public service company of new mexico, applicant ... · of public service company of new mexico for...

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF THE APPLICATIONOF PUBLIC SERVICE COMPANY OF NEWMEXICO FOR APPROVAL OF ELECTRICENERGY EFFICIENCY PROGRA1M[S ANDPROGRAM COST TARIFF RIDERPURSUANT TO THE NEW MEXICO PUBLICUTILITY AND EFFICIENT USE OF’ ENERGY ACTS

PUBLIC SERVICE COMPANY OFNEW MEXICO,

Applicant.

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Case No. 12-00317-UT

RECOMMENDED DECISION

May 24, 2013

akippenbrock

Traditional Exhibit 1

TABLE OF CONTENTS

STATEMENT OF THE CASE’, ...................................................

I. Legal Standards fix tl~e Approval of EnergyEfficiency and Load Management Programs ..................................

A. The Statute ...............................................................

B. The Rule ...................................................................

C. The AG D~:cision and. Commission-ApprovedEUEA Rates ..............................................................

D. The TRC q-est ............................................................

1. Introduction ......................................................

2. PNM’s After Tax Weighted Average Cost ofCapital ("WACC") is the AppropriateDiscount Rate to Use in the TRC Test toCalculate the Present Value of Costs andBenefits on a Life-Cycle Basis to DetermineIf IE E/LM Programs are Cost Effective ......................

3. Avoided Carbon Cost ..........................................

4. The Value of Demand Savings Due toAvoided Capacity Costs .......................................

II. PNM’s Program Proposals .......................................................

A. Introduction ..............................................................

B. The 2012 Plan .............................................................

C. Overall Plan Statistic:~ ..................................................

D. Proposed New Programs ...............................................

1. Whole House Program .........................................

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Recommended DecisionCase No. 12-00317-UT Page i

III.

IV.

Page

2. LI Home Efficiency Program ................................. 33

3. Residential Stay Cool Program ....................................35

4. Home Energy Reports Programs ...................................37

5. Student Efficiency Kit Program ....................................38

E. Proposed R.evisions to Existing Prol,n’ams .................................39

1. Low Income Refrigerator and CFLReplacement Program ................................................39

2. Community CFL Program ...........................................40

3. Comrnercial Comprehensive Program .............................41

4. Market Transfbrmation Program ....................................42

5. Residential Lighting Program ("RLP") ............................44

F. Programs to be Terminated ...................................................44

1. Energy Star Homes Program ........................................44

2. Energy Smart for Renters ............................................45

G. Duration and (Dual Savings Programs) ....................................45

H. M&V .............................................................................48

NMIEC’s Motion in Limine to Exclude the Testimonyof Frank C. Graw,~s and Portions of the Testimonyof Gerard Ortiz .........................................................................49

Incentives ................................................................................51

PNM’s Proposal ....................................................................53

The Attorney General’s Incentive Position .....................................5 5

Staff’s Incentive Positioc~ .........................................................56

WRA/CCAE’s Incentive Proposal ...............................................62

Recommended DecisionCase No. 12-00317-UT Page ii

Page

Wal-Mart’s l:’osition ...............................................................64

EnerNO’s Position ...............................................................65

NMIEC’s Position ...............................................................65

Recommendation .........................................................................66

V. The 2012 Plan Rate Rider ...........................................................68

FINDINGS AND CONCLUSIONS ....................................................69

Recommended DecisionCase No. 12-00317-UT Page iii

Frances I. Sundheim, Heating Examiner fc,r this case, submits this Recommended

Decision to the New Mexico P~ablic Rel,mlation Commission ("Commission" or "PRC") pursuant

to the New Mexico Public Utility Act, NMSA 1978 Subsections 62-3-1 et se~. ("PUA"), and the

New Mexico Efficient Use o:[" Energy Act, NMSA 1978 Subsections 62-17-1 e__t seq. ("EUEA"),

and the PRC Rules of Procedure 1.2.2.29(E)(4) and 1.2.2.37(B). The Heating Examiner

recommends that the Commission adopt the following statement of the case, discussion, findings

of fact, conclusions of law and decretal paragraphs in :its Final Order.

