NM rate case issues and overview- part 1
The current rate case conflict between the solar industry and the electric utilities, centers around utility regulation and the traditional business model of utility investing in fuel generation and transmission. The utility then asks the regulating body (the PRC in New Mexico) to approve a rate case which consists of the costs plus a 10% profit.
Since the electric utility companies’ revenue is tied to retail sales (customer rates), anything that reduces that return, like increased efficiency or solar electric power, becomes a bottom line problem. When the legislature mandated the utilities add renewable energy to their portfolio, the utilities complied. It has set up a conflict. The PRC wants to keep rates low for consumers, the legislators want more renewable energy, and the utilities need to recover large investments in infrastructure and fuel costs.
Currently, rate increases are the only way to recover costs. If fuel costs keep going up, and the utilities keep building more plants, then everything runs according to plan. But today, new technologies like solar and LED lights threaten this old model. When customers invest in energy efficiency and solar energy, it results in cost savings for the customer, but reduces revenue for the utilities. As a result, utilities see a bleak financial future and try to come up with fixes that will pass the PRC. Unfortunately, these fixes can be bad for the industry, but the days when it could be drowned in the bathtub have passed. In the end, we think solar and energy efficiency is hear to stay, so the electric utility has to find other ways to make up for their lost revenue by changing their business model.
*This is part 1 of a series on energy utilities, new technologies and the resulting problems caused by this conflict. We will be running this series through out the next few weeks. and suggesting possible solutions to this conflict. We welcome your input and ideas on the subject. Please comment below. Thank you