A controversial bill to allow local municipalities, counties and tribes to take control over local energy generation away from private utilities like Public Service Company of New Mexico has spurred intense debate about its potential benefits and risks.
The Local Choice Energy Act (Senate Bill 165) would force PNM and the state’s two other private, investor-owned utilities — El Paso Electric in southern New Mexico and Southwestern Public Service in the state’s eastern counties — to turn over responsibility for electric generation to government-run local control energy utilities (LCEs) if local authorities choose to form their own utility under the law.
The three investor-owned utilities would continue to manage all transmission and distribution services to transport LCE-generated electricity to local consumers.
A new grassroots coalition, Public Power New Mexico, is promoting the bill, with support from the Bernalillo and Santa Fe county commissions, and the two small southwestern towns of Bayard and Hurley. Senate Democrats Carrie Hamblen of Las Cruces and Liz Stefanics of Cerrillos co-sponsored the bill, which is now awaiting review in Senate Judiciary after the Senate Conservation Committee approved it in a party-line 6-2 vote on Feb. 9.
Supporters say if local governments choose their own electric resources, they can speed adoption of renewable generation like solar and wind faster than the investor-owned utilities are now, and at lower cost. That’s based on achievements in 10 other states, according to Public Power, where similar laws have spurred hundreds of new local utilities — usually called community choice aggregators, or CCAs — that today serve about 1,300 communities.
But PNM and local business coalitions say it would do the opposite, reducing grid reliability, raising costs for local consumers and disrupting progress under the state’s Energy Transition Act, which requires PNM and other investor-owned utilities (IOUs) to transform their grids to 80% renewables by 2040, and 100% carbon-free generation by 2045.
The debate has turned nasty. PNM calls it “a wolf in sheep’s clothing for government takeover of the electric grid.” And it cites allegedly negative experiences in places like Massachusetts and Illinois, where it claims CCAs have led to exorbitantly high electric costs for consumers.
Public Power calls such claims “lies and misinformation” that reflect fear of competition by regulated monopolies that have enjoyed captive control over local energy markets for decades.
“I never imagined that PNM could tout such egregious, easily disproven lies,” Public Power campaign director Alysha Shaw said in a statement. “Clearly, they are scared of introducing any competition into the market.”
PNM policy chief and legal adviser Laura Sanchez says Public Power’s initiative is less about environmental goals and more about an anti-utility agenda to “deconstruct” New Mexico’s regulated electric system.
“The LCE initiative is a first step toward statewide public power,” Sanchez recently told the Journal Editorial Board.
The truth may lie somewhere in between, based on a Journal review of recent reports from other states, and from the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) in Colorado.
Fact and fiction
The reports do show clear achievements by many CCAs in places like California, Massachusetts and other states. But they also reflect many challenges, and, at times, adverse outcomes in some places like Illinois.
In Massachusetts, PNM cited an attorney general report from that state allegedly showing that CCA customers paid $340 million more between 2015 and 2019 than if they had stayed with their original utilities. But Massachusetts has a “restructured” energy market — which allows other private utilities to directly compete with existing IOUs — and the AG report focused exclusively on higher costs charged by those competitors, not by CCAs.
In fact, a study from the University of Massachusetts Amherst released on Feb. 6 reported that, among the 157 CCAs operating in that state as of late 2021, 80% had achieved savings, and most had achieved higher levels of renewable energy development.
Similarly, a 2020 study by the Luskin Center for Innovation at the University of California Los Angeles reported that CCAs served 30% of that state’s population as of 2020, and that the vast majority of those local utilities procured more renewable energy than the IOUs they compete with.
Consumer savings there, however, depended upon which electricity program a CCA customer chose to enroll in, since most California CCAs offer varying options for customers, including 100% renewable electricity at higher cost, 50% renewable integration at lower prices, and less renewables for customers seeking cheaper bills.
NREL, meanwhile, looked at general trends among CCAs in the eight states that had enabling legislation as of 2019 — all of them concentrated in the Northeast, except for California. It found that, generally, CCAs do offer opportunities to increase renewable generation at potentially competitive, if not lower, rates.
But that depends on local market conditions. CCAs in “regulated” markets such as California face different challenges than CCAs in competitive, “restructured” markets — which includes all the other northeastern states where CCAs are operating.
Regulated markets like California and New Mexico must unbundle, or separate, existing IOU control over generation from ongoing management of transmission and distribution services. And that means IOUs must be compensated for previous investments in generation, which can become “stranded,” or lost, assets for the IOUs as CCAs acquire procurement power and then invest in new resources, according to NREL.
To resolve that, California imposes “exit fees” that CCAs must pay to compensate IOUs for their past investments, and that’s created ongoing contention in setting adequate compensation levels. In addition, those exit fees add significant costs that CCAs must incorporate into their own expenses for new energy procurement, creating challenges to keep rates down for CCA customers.
Another issue is state regulation on “resource adequacy.” All utilities must ensure they have enough power to meet electricity demand 24/7, and that can be problematic as CCAs take over generation, according to NREL.
Such challenges may be universal in regulated markets that choose to permit CCAs, NREL said.
“The fact that no other regulated market states have implemented CCA-enabling legislation may indicate the considerable challenges facing CCAs in regulated markets, including but not limited to significant opposition from investor-owned utilities,” NREL said.
In restructured markets, such challenges are limited because energy developers and providers already compete with existing IOUs — eliminating the need for exit fees — and regulators have already dealt with resource adequacy issues when restructuring their markets.
Still, even in the restructured markets, achieving low CCA customer rates and accelerating renewable development depend on general market conditions, according to NREL. In Illinois, for example, CCAs generally offered significant cost savings compared with IOUs from 2010 to 2013, because IOU services at that time cost more compared with cheaper renewables procured by CCAs.
But from 2012-2014, the situation reversed as IOU rates fell, making many CCA prices less competitive. As a result, local choice sales declined as customers opted to purchase IOU services, and more than 200 Illinois CCAs discontinued their service.
New Mexico: Unbundling a regulated market
As a regulated market with no current competition, New Mexico will likely face similar challenges to accommodate LCEs as outlined in the NREL report, beginning with disputes over compensation for stranded IOU assets.
Unlike California, the Local Choice Energy Act does not include exit fees, leading the Attorney General’s Office to warn that those costs could be passed onto customers that remain under PNM and other IOU services.
The Legislative Finance Committee documented the attorney general’s concern in its SB 165 fiscal impact report, which also includes significant issues raised by the state Public Regulation Commission. The PRC is particularly wary about the bill’s lack of clarity regarding PRC authority to regulate LCEs.
Most mainstream renewable and environmental advocacy organizations have not officially supported SB 165, and some have expressed concerns.
Cydney Beadles — New Mexico Clean Energy Manager for Western Resource Advocates — called the bill a “big detour” away from the Energy Transition Act, which should be allowed to stay the course free from new, potentially risky initiatives like Local Choice Energy.
“Most of the state’s utilities are on track to meet the ETA’s milestones, and it doesn’t make sense to disrupt progress with the uncertainty and complexity that would come with the partial deregulation this bill represents,” Beadles told the Journal. “Many issues would need to be resolved by legislation or litigation, including stranded generation costs. Approving a bill like this without first studying its impact and implications … is just putting the cart before the horse with potential reliability risks to all.”
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