STATEMENT OF THE CASE

On October 5, 2012, tlhe Public Service Company of New Mexico ("PNM") filed its

Application for Approval of 2012 Plan and Revisions to Tariff Rider No. 16 ("Application").

The Application requests the Commis.,;ion’s approval to: (1) determine the 2012 Plan is cost

effective and satisfies the requiremen’Is of the EUEA and applicable Commission rules and

orders; (2) approve the 2012 Plan, including (a) the discontinuance of the Energy Star Home

and Energy Smart for Renter.’; l?rogram~; (b) the revi,,~ed budgets and participation levels for the

existing energy efficiency ("fW,") and load management ("LM") programs previously approved

in Case No. 10-00280-UT that PNM is~ proposing to continue; (c) the proposed new programs

and budgets; and (d) PNM’s propc.sed profit incentive, and grant such other approvals,

authorizations and actions that may be required under the PUA, EUEA and Commission rules

and orders to implement the 2012 Plan ~md Revised Tariff Rider No. 16.

On October 18, 2012., ~.he Commission issued an Order designating the undersigned as

Hearing Examiner to preside over this case.

Pursuant to the Order of the He~tring Examine~:, issued on October 24, 2012, a preheating

conference was held in this m~ttter on November 2, 2012. Participating in this conference were

representatives of PNM, Western Re.sources Advocates ("WRA"), the Coalition for Clean

Affordable Energy ("CCAE"), the New Mexico Attorney General ("AG"), Comverge, Wal-Mart

Stores East, LP, and Sam’s East, Inc, ("Wal-Mart"), iEnerNoc, Inc., the New Mexico Industrial

Energy Consumers ("NMIEC"), and the PRC Utility Division Staff ("Staff").

Subsequent to the pre-hearing conference, Motions for Intervention were filed by CCAE,

WRA, AG, Comverge, Wal-Mart, EnerNoc and NMIEC which were granted by the Hearing

Examiner.

On November 8, 2012:. the Hearing Examiner issued a Procedural Order that, among

other things prescribed a form and means for publishing notice, established that PNM would also

mail notice to all customers in !its service territory, and established a procedural schedule for this

case.

On November 30, 2012, PNM filed a Motion for Entry of a Protective Order, and

resubmitted a second Proposed Protecti~.’e Order on December 11, 2012. On December 13, 2012,

the Hearing Examiner issued the Protective Order to be used in this matter.

PNM filed affidavits on December 27, 2012 indicating PNM’s mailing of the prescribed

Notice to ratepayers, and publication of the Notice in the following newspapers: The

Albuquerque Journal, Las Cruces Sun News, Union County Leader, and Alamogordo Daily

News.

On December 17, 2012, Wal-Mart Stores filed an unopposed Motion for Admission Pro

Hac Vice for Matthew G. Bingham, Esq. which was granted by the Hearing Examiner on

December 28, 2012.

On January 1, 2012 Sierra Club filed a Motion to Intervene which was unopposed.

Recommended DecisionCase No. 12-00317-UT Page 2

On January 3, 2013, Motions for Leave to Intervene were filed by William Payne

("Payne"), Abelardo Suniga ("Suniga"), and James and Nichole Brown ("Brown"), collectively

Movants. On January 16, 2013, PNM filed objections to the Movants as untimely, that no

request to file out of time was made, that Brown and Suniga filed no indication of the nature of

their interest in the case, anti the interest stated by Payne was to report the proceeding on the

internet. On January 22, 2013, the Hearing Examiner issued an Order denying the interventions.

On January 31, 2013, Movant Payne e-mailed a Motion for the Removal of the Hearing

Examiner and a Motion to Strike to the Commissioners and others in this case. In its Order dated

February 14, 2013, the Comraission tbund that the Order Denying Motion to Intervene was

proper and that the Motion t~.-~r Removal and the Motion to Strike were without merit and should

be denied.

On January 23, 2013, the AG filed the Direct Testimony of Doug Gegax.

On January 23, 20113. tihe Direck Testimony of John E. Curl was filed on behalf of WRA

and CCAE.

On January 23, 20113 ~he Staff filed the direct testimony of Bruno E. Carrara, P.E., James

A. Brack, Dwight Lamberson and John Reynolds.

On January 23, 2013, NMIEC filed the Direct l’estimony of Cynthia Boswell.

