New Mexico ALJ does not recommend approval of PNM’s proposed AMI project at this time

A New Mexico Public Regulation Commission hearing examiner, in a March 19 recommended decision, said that the commission should not exercise its discretionary authority to approve Public Service Company of New Mexico’s (PNM) application for approval of an advanced metering infrastructure (AMI) project.

A PNM spokesperson could not be immediately reached for comment by TransmissionHub on March 21.

As noted in the filing, PNM in September 2015 filed a petition for variance from the commission’s meter testing requirements. The company requested permission to suspend the requirement associated with a periodic test schedule to allow PNM to undertake a full cost benefit analysis of an AMI deployment program. PNM stated that if its meter testing program were not suspended, PNM would be required to replace about 58,000 meters during 2016 associated with sample lots of meters that failed its statistical sampling formula, the ALJ added.

PNM stated that if it determined that AMI were cost-effective, PNM would file by Feb. 28, 2016, an application to move forward with a full implementation of AMI or a report detailing the reasons why the plan was not cost beneficial. PNM stated that it would seek commission approval prior to implementing AMI because of the high cost, estimated at that time to be more than $80m, of undertaking AMI, the ALJ added.

On Jan. 20, 2016, the commission granted PNM’s request subject to certain conditions, including that PNM make its AMI filing by Feb. 28, 2016.

The ALJ added that PNM on Feb. 26, 2016, filed its AMI application, in which it asked the commission for certain approvals, including:

  • Approval of the AMI Project under which, beginning upon approval of the application and concluding by June 2019, PNM would retire its existing meters and replace them with AMI meters and related equipment
  • Determination that the cost of AMI, not to exceed $87.2m, is reasonable and prudent and authorizing recovery of such cost in future ratemaking proceedings, with any cost overruns recovered in rates only after a commission determination in a future rate case that such excess costs were prudently incurred
  • * An accounting order authorizing recovery in future ratemaking proceedings of the undepreciated investment in PNM’s existing meters as of the date of retirement, through a regulatory asset amortized over 20 years with a carrying charge equal to PNM’s pre-tax weighted average cost of capital (WACC) on the unamortized balance
  • * An accounting order authorizing recovery in future ratemaking proceedings of customer education costs to inform customers about the AMI, not to exceed $1.5m, through a regulatory asset amortized over five years with a carrying charge equal to PNM’s pre-tax WACC on the unamortized balance
  • * An accounting order authorizing recovery of the costs associated with employee severances resulting from the AMI Project, not to exceed $5m, through a regulatory asset amortized over five years with a carrying charge equal to PNM’s pre-tax WACC on the unamortized balance

The ALJ noted that in its October 2017 rebuttal testimony, PNM modified its requests to address the impact of certain cost increases. The major changes included an increase in PNM’s estimated capital costs from $87.2m to $95.1m, and, as a partial offset, the withdrawal of its request for a regulatory asset to recover the severance costs of the employees it plays to lay off, the ALJ said.

The primary reason for the increase was an approximately $7m increase in meter installation costs, the ALJ said.

PNM’s proposed AMI Project would include meters with two-way communications capability, a communications network and back-office information technology, the ALJ said. The back-office technology consists of a meter data collection system, network management system, and a Meter Data Management System that would manage the two-way communication network and the information provided by the meters. The AMI Project would include a customer portal through which customers would be able to track their energy usage over time and set usage goals that they would be able to monitor through a system of alerts, the ALJ added.

In its February 2016 application, PNM estimated annual operations and maintenance expense savings of $11.3m after the full deployment of AMI, the ALJ said, noting that in its September 2017 testimony, PNM reduced its estimate of savings by 5% to $10.8m.

The original cost-benefit analysis filed in February 2016 showed that replacing current metering with AMI would produce a net present value benefit of $20.9m over 20 years, while the September 2017 analysis showed a reduced benefit of $8.6m over 20 years, after including the increased installation costs and other updated costs. The ALJ also noted that the October 2017 analysis increased the 20-year benefit to $16.1m after factoring in the concessions in PNM’s rebuttal testimony to forego recovery of the $5m in employee severance costs and to accept a reduced carrying charge on PNM’s remaining regulatory asset requests.

The ALJ noted that the only rate change that PNM is proposing at this time is the establishment of the opt-out rates for customers deciding not to participate in the AMI Program. PNM is asking the commission to approve PNM’s proposed ratemaking treatment for the costs of the AMI Project, but PNM would not seek an increase in rates to actually start recovering the costs until a future rate case, the ALJ said. In October 2017, PNM estimated the first-year revenue requirement as being about $5m, declining to $560,624 in savings in 2026.

While smart meters can provide benefits to utilities and ratepayers, PNM’s plan does not incorporate smart meters’ potential for energy efficiency measures, the ALJ said, adding that the primary purpose of PNM’s project is cost savings.
“The primary justification PNM offers for the project is the net savings it says the project would produce for ratepayers,” the ALJ said. “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.”

According to the ALJ, the terms of PNM’s plan include full cost recovery of the $95.1m cost of the new AMI meters, $24.9m for PNM’s existing non-AMI meters that would be replaced and would no longer be serving customers, and $1.5m in PNM’s customer education costs.

The ALJ also said that PNM’s proposed $42.72 per month “opt-out fee is too high to provide customers with a meaningful choice.”

Among other things, the ALJ noted that PNM ratepayers have experienced a recent series of rate increases, including an increase effective in February.

“To be clear, the hearing examiner is not recommending that PNM be prohibited from adopting an AMI project,” the ALJ said. “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.”

The hearing examiner said that the commission should, at a minimum, insist that PNM make a showing sufficient to obtain a CCN, including proof that the project would produce a net public benefit and that PNM has conducted an evaluation of reasonable alternatives to its proposal.

About Corina Rivera-Linares 3235 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.