Cost Recovery for Renewable Energy &
DSM: A New Mexico Regulatory
Perspective
Jason Marks, Esq.
New Mexico Public Regulation Commission
February 7, 2008
Outline
• Renewable Energy Opportunities
– Technology
– Economics
• Policy
• Cost Recovery for RE
• Cost Recovery for DSM
Wind Energy – Prime Mover in R.E.
• Approx 15,000 MW installed capacity (2007)
• 2,500+ MW added/year 2005-2007
• Utility ownership has begun
• Cost $23 - $60/mwh after PTC
• PTC = $18/mwh
• Prices increasing due to materials, demand,
Exchange Rate
Wind with Gas Backup: Good for Utilities, Good for Ratepayers
Model of Revenue Streams
Gas CC Alone vs. Wind w/ Gas Bkup
Total Cost to Rates
$120,000,000
Depreciation
ROE (Profit)
Interest
Fuel Cost
$100,000,000
$80,000,000
200 MW Gas
CC, 70% Cap,
$7 gas + 4%/yr
$60,000,000
$40,000,000
200 MW Wind,
32% Cap. +
Gas Backup
$20,000,000
$0
Gas Only
Wind/Gas
2010 (year 1)
Gas Only
Wind/Gas
2015 (year 5)
Wind with Gas Backup – Capacity + Reduced exposure to Gas Pricing
Pressure
$180
$160
$120
$100
$80
$60
Gas
Wind+Gas
$40
$20
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
$0
Year
Cost per MwH
$140
Wind Typically Distant from Load
High Plains
Express
WYOMING
Energy
Resource
Zones
Dave
Johnston
LRS
Pawnee/
Story
COLORADO
Midway
Limon
Comanche
ARIZONA
Lamar
NEW MEXICO
Holcomb
Gladstone
Albuquerque
Phoenix
Tucson
Socorro
SunZia
HIGH
PLAINS
EXPRESS
7
Solar Technologies
Photovoltaic (PV) Panels:
• 1 – 3 kw home systems common (~$18,000
installed home system = 25¢/kwh)
• Commercial (10 – 100 kw)
• Major projects (4 – 8 MW)
Concentrated Solar Power
(CSP)
•
•
•
10-15¢/kwh for 100MW+ projects
Thermal Storage/Backup Possible
Kramer Junction (1980s) 350 MW,
Nevada Solar One (2007) 64 MW,
Spain
CSP Revenue Stream w/ Utility Ownership
Depreciation
Model of Revenue Streams
Gas CC vs. CSP
ROE (Profit)
Interest
Total Cost to Rates
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
Fuel Cost
180 MW Gas
CC, 55% Cap,
$7 gas + 4%/yr
165 MW CSP,
35% Cap.
Gas
Solar
2010 (year 1)
Gas
Solar
2015 (year 5)
State Renewable Portfolio Standards
Source: dsireusa.org/Sept 2007
MN: 25% by 2025
(Xcel: 30% by 2020)
*WA: 15% by 2020
ME: 30% by 2000
VT: RE meets load
growth by 2012
ND: 10% by 2015
WI: requirement varies by
utility; 10% by 2015 goal
MT: 15% by 2015
OR: 25% by 2025 (large utilities)
☼ NH: 23.8% in 2025
MA: 4% by 2009 +
1% annual increase
RI: 16% by 2020
5% - 10% by 2025 (smaller utilities)
☼ *NV: 20% by 2015
CT: 23% by 2020
IA: 105 MW
☼ CO: 20% by 2020 (IOUs)
*10% by 2020 (co-ops & large munis)
CA: 20% by 2010
10% by 2017 - new RE
☼ NY: 24% by 2013
IL: 25% by 2025
MO: 11% by 2020
☼ NC: 12.5% by 2021 (IOUs)
☼ AZ: 15% by 2025
10% by 2018 (co-ops & munis)
☼ NJ: 22.5% by 2021
☼ PA: 18%¹ by 2020
☼ MD: 9.5% in 2022
☼ *DE: 20% by 2019
☼ DC: 11% by 2022
☼ NM: 20% by 2020 (IOUs)
*VA: 12% by 2022
10% by 2020 (co-ops)
TX: 5,880 MW by 2015
HI: 20% by 2020
State RPS
State Goal
Solar water
heating eligible
New Mexico Renewable Energy Act: NMSA § 62-16-1
2004 Legislature, Replaced RPS by Rule
• R.E.:
• Scope:
• RPS
solar, wind, biomass, geothermal
IOUs
5% of retail sales in 2006
10% of retail sales in 2011
• Large Customer Limits,
SB 418 (2007) RPS
Commission Sets RCT
Amendments:
15% by 2015, 20% by 2020,
• Annual Procurement Plans
Co-ops 5% by 2015
• Diversity
Utilities Respond to N.M. Renewable
Portfolio Standard
Installed Generation (MW)
450
400
350
Solar
300
Wind
250
200
150
100
50
0
2002
2003
2004
2005
2006
2007
2007 RPS Diversity Rules
• R.E. Act requires portfolio diversity; new admin
rule at NMAC 17.9.572.7 & 572.14 provides
specific guidance
• Technology weighting (ineffective) eliminated
• Portfolio Diversity Targets for 2011
– At least 20% from Solar, 20% from Wind, 20% from
Biomass/Geothermal
– 1.5 % from Distributed Generation, increasing to 3% in
2015
Utility Cost Recovery for Renewable
Energy Projects
• Generally, per statute
– E.g., New Mexico Renewable Energy Act § 62-16-6
NMSA
– In re Application of Detroit Edison Company, 740
N.W.2d 685, 696 (Mich. App. 2007) (Comm’n exceed
statutory authority in allowing utility to impose
renewable energy fee on all customers, when legislature
only authorized voluntary programs)
– N.R.S. 704.7821.7(B) provides for recovery indirect
costs of imputed debt due to R.E. PPAs.
Issues for Cost Recovery for R.E. in
New Mexico
• Reasonable costs shall be recovered
“through the rate making process”
Rate case
• Requires valuation of Renewable Energy Attribute
(REC) – unrecovered historical costs treated as
regulatory asset
? Fuel Clause for RE acquired via PPA
x Fuel clause for stand-alone RECs
NMIEC v. NMPRC, 142
N.M. 533, 168
P.3d 105, 2007 -NMSC- 053
• El Paso Electric met RPS with REC purchase (no energy)
from PNM
– Sought to recover costs through fuel and purchased
power adjustment clause (rider)
– Least costly for customers b/c no carrying costs
• NMSC: “ratemaking process” includes both rate cases and
automatic adjustment clauses, depending on type of cost
– But FPPAC statute only allows for recovery of fuel or actual
purchased power costs, and Comm’n erred in determining RECs to
be “closely related to purchased power.”
Cost Recovery for DSM
• Program costs shall be recovered through
tariff riders – NM Efficiency Use of Energy
Act § 62-17-6 NMSA
– Costs guaranteed to be recovered timely, but no
opportunity for return
– Decreased throughput threatens recovery of
fixed costs
– Aggressive EE programs pose challenge of rate
rider “sticker shock” and pushback
Cost recovery for DSM
• Removing barriers to utility “investment” in
DSM
• 2007: NMPRC Rejects
PNM gas decoupling
proposal as too broad
• 2008: EUE Act
Amendments