On January 23, 2013, CCAE filed the Direct Testimony of Maureen Quaid.

On January 30, 2013, Staff filed a Motion to File Additional Testimony Exhibits, which

were exhibits cited in the filed testimony, but erroneoasly not included in the filing. This motion

was unopposed and was granted on the record the first day of hearing.

On February 6, 2013, PNM filed the Rebuttal Testimony of Gerard T. Ortiz, and Patrick

J. O’Connell, Frank C. Graves, and Steven M. Bean; WRA and CCAE filed the Rebuttal


Testimony of John E. Curl; CCAE filed the Rebuttal[ Testimony of Maureen Quaid; and Staff

filed the Rebuttal Testimony of Bruno E. Carrara and John J. Reynolds.

On February 7, 2013, ~Ihe Commission issued an Order Designating William Herrmann as

Co-ttearing Examiner for administratiw~" efficiency in this matter.

On February 8, 2013,. NMIEC t]led a Motion in Limine to exclude the Testimony of

Frank Graves filed by PNM. On February 21, 2013, PNM filed Response to the Motion in

Limine to exclude the testimony of Frank Graves. This motion will be ruled on in this

Recommended Decision.

On February 8, 2013, PNM file.] Corrections ’Io Frank C Graves Rebuttal Testimony for

figures FCG-3 and FCG-4.

The public hearing in this case was held on February 11 through 14, 2013 at the

Commission’s offices, PElqU\ Building, 1120 Paseo de Peralta, Santa Fe, New Mexico. No

persons appeared at the hearing to make public comment on this proceeding.

The following counsel e, ntered their appearances at the proceeding:

For PNM:

For Western Resources Advocates:

For Comver~e~ Inc.:

For EnerNoc~ Inc.:

For Coalition for Clean AffordableEnergy:

For New Mexico Industrial Energy._Consumers:

For Wal-Mart Stores East~_.L~P andSam’s East:

Benjamir~ Phillips, Esq.,Patrick T. Ortiz, Esq.,Rebecca Dempsey, Esq.

Steven S. Michel, Esq.

Joanne Reuter, Esq.

Anastasia S. Stevens, Esq.

Charles F. Noble, Esq.

Peter Gould, Esq.

Jeffrey H. Albright, Esq.


For Attornev General of Ne~v Mexico: Jeff Taylor, Esq.

For Staff of the Utility Divisionof the PRC:

Nancy Burns, Esq.

The following witnesses appeared and testified at the hearing:

For PNM: Gerard T. OrtizPatrick J. O’ConnellSteven M. BeanFrank C. Graves

For New Mexico Attorney General:

For Western Resource Advocate andCoalition for Clean Affordablte Energy_2."

For Coalition for Clean Affordable

Doug Gegax

John E. C, url

Maureen Quaid

For Staff of the Utility Divisionof the PRC:

Dwight LambersonBruno W. CarraraJohn J. ReynoldsJames A. Brack

For New Mexico Industrial Energy."Consumers:

Cynthia Bothwell

The following initial briefs and statements were filed on March 8, 2013 following the

public hearing: Comverge filed its Statement of Position; NMIEC filed its Initial Brief; EnerNoc

Inc., filed its Position Statement and Brief; the AG filed its Post Hearing Brief; and New Mexico

Gas Company, Inc. filed a Motion for Leave to File Amicus brief, and on March 14, 2013, the

Hearing Examiner issued an Order permitting the filing of the Amicus brief. The Motion was

unopposed and PNM filed its initial br!:ef; CCAE filed its initial brief; and Staff filed its initial

brief.

The following respon.se briefs were filed on March 15, 2013 by CCAE; EnerNoc Inc,

NMIEC; Wal-Mart, Inc.; PNM: and Staff.


Legal Standards for the approval of energy efficiency and load managementproRrams

A. The Statute

Section 62-17-5 of the Efficient Useof Energy Act ("EUEA") establishes the primary

requirements regarding the energy efficiency and load management programs that utilities are

required to implement and the factors the Commission should consider in approving those

programs. Subsection A resolves the initial question of whether or not cost effective energy

efficiency and load management resources are appropriate items for utility spending, as follows:

Pursuant to the findings and purpose of the Efficient Use of EnergyAct, the commission sh.all consider public utility acquisition ofcost-effective energy efficiency and load management resources tobe in the public interest.

