HOUSE MEMORIAL 86

51st legislature - STATE OF NEW MEXICO - first session, 2013

INTRODUCED BY

Brian F. Egolf

A MEMORIAL

REQUESTING THE PUBLIC REGULATION COMMISSION TO PRACTICE RISK-AWARE REGULATION BY PLANNING FOR AND MANAGING RISK ASSOCIATED WITH ELECTRIC UTILITY INDUSTRY INVESTMENTS.

     WHEREAS, the electric utility industry in the United States has entered what may be the most uncertain, complex and risky period in its history; and

     WHEREAS, new capital investment in the United States electric utility industry is expected to total approximately two trillion dollars ($2,000,000,000,000) over the next twenty years; and

     WHEREAS, utilities must endorse regulatory efforts to minimize investment risks on behalf of consumers and utility shareholders; and

     WHEREAS, avoiding expensive utility investment mistakes will require improved approaches to risk management in the regulatory process; and

     WHEREAS, one of the most important duties of a twenty-first century electricity regulator is to understand, examine and manage the risk inherent in utility resource selection; and

     WHEREAS, public utility commissioners play a crucial role in guiding many utility capital investment decisions; and

     WHEREAS, public utility commissioners must understand the risks associated with different electricity generation resources and consider short-term and long-term impacts on ratepayers and society; and

     WHEREAS, the costs and risks associated with electricity generation include those associated with start-up and infrastructure, fuel and operations, regulations, potential greenhouse gas emissions, water constraints, capital shock risks and planning risks; and

     WHEREAS, these large capital requirements and operational challenges may substantially affect both the cost of energy and the health of the environment in New Mexico; and

     WHEREAS, there are many strategies that state regulators can use to manage and minimize risk associated with utility investment, including:

          A. diversification of utility supply portfolios with an emphasis on low-carbon resources and energy efficiency;

          B. robust planning processes for all utility investment;

          C. transparency in ratemaking practices to reveal risk;

          D. financial and physical hedges, including long-term contracts;

          E. holding utilities to their contractual obligations and commitments;

          F. continuous analysis to anticipate and avoid risk; and

          G. reviewing and updating ratemaking processes, as appropriate; and

     WHEREAS, regulation informed by risk management and risk minimization principles yields benefits to consumers, utilities, investors, electricity systems and society;

     NOW, THEREFORE, BE IT RESOLVED BY THE HOUSE OF REPRESENTATIVES OF THE STATE OF NEW MEXICO that the public regulation commission be requested to present a detailed strategic plan for practicing "risk-aware regulation", including the seven strategies outlined above, to the legislative finance committee by October 1, 2013; and

     BE IT FURTHER RESOLVED that the public regulation commission be requested to manage and minimize risk associated with utility investment by considering the following in the appropriate regulatory proceedings:

          A. health and environmental impacts associated with a proposed generation facility, including impacts on air and water quality;

          B. water usage from a proposed generation facility, including the amount of water to be used, the source of the water and the impact on agriculture and domestic use; and

          C. risk analysis related to the life-cycle cost of generation, including related fuel costs, regulatory compliance costs and other related factors; and

     BE IT FURTHER RESOLVED that copies of this memorial and of the Ceres April 2012 report entitled "Practicing Risk-Aware Electricity Regulation: What Every State Regulator Needs to Know" be transmitted to the public regulation commissioners, the state's rural electric cooperatives and the chief executive officers and boards of directors of utility companies providing services in New Mexico.

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