Commentary: PNM’s wholesale customers have been leaving PNM in order to take advantage of the lower rates they can obtain elsewhere while at the same time increasing shares of their power that come from clean, renewable sources of energy, such as wind and solar. In the past year alone: Gallop, Aztec and Navopache Electric Cooperative have all announced departure from PNM.
But PNM continues to shackle its New Mexico customers with expensive outdated resource technologies. Buried in the current Rate Case is the inclusion of 64 MW, the total of three individual leases at the Palo Verde 2 Nuclear Power Plant. Palo Verde 2 is not a prudent investment.
PNM did not provide any financial analysis to demonstrate that PV2 is cost competitive with other options. In fact, PNM did not compare the acquisition of PV2 against any alternatives whatsoever to insure the least expensive option would be obtained.
PNM has not demonstrated that the generation capacity is even needed considering PNM’s declining sales, a result of energy efficiency improvements as well as customer defections.
PNM has a history of using unsubstantiated load projections in order to justify the acquisition of resources. With the sales projections in PNM’s most recent modeling, San Juan and Four Corners power plants will only need to be operated at about 60% of capacity. And, these sales projections have not incorporated all known future demand decreases.
PNM has not done a risk assessment for Palo Verde 2, and the risks are significant. The financial risks include decommissioning costs, spent fuel disposal costs, risk from maintenance down-time or unanticipated early closure as well as costs that may be incurred from future regulations.
There are significant environmental costs and risks associated with nuclear power: uranium mining contamination and high water usage, dangerous radioactive waste that must be isolated from the environment for over 100,000 years, and the potential for catastrophic accidents. A power source that can render hundreds of square miles uninhabitable and that can spread radioactive fallout cannot be considered clean power!
Utility companies are required to get a Certificate of Convenience and Necessity (CCN) when adding resources into the rate-base, but PNM is attempting to skirt around this process with the purchase of PV2 because they know that renewables, wind and solar are less expensive in today’s energy markets!
Why would PNM want to put an overly expensive resource into our rate-base?
New Mexico’s rate structure rewards utilities for capital expenditures. The extent of PNM’s profitability (shareholder returns), is largely dependent on the return on equity which is the percentage above expenditures that PNM is allowed to collect. The more money PNM spends; the more money they make. That is why PNM is not afraid of older, high-maintenance plants; if they break down, PNM makes money. If the plant needs fuel to operate; PNM makes money. If the plant costs more upon purchase; PNM makes even more money.
Besides lower purchasing costs, wind and solar resources have lower operation and maintenance costs and no fuel costs. PNM prefers fossil-fuel plants because “they are the gifts that keep on giving” to PNM.
PNM has admitted that it did not look into an option to extend the lease on PV2. This option would have allowed PNM to save rate-payers $10.2 million/year. By stark contrast, the purchase option will not cut overall costs.
The reason that PNM prefers the more expensive option was clearly articulated in a Board Briefing on December 3rd 2013: “Purchasing the other three Unit 2 leases will increase the rate base, allowing shareholders to earn a return on the assets.”