Next, Subsection B describes the purpose of the programs public utilities should pursue:

The commission shall direct public utilities to evaluate andimplement cos:I-effective programs that reduce energy demand andconsumption. (Emphasis added)

Subsection C establishes the findings the Commission must make as a threshold

determination in approving proposed programs:

Before the commission approves an energy efficiency and loadmanagement program fil)r a public utility, it must find that theportfolio of programs is cost-effective and designed to provideevery affecte, d customer class with the opportunity to participateand benefit economicalily. The comrnission shall determine thecost-effectiwmess of energy efficiency and load managementmeasures using lhe total resource cost test.

In addition to the program cos’,ts, Section F of the statute provides that:

The commission shall also provide public utilities an opportunityto earn a pro£it on cost-effective energy efficiency and loadmanagement resource development that, with satisfactory program


performance, is financially more attractive to the utility thansupply-side utility resources.

Finally, subsection G of the sl:atute establishes a general rule requiring minimum requirements

for these resources as follows:

Public utilities l:,roviding electricity and natural gas service to NewMexico customers shall,, subject to commission approval, acquireall cost-effective and achievable energy efficiency and loadmanagement resources .available in their service territories. Thisrequirement, however, for public utilities providing electricityservice, shall nc.t be less than savings of five percent of 2005 totalretail kilowatt-hour sales to New Mexico customers in calendaryear 2014 and ten percent of 2005 total retail kilowatt-hour sales toNew Mexico customers in 2020 as a result of energy efficiencyand load management programs impleraented starting in 2007.

In reviewing energy efficiency and load management programs for possible approval, the

Commission must assure thai the programs "reduce energy demand and consumption", and that

the programs are "cost effective and designed to provide every affected customer class with the

opportunity to participate and benefit economically", ’Ihat the utility has proposed to acquire, "all

cost effective and achievable energy efficiency and load management resources in their service

territories", and that the utility satisfies the minimum acquisitions required for 2014 and 2020.

B. The Rule

The status of Rule 1.7.7.2 NMAC is uncertain, as detailed in the testimony of Staff

witness Reynolds. Direct, pp.10-11. In Case No. 08-00024-UT, by Final Order issued April 8,

2010, the Commission repealed Rule 17.7.2

replacement Rule 17.7.2 NMAC (2010 Version).

NMAC (2007 Version) and promulgated

The New Mexico Supreme Court’s opinion of

July 27, 2011 in Attornel~. General v. New Mexico Public Regulation Commission ("AG

Decision") vacated and annulled the .Case No. 08-00024-UT Final Order and remanded the

matter back to the Commission for further proceedings. Currently, a rulemaking regarding Rule

Recommended Decision

Case No. 12-00317-UT Page 7

17.7.2 NMAC is pending in Case No. 12-00250-UT and a separate rulemaking regarding the rule

is held in abeyance in Case No. 11-00057-UT. Under the State Rules Act, NMSA 1978 Section

14-4-1 et see. an agency rule is required to be filed wi~Ih the State Records Center and is not valid

and enforceable until filed with the SIate Records (;enter. The 2010 version of Rule 17.7.2

NMAC currently is on file with the State Records Center, despite the fact that the final order

promulgating this rule was annulled and vacated by the A G Decision.

Given the uncertainty of the status of Rule 15’.7.2 NMAC since the AG Decision, it has

been some parties practice to rely on the 2007 version of the rule for energy efficiency

compliance purposes. Staff Ex. 2 (Reynolds Direct) pp.10-11. However, such reliance is not

universally accepted. Further, in the Commission’s Final Order of November 22, 2011 in Case

No. 11-00439-UT, the Commission k~as waived until further order the 1.5% cap under the

17.7.2.7.Z NMAC (2007 Version) as well as the annual requirement for energy efficiency

program approval under 17.7.2.9.B NMAC (2007 Version). On this basis, public utilities are to

file for program approval not less than every two years.

Therefore reliance on this rule for the purpc,ses of this docket would only further the

confhsion and uncertainty of the record in this matter. The Hearing Examiner will evaluate this

matter solely on the statutorly requirements of the EUE.A.

