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F I S C A L I M P A C T R E P O R T

SPONSOR Heaton

ORIGINAL DATE

LAST UPDATED

1/19/07

HB 47

SHORT TITLE Transmission Line Cost Recovery

SB

ANALYST Earnest

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

NFI

NA

NA

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Energy, Minerals and Natural Resources Department (EMNRD)

Public Regulation Commission (PRC)

SUMMARY

Synopsis of Bill

House Bill 47 amends sections of the Public Utility Act to allow a utility to recover the cost of

new electric transmission facilities before actual completion and operation of the facility. The

facilities would have to be certified and approved by PRC to facilitate economic development

and development of renewable energy. HB 47 requires the PRC to adopt rules that provides a

transmission rate adjustment outside a general rate case to reflect investment and costs incurred

for these facilities. The bill also provides for guaranteed recovery in rates of such facilities

regardless of the extent of utility's actual use of the facilities.

FISCAL IMPLICATIONS

None identified.

House Bill 47 – Page

2

SIGNIFICANT ISSUES

According to EMNRD, traditional electric transmission lines do not often serve areas that are

rich in renewable energy resources, impeding development of these resources. Planning and

construction of transmission lines takes much longer than development of renewable energy

electric power plants. Investment in beneficial projects might not occur if cost recovery is

delayed for many years. Therefore, in order to encourage development of the state’s renewable

energy resources, it would be beneficial that utilities are allowed to recover costs of the

transmission projects as they progress, and before completion of the transmission lines and

connection of the generators.

According to PRC, the proposed recovery of costs outside of a general rate case (proposed

Section F) constitutes piecemeal ratemaking, a process that is inefficient and inconsistent with

sound regulatory procedure. The costs of a utility’s new transmission investment is only one

component of utility's total cost of service that is analyzed in a general rate case. Without

examining the total cost in a general rate case, allowing expedited recovery of a single cost factor

through an automatic monthly rate adjustment is contrary to well established regulatory

principles and is not in the public interest.

PERFORMANCE IMPLICATIONS

According to EMNRD, HB 47 would enhance efforts to encourage the development of

renewable energy in the state. Other states, including Texas, are already providing similar

incentives to remedy the shortage of transmission.

ADMINISTRATIVE IMPLICATIONS

The legislation may result in additional regulatory proceedings, record keeping and compliance

filings at the PRC.

TECHNICAL ISSUES

PRC identified two technical issues:

1. Page 4, lines 18-25 and page 5, lines1-2 (proposed Section F), conflicts with existing language

in NMSA 1978 Section 62-8-7 E, which provides in part, “Except as otherwise provided by law,

any increase in rates or charges for the utility commodity based upon cost factors other than

taxes or cost of fuel, gas or purchased power, filed for after April 4, 1991, shall be permitted only

after notice and hearing as provided by this section."

2. Page 2, lines 2-13 (proposed Section C): The proposed language appears to contradict itself.

A Certificate of Public Convenience and Necessity (“CCN") is given by the Commission after

the need for, and use of, the proposed transmission facility is proven by the applicant utility. The

proposed language appears to suggest that CCN’s can be given to certain facilities without

establishing the need for such facilities. Furthermore, the proposed language provides that, once

certified, the utility would be guaranteed recovery of costs associated with such facilities

regardless of whether they are actually used and useful to the customers of that utility. These

proposed provisions are not consistent with well-established regulatory principles and do not

promote the public interest. In addition, such a proposal is contrary to existing NMSA 1978

House Bill 47 – Page

3

Section 62-8-7 A. which provides that “At any hearing involving an increase in rates or charges

sought by a public utility, the burden of proof to show that the increased rate or charge is just and

reasonable shall be upon the utility." The proposed language in Section C would shift the burden

of proof away from the utility.

According to EMNRD, the language on page 9 paragraph C, first sentence, is contrary to the title

of the bill. The title indicates an intention directed at transmission facilities for economic

development and renewable energy. But the first sentence of paragraph C. would broaden the

applicability to all transmission facilities with a certificate of convenience and necessity; i.e.

virtually all transmission facilities.

OTHER SUBSTANTIV ISSUES

According to PRC, the bill:

•

Changes traditional principles or powers granted to the NMPRC to oversee various

aspects of electric utility transmission facilities.

•

Transfers risk of imprudent decisions from shareholder to ratepayers.

•

Restricts ability of PRC to review utility investment decisions.

•

Sufficient incentives already exist for utilities to invest in electric transmission.

•

No factual evidence supports the need for this legislation.

•

Regulatory paradigm subverted.

•

Additional transmission can be built and upgraded/enhanced under existing regulatory

regime.

•

Likelihood of higher rates for consumers who may not receive any direct benefits.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

A new regulatory process for certain transmission facilities would not be created.

BE/csd