additional background is provided as necessary in our discussion.

444 P.3d 467

A. Procedural Background

{6} On August 27, 2015, PNM filed an application with the Commission claiming a revenue requirement of approximately $123 million. In accordance with its procedural rules, the Commission appointed a hearing examiner to preside over the ratemaking proceedings and submit a recommended decision to the Commission. See 1.2.2.29(B), (D)(4) NMAC. Nearly twenty parties filed motions to intervene in the proceedings and, in a public hearing lasting three weeks and a two day supplemental hearing, over forty witnesses presented testimony on PNM’s proposed rate increase.

{7} After the hearing examiner issued her corrected recommended decision and the parties filed their exceptions to her recommendations, the Commission issued its final order that incorporated and adopted the corrected recommended decision except as expressly modified or disapproved. The Commission’s final order approved a revenue increase of $61.2 million. The appeal and cross-appeals are taken directly from that order. See NMSA 1978, § 62-11-1 (1993) ("Any party to any proceeding before the [C]ommission may file a notice of appeal in the [S]upreme [C]ourt asking for a review of the [C]ommission’s final orders.").

B. Legal Principles Governing Rate Cases

{8} We next set forth the general legal principles which apply to the setting of retail electric rates by the Commission. The Commission has the general and exclusive power to regulate a public utility’s rates under NMSA 1978, Section 62-6-4(A) (2003). A utility’s rates are generally based upon the utility’s revenue requirement, the traditional elements of which are "(1) determination of the costs of the operation, (2) determination of the rate base which is the value of the property minus accrued depreciation, and (3) determination of the rate of return." Hobbs Gas Co. v. N.M. Pub. Serv. Comm'n , 1980-NMSC-005, ¶ 5, 94 N.M. 731, 616 P.2d 1116.

{9} The Commission has the obligation to ensure that "[e]very rate made, demanded or received by any public utility [is] just and reasonable." NMSA 1978, § 62-8-1 (1941). In meeting this obligation, the "Commission is vested with considerable discretion." Hobbs , 1980-NMSC-005, ¶ 4, 94 N.M. 731, 616 P.2d 1116. The utility seeking an increase in rates bears the burden of demonstrating that the increased rate is just and reasonable. NMSA 1978, § 62-8-7(A) (2011).

{10} "The Commission [is] not bound to the use of any single formula or combination of formulae in determining rates. The rate-making function involves the making of pragmatic adjustments. It is the result reached, not the method employed, which is controlling." Mountain States Tel. & Tel. Co. v. N.M. State Corp. Comm'n , 1977-NMSC-032, ¶ 70, 90 N.M. 325, 563 P.2d 588. By statute, the Commission must balance

the interest of consumers and the interest of investors ... to the end that reasonable and proper services shall be available at fair, just and reasonable rates and to the end that capital investment may be encouraged and attracted so as to provide for the construction, development and extension, without unnecessary duplication and economic waste, of proper plants and facilities and demand-side resources for the rendition of service to the general public and to industry.

NMSA 1978, § 62-3-1(B) (2008). This balance between the interests of ratepayers and...