C. The A G Decision and Commission-Approved EUEA rates

In the AG Decision, the Supreme Court vacated and annulled the Commission’s final

order in Case No. 08-00024-U’F because the Adder Rates contained in Section 9(K) of the Rule

17.7.2 NMAC (2010 Version) to eliminate utility disincentives and provide for incentives for

energy efficiency programs, was not utility specific, cost-based, and based on substantial

evidence in the record. AG Decision, para. 18 ("The PRC’s adoption of the adder rates was


arbitrary and unlawful in that they were, not evidence-based, cost-based, nor utility specific.") In

doing so, the Supreme Court concluded the EUEA is to be read in harmony with the ratemaking

provisions of the EUEA and EUEA rates must balance the interests of the utility, ratepayers and

consumers in order to be just and reasonable. AG Decision, para. 15.

Prior to the July 2"7, 2011 issuance of the AG Decision, the Commission had set an

incentive rate, termed a Reduced Adder, for PNM in Case No. 10-00280-UT by Final Order

issued June 23, 2011.1 Since the date o~I’AG Decision, the Commission reaffirmed the lawfulness

of PNM’s incentive rate, or Reduced Adder, in Case No. 11-00308-UT which was docketed by

the Commission, in relevant part, for the specific purpose of determining the lawfulness of

PNM’s Reduced Adder, based on the requirements o1~ the AG Decision.2 In the Final Order in

Case No. 11-00308-UT, the Commission found "that PNM’s reduced Adder is evidence-based,

cost-based and utility specific as required by the EUEA and the Attorney General. Accordingly,

PNM should be not required to refund any of the Reduced Adder amounts it has already

collected from ratepayers, and should be allowed to continue to collect those amounts until

further order of the Commis’sion. Case No. l l-00308-UT Final Order, ¶¶ 36, A (issued

November 3, 2011)." Staff I_--~x. 5, (Br~ck Direct) pp.6, ll. 14-18. The Final Order in Case No.

11-00308-UT is under appeal at the New Mexico Supreme Court where the AG and NMIEC

~ Based provision 9(k) of the vacated Rule 17.7.2 NMAC (2010 Version), in Case No. 10-00280-UT, theCommission had set two types of Adder Rates for PNM; namely: (1) a 2010 Interim Adder to designed to removeEUEA disincentives and recover EUEA incentives set by the rule to recover $0.01 per kWh saved and $20 per KWsaved; and, (2) a Reduced Adder rate designed to recover incentives in the amount of $0.002 per kWh saved and $4per KW saved."~ See’, for example, Case No. l l-00308-UT, Order Initiating Investigation, ¶IA, issued August 16, 2011, ("Aninvestigation into whether PNM should be required to refund all 2010 and 2011 Interim Adders and Reduced it hasreceived or will receive, and whel:her it should be required to cease charging its customers for the Reduced Adder inlight of the Court’s Attorney Gener,:d decision is hereby commenced.")


have contested the lawfulness of setting an EUEA incentive rate to recover a profit on EE and

LM program expense.

As outlined by Staff wiitness Brack, in Case No. 10-00280-UT, the Commission approved

a Staff recommended reduced adder incentive rate of $.004 per kWh saved and $4 per KW saved

for energy and demand savings exp~..cted from PNM’s proposed 2010 Plan, resulting in an

approximate, annual $1.4 million dollar incentive or approximately 7.7% of the $18 million

annual budget approved for PNM’s 2(1110 Plan in Case No. 10-00280-UT. Staff Ex. 5, (Brack

Direct), pp.5, 11, 9-15. Currently, SPS has no EUEA incentive rate; and in Case No. 11-00047-

UT, the Commission established an incentive rate f6r EPE’s 2012 and 2013 approved energy

efficiency programs, also calculated as a 2.4% annual[ return on EPE’s approved EUEA program

costs for those years. Ida. pp. ]14, 11.14-17.

D. The TRC Test

I. Introductio:n

The cost effectiveness of the company’s proposed programs should be determined using

the TRC test as mandated by the EUEA. Section 62-17-5(C) states: "The commission shall

determine the cost-effectivene:~s of energy efficiency and load management measures using the

total resource cost test." The EUEA defines "cost effective" to mean that an EE or LM program

"meets the total resource cost test." Section 62-17-4(C). The EUEA prescribes the mandatory

use of the TRC to determine cost effectiveness. The EUEA further requires that the Commission

direct utilities to evaluate and i.mplement "cost effecti.ve programs" and that utilities acquire "all

cost effective and achievable energy efficiency and load management resources available in their

service territories." Section!; 62-17-5(B) and (G).

