Coal. for Clean Affordable Energy v. N.M. Pub. Reg. Comm'n

549 P.3d 500

2024-NMSC-016

COALITION FOR CLEAN AFFORDABLE ENERGY and Renewable Energy Industries Association of New Mexico, Appellants,

v.NEW MEXICO PUBLIC REGULATION COMMISSION, Appellee,andAlbuquerque Bernalillo County Water Utility Authority, Bernalillo County, New Energy Economy, and New Mexico Affordable Reliable Energy Alliance, and New Mexico Office of the Attorney General, Intervenors-Appellees.

In the Matter of the Public Service Company of New Mexico’s Petition for a Declaratory Order Regarding Whether the Efficient Use of Energy Act Permits a Utility to Implement a Full Revenue Decoupling Mechanism; In the Matter of the Petition of Albuquerque Bernalillo County Water Utility Authority and Bernalillo County for Declaratory Order Regarding Whether the Efficient Use of Energy Act Mandates the Commission to Fully Authorize Full Decoupling Upon Petition by a Public Utility, Case No. 20-00212-UT

Public Service Company of New Mexico, Appellant,

v.New Mexico Public Regulation Commission, Appellee,andAlbuquerque Bernalillo County Water Utility Authority, Bernalillo County, New Energy Economy, and New Mexico Affordable Reliable Energy Alliance, and New Mexico Office of the Attorney General, Intervenors-Appellees.

In the Matter of the Application of Public Service Company of New Mexico’s Petition for a Declaratory Order Regarding Whether the Efficient Use of Energy Act Permits a Utility to Implement a Full Decoupling Mechanism; In the Matter of the Petition of Albuquerque Bernalillo County Water Utility Authority and Bernalillo County for a Declaratory Order Regarding Whether the Efficient Use of Energy Act Mandates the Commission to Fully Authorize Full Decoupling Upon Petition by the Public Utility, NMPRC Case No. 20-00212-UT

No. S-1-SC-39406

CONSOLIDATED WITH NO. S-1-SC-39401

Supreme Court of New Mexico.

Filing Date: May 13, 2024

APPEAL FROM THE NEW MEXICO PUBLIC REGULATION COMMISSION

Cara Lynch Legal Services, Cara R. Lynch, Albuquerque, NM, for Appellant Coalition for Clean Affordable Energy

Jason Marks Law, LLC, Jason A. Marks, Albuquerque, NM, for Appellant Renewable Energy Industries Association of New Mexico

PNM Resources, Inc., Stacey J. Goodwin, Albuquerque, NM, Miller Stratvert, P.A., Richard L. Alvidrez, Albuquerque, NM, Wilkinson Barker Knauer, LLP, Raymond L. Gifford, Debrea M. Terwilliger Denver, CO, for Appellant Public Service Company of New Mexico

Russell R. Fisk, Associate General Counsel, Santa Fe, NM, for Appellee New Mexico Public Regulation Commission

JAlbright Law, LLC., Jeffrey H. Albright, Albuquerque, NM, for Intervenor Bernalillo County

Stelzner, Winter, Warburton, Flores & Dawes, P.A., Keith W. Herrmann, Nann M. Winter, Albuquerque, NM, Albuquerque Bernalillo County Water Utility Authority, Charles W. Kolberg, General Counsel, Albuquerque, NM, for Intervenor Albuquerque Bernalillo County Water Utility Authority

The Gould Law Firm, Peter J. Gould, Kelly D. Gould, Santa Fe, NM, for Intervenor New Mexico Affordable Reliable Energy Alliance

New Energy Economy, Mariel Nanasi, Santa Fe, NM, for Intervenor New Energy Economy

Gideon Elliot, Assistant Attorney General, Keven Gedko, Assistant Attorney General, Santa Fe, NM, for Intervenor New Mexico Office of the Attorney General

OPINION

VIGIL, Justice.

{1} Traditional utility revenues are based on how much energy a utility’s customers use, but energy efficiency and load management programs result in a decrease of energy consumption and, therefore, reduce the revenues collected by the utility.¹ In order to encourage utilities to invest in energy efficiency and load management programs, the Efficient Use of Energy Act (EUEA), NMSA 1978, §§ 62-17-1 to -11 (2005, as amended through 2020), directs the Public Regulation Commission (the Commission), upon request by a utility, to provide for a rate adjustment mechanism to account for any such decrease in energy consumption. Section 62-17-5(F)(2). As we explain in detail below, this mechanism is commonly referred to as "revenue decoupling," which can be either partial or full. The dispute here is whether the EUEA provides for a partial or full decoupling mechanism.

{2} In a direct appeal from declaratory proceedings before the Commission, Appellants the Public Service Company of New Mexico (PNM), Coalition for Clean Affordable Energy (CCAE), and Renewable Energy Industries Association of New Mexico (REIA) argue that Section 62-17-5(F)(2) plainly describes a full revenue decoupling mechanism. The Commission in turn asserts that Section 62-17-5(F)(2) is ambiguous and, when construed with other relevant statutory provisions, contemplates approval of a partial revenue decoupling mechanism. Several intervening parties in this appeal support the Commission’s interpretation.

