1. Jason Marks, Esq. New Mexico Public Regulation Commission February 7, 2008 Cost Recovery for Renewable Energy & DSM: A New Mexico Regulatory Perspective

2. Outline Renewable Energy Opportunities –Technology –Economics Policy Cost Recovery for RE Cost Recovery for DSM

3. Wind Energy – Prime Mover in R.E. Approx 15,000 MW installed capacity (2007) 2,500+ MW added/year 2005-2007 Utility ownership has begun Cost $23 - $60/mwh after PTC PTC = $18/mwh Prices increasing due to materials, demand, Exchange Rate

4. Wind with Gas Backup: Good for Utilities, Good for Ratepayers

5. Wind with Gas Backup – Capacity + Reduced exposure to Gas Pricing Pressure

6. Wind Typically Distant from Load

7. High Plains Express ARIZONA Energy Resource Zones Tucson Phoenix Holcomb NEW MEXICO COLORADO WYOMING Dave Johnston LRS Albuquerque Limon Comanche Lamar Pawnee/ Story Socorro Gladstone Midway SunZia HIGH PLAINS EXPRESS 7

8. Solar Technologies Concentrated Solar Power (CSP) 10-15¢/kwh for 100MW+ projects Thermal Storage/Backup Possible Kramer Junction (1980s) 350 MW, Nevada Solar One (2007) 64 MW, Spain Photovoltaic (PV) Panels: 1 – 3 kw home systems common (~$18,000 installed home system = 25¢/kwh) Commercial (10 – 100 kw) Major projects (4 – 8 MW)

9. CSP Revenue Stream w/ Utility Ownership

10. State Renewable Portfolio Standards State Goal ☼ PA: 18%¹ by 2020 ☼ NJ: 22.5% by 2021 CT: 23% by 2020 MA: 4% by 2009 + 1% annual increase WI : requirement varies by utility; 10% by 2015 goal IA: 105 MW MN: 25% by 2025 (Xcel: 30% by 2020) TX: 5,880 MW by 2015 ☼ AZ: 15% by 2025 CA: 20% by 2010 ☼ * NV: 20% by 2015 ME: 30% by 2000 10% by 2017 - new RE State RPS HI: 20% by 2020 RI: 16% by 2020 ☼ CO: 20% by 2020 (IOUs) *10% by 2020 (co-ops & large munis ) ☼ DC: 11% by 2022 ☼ NY: 24% by 2013 MT: 15% by 2015 IL: 25% by 2025 VT: RE meets load growth by 2012 Solar water heating eligible *WA: 15% by 2020 ☼ MD: 9.5% in 2022 ☼ NH: 23.8% in 2025 OR: 25% by 2025 (large utilities ) 5% - 10% by 2025 (smaller utilities) *VA: 12% by 2022 MO: 11% by 2020 ☼ *DE: 20% by 2019 ☼ NM: 20% by 2020 (IOUs) 10% by 2020 (co-ops) ☼ NC: 12.5% by 2021 (IOUs) 10% by 2018 (co-ops & munis) ND: 10% by 2015 Source: dsireusa.org/Sept 2007

11. New Mexico Renewable Energy Act: NMSA § 62-16-1 R.E.: solar, wind, biomass, geothermal Scope: IOUs RPS 5% of retail sales in 2006 10% of retail sales in 2011 Large Customer Limits, Commission Sets RCT Annual Procurement Plans Diversity 2004 Legislature, Replaced RPS by Rule SB 418 (2007) RPS Amendments: 15% by 2015, 20% by 2020, Co-ops 5% by 2015 SB 418 (2007) RPS Amendments: 15% by 2015, 20% by 2020, Co-ops 5% by 2015

12. Utilities Respond to N.M. Renewable Portfolio Standard

13. 2007 RPS Diversity Rules R.E. Act requires portfolio diversity; new admin rule at NMAC 17.9.572.7 & 572.14 provides specific guidance Technology weighting (ineffective) eliminated Portfolio Diversity Targets for 2011 –At least 20% from Solar, 20% from Wind, 20% from Biomass/Geothermal –1.5 % from Distributed Generation, increasing to 3% in 2015

14. Utility Cost Recovery for Renewable Energy Projects Generally, per statute –E.g., New Mexico Renewable Energy Act § 62-16-6 NMSA –In re Application of Detroit Edison Company, 740 N.W.2d 685, 696 (Mich. App. 2007) (Comm’n exceed statutory authority in allowing utility to impose renewable energy fee on all customers, when legislature only authorized voluntary programs) –N.R.S. 704.7821.7(B) provides for recovery indirect costs of imputed debt due to R.E. PPAs.

15. Issues for Cost Recovery for R.E. in New Mexico Reasonable costs shall be recovered “through the rate making process” Rate case Requires valuation of Renewable Energy Attribute (REC) – unrecovered historical costs treated as regulatory asset ?Fuel Clause for RE acquired via PPA x Fuel clause for stand-alone RECs

16. NMIEC v. NMPRC, 142 N.M. 533, 168 P.3d 105, 2007 -NMSC- 053 El Paso Electric met RPS with REC purchase (no energy) from PNM –Sought to recover costs through fuel and purchased power adjustment clause (rider) –Least costly for customers b/c no carrying costs NMSC: “ratemaking process” includes both rate cases and automatic adjustment clauses, depending on type of cost –But FPPAC statute only allows for recovery of fuel or actual purchased power costs, and Comm’n erred in determining RECs to be “closely related to purchased power.”

17. Cost Recovery for DSM Program costs shall be recovered through tariff riders – NM Efficiency Use of Energy Act § 62-17-6 NMSA –Costs guaranteed to be recovered timely, but no opportunity for return –Decreased throughput threatens recovery of fixed costs –Aggressive EE programs pose challenge of rate rider “sticker shock” and pushback

18. Cost recovery for DSM Removing barriers to utility “investment” in DSM 2007: NMPRC Rejects PNM gas decoupling proposal as too broad 2008: EUE Act Amendments