The EUEA defines the TRC test as "a standard that is met if the monetary costs that are

borne by the utility and the participants and that are incurred to develop, acquire and operate


C~se No. 12-00317-UT Page 10

energy efficiency or load management resources on a life-cycle basis are less than the avoided

monetary costs associated with developing, acquiring and operating the associated supply-side

resources." Section 62-17-4(J ).

In accordance with the statutory standard, PNM included all monetary program costs,

including utility and incremental participant costs over a 12 month period, on the cost side of the

TRC equation. Bean Direct 38, Bean Reb. 17. The utility program costs included in the TRC

calculation are shown in Bean Direct 44, Table 7. All projected costs found to be reasonable are

excluded from PNM’s elecmic cost of service used to determine base rates. The incentive or

rebate levels requested by PNM are novel, and a case of first impression. The internal

administrative costs are about five percent (5%) of the total cost and the M&V costs are about

two percent (2%) of the total cost. Bean Direct 46.

The avoided monetary costs of the programs, i.e. the savings or benefits, used in the TRC

test are the avoided capacity and energy costs PNM will avoid or defer due to implementation of

the 2012 Plan which theoretically result in customers consuming less energy and requiring less

peak demand capacity that wc,uld otherwise be used or required. O’Connell Direct 3. PNM

determined the value of the savings by multiplying the: expected energy and demand savings over

the useful life of each program measure times PNM’s avoided costs of energy and capacity.

PNM’s avoided costs used in the TRC calculations are shown in Bean Direct, Ex. SMB-1,

Appendix A 39, and are discussed further below. The quantity of energy and demand savings

used in the TRC calculation for each program are based on the results of independent M&V

analysis for existing programs, and on values for the new programs calculated from evaluation of

similar programs at other utilities, the statewide potential study conducted for the New Mexico

Energy and Minerals Department, data for program analysis from professional organizations and


PNM’s internal engineering as:~essments. Bean 2/13/13, Tr. 438-9. These quantities and other

assumptions used in the TRC calculations are listed in Bean Direct Ex. SMB-1, Appendix C, 41-

60.

2. PNM’s After Tax Weighted Average Cost of Capital("WACC") Is The Appropriate Discount Rate to Use in theTRC Test to Calculate the Present Value of Costs and Benefitson a Life-C:ycle Basis to Determine if EE/LM Programs AreCost Effective.

The TRC ratio of the benefits to costs of EE/I,M programs on a life-cycle basis involves

performing a net present value ("NPV") analysis of the lifetime benefits and costs. Bean Direct,

PNM Ex. SMB-1 13; Direcl Testimony of Patrick J. O’Connell, ("O’Connell Direct") 2, 4;

Direct Testimony of James A. Brack, ("Brack Direct") 3-4; Direct Testimony of Bruno E.

Carrara, ("Carrara Direct") 7-8. "rhe discount rate is a significant driver of overall

cost-effectiveness of EE progTams. Brack, Tr. 2/15/13 876. In a present value analysis, the

lower the discount rate, the higher is the present value of the benefits. Gegax Tr. 2/13/13 578,

579. The discount rate used by PNM to perform the present value calculations was 8.2%,

PNM’s WACC. O’Connell Direct 6; Brack Direct 3; Carrara Direct 8. Although Staff does not

dispute the use of PNM’s WACC for purposes of this case, Staff recommends that PNM be

required to evaluate and present a "ratepayer discount rate" for future cases because of Staff’s

concerns with using the WACC. Brack Direct 4-5; Carrara Direct 13. Staff’s recommendation

is based on the concept that the consumer lending rate would be the appropriate discount rate

from the "participant or general ratepayer perspective" because that would be the interest rate a

customer would have to pay to finance the energy efficiency investment. Brack Direct 4. Staff

acknowledged that the choice of an appropriate discount rate is based on the perspective from

which cost-effectiveness is being evaluated. Brack Direct 4; Tr. 2/15/13 Brack 876.