{3} For the reasons explained herein, we determine that Section 62-17-5(F)(2) clearly describes a full revenue decoupling mechanism. Because the Commission’s interpretation of Section 62-17-5(F)(2) is unlawful and unreasonable, we annul and vacate the Commission’s order in its entirety. NMSA 1978, § 62-11-5 (1982) (providing that this Court has "no power to modify" an order from the Commission "but shall either affirm or annul and vacate the same").

{4} We decline to reach additional issues raised about the Commission’s construction of Section 62-17-5(F)(4) or NMSA 1978, § 62-13-13.2 (2010) because the Commission’s reasoning on these issues is likely to change in view of our opinion. See N.M Indus. Energy Consumers v. N.M. Pub. Serv. Comm’n, 1991-NMSC-018, ¶ 26, 111 N.M. 622, 808 P.2d 592 (listing factors for determining whether agency action is ripe for adjudication, including "whether further agency decisions may moot some of the contentions"). We also do not entertain a facial constitutional challenge to Section 62-17-5(F)(4) discussed by Intervenor New Energy Economy in its answer brief, as the issue was not raised in a Notice of Appeal and therefore is not properly before the Court. Rule 12-601(B) NMRA; NMSA 1978, § 62-11-1 (1993).

I. BACKGROUND

{5} As we are asked to resolve a dispute about the type of revenue decoupling required under Section 62-17-5(F)(2), we begin by situating the concept of revenue decoupling within the ratemaking process. We then summarize the underlying proceedings as relevant to this appeal.

A. Revenue Decoupling as Situated Within the Ratemaking Process

[1, 2] {6} Briefly stated, revenue decoupling is a type of rate regulation that reforms the way that a public utility collects revenue. When regulating a utility’s rates under the Public Utility Act (PUA), NMSA 1978, §§ 62-1-1 to 62-6-28 and 62-8-1 to 62-13-16 (1979, as amended through 2021), the Commission typically begins by evaluating a revenue requirement for the utility, which is an amount of future revenue to be collected by the utility that is determined to be Just and reasonable. See In re Petition of PNM Gas Sens. (PNM Gas), 2000-NMSC-012, ¶¶ 6-8, 129 N.M. 1, 1 P.3d 383; § 62-8-1 ("Every rate made, demanded or received by any public utility shall be just and reasonable."). The just and reasonable standard requires the Commission to set rates that are "neither unreasonably high so as to unjustly burden ratepayers with excessive rates nor unreasonably low so as to constitute a taking of property without just compensation or a violation of due process by preventing the utility from earning a reasonable rate of return on its investment." Pub. Serv. Co. of N.M. v. N.M. Pub. Regul. Comm’n (PNM), 2019-NMSC-012, ¶ 10, 444 P.3d 460 (internal quotation marks and citation omitted). "Under the PUA, a rate is just and reasonable when it balances the investor’s interest against the ratepayer’s interest. Only when a rate falls within a zone of reasonableness between utility confiscation and ratepayer extortion can the rate be just and reasonable." N.M. Att’y Gen. v. N.M. Pub. Regul. Comm’n, 2011-NMSC-034, ¶ 13, 150 N.M. 174, 258 P.3d 453 (ellipsis, internal quotation marks, and citation omitted).

{7} After approving a revenue requirement for a utility, the Commission next designs rates that will provide "the utility a reasonable opportunity to recover its revenue requirement and that fairly distributes just and reasonable rates between different classes of ratepayers." PNM Gas, 2000-NMSC-012, ¶ 89, 129 N.M. 1, 1 P.3d 383. Historically, the Commission has not been "required to rely on any one rate-design method," N.M. Att’y Gen. v. N.M. State Corp. Comm’n, 1996-NMSC-002, ¶ 33, 121 N.M. 156, 909 P.2d 716, and has been grant ed considerable discretion in designing rates, PNM Gas, 2000-NMSC-012, ¶ 99, 129 N.M. 1, 1 P.3d 383. We have recognized several policy factors that are relevant to rate design, such as the cost of service, the value of service, conservation, competition, comparison with other rates in the geographic area, continuity, stability, and gradualism that avoids rate shock. Id. ¶¶ 100-02; see also Mountain States Tel. & Tel Co. v. N M State Corp. Comm’n, 1977-NMSC-032, ¶ 73, 90 N.M. 325, 563 P.2d 588 (listing "various types of evidence that merit consideration" in designing rates in the context of a telephone utility application). This Court has specifically "discouraged the use of cost of service as a sole criterion in designing rates." PNM Gas, 2000-NMSC-012, ¶ 100, 129 N.M. 1, 1 P.3d 383.

{8} Traditionally, the Commission has fixed rates with the expectation that the utility will collect the majority of its approved revenue through a predicted quantity of sales. This traditional regulatory approach creates disincentives for utilities to invest in energy efficiency and load management, as any decrease in energy consumption will contribute to a decrease in sales. Regulatory Assistance Project, Revenue Regulation & Decoupling: A Guide to Theory & Application 1-2 (2016) (hereinafter RAP, Revenue Regulation).² Revenue decoupling seeks to eliminate or reduce these regulatory disincentives by breaking the traditional link between a utility’s revenue...