The TRC is one of five cost-effectiveness tests for EE programs generally used in the

industry. Brack 2/15/13, Tr. 875. Each test provides different kinds of information about the

impacts of EE programs from different vantage points. Brack 2/15/13, Tr. 876. As discussed

above, the TRC is required by the EUEA to determine the cost effectiveness of EE/LM

programs. The key question that is answered by the YRC is whether the total costs of energy in

the utility service territory decrease. Brack 2115/13, Tr. 876. Thus, the TRC considers costs and

benefits from the perspective c,f all utility customers, including participants and non participants,

within the utility service territory. Rebuttal Testimony of Frank C. Graves, ("Graves Rebuttal")

10-11; Brack 2/15/13 Tr. 876.

Staff witness Lamberson expressed concerns over the use of the TRC and presents Staff’s

overall proposal to the Commission to docket a rulemaking to evaluate the use of other tests,

such as the Utility Cost Test, for dete:t’rnining the cost effectiveness of EE and LM programs.

Lamberson Direct, p.5. However, the TRC is currently the statutorily mandated cost

effectiveness test that must be used. Any programs that pass the TRC must be implemented.

Curl Rob., 2-3.

PNM witness Graves testified that the utility WACC is generally used as the discount rate

in the TRC to determine cost.-effectiw:ness of EE/LM programs around the country. Graves

Rebuttal, 10-11, 12. He testified that the TRC tests cost effectiveness from the perspective of the

utility and its customers and only the utility WACC correctly compares future costs that will be

avoided (i.e., benefits) with present costs. Graves Rebuttal, 10-11. He pointed out that the

majority of the costs of EE programs are spent by the utility and all of the benefits are future

utility system benefits. None of tl~.e direct savings of participants are included in the

measurement of benefits. Graves Rebuttal 11-12.



Mr. Graves’ testimony is not inconsistent with findings in other states. E._~.., Re

Protocols for the Measurement and Verification ~ Energy Efficiency and Peak Demand

Reduction Measures, 2009 WL 3413628, Appendix C, § III(a) (Ohio PUC) ("For the TRC...the

after-tax weighted average cost of capital has generally been adopted because this is the same

discount rate as is used from a utility perspective to evaluate supply-side investments."); Re

Ben~t-Cost Analysis and Program Evaluation for Energy Efficiency Programs, 2008 WL

1952027, *6 (Kan. SCC) (utility’s WACC typically used as the discount rate for the TRC

because it takes into accounl tlhe average cost of borrowing of the utility, and is the same rate

used to borrow money for the other utility resource investments on the supply-side); see, Re 2012

PA Total Resource Cost (TRC) Test, 2012 WL 4046451 *3 (Pa. PUC) (electric distribution

company WACC is proper discount rate to use in TRC); contra, Re Energy Efficiency

Guidelines, 272 PUR 4th 477, 491, 2009 WL 7622120, ¶¶ 16-18 (Mass. DPU) (use of lower

societal discount rate equal to yield on 10-year Treasury note). The California Public Utilities

Commission has traditionally used the utility WACC in the TRC, sometimes using the pre tax

WACC and sometimes the al~.er tax WACC, because EE is a viable resource alternative to more

expensive supply side resources and the TRC recognizes this by using a market discount rate, i.e.

the utility WACC. It stated that use of the Societal Test with a lower "societal" discount rate

would be difficult to quantif.y. Re Order Instituting Rulemaking, 2005 WL 1034049, §§ 3.2,

4.2.1 (Cal. PUC). Recently, however~, while deciding to use the utility after-tax WACC for

2013-14 programs, the California PUC indicated a willingness to further discuss issues regarding

a societal discount rate and use of the Societal Test. Re Post-2OO8-Energy Efficiency Policies,

2012 WL 1883317, "18 (Cal. PUC).


A societal discount r~tte is different from a "r~.tepayer discount rate." While the societal

discount rate is often set al a lower level than the utility WACC e(~.., Energy Efficiency

Guidelines, 272 PUR 4th at zl.91), a customer discc.unt rate is generally associated with the

Participant Cost Test rather th~ln the TRC and generally is the highest discount rate used in any

cost effectiveness test. Re Benefit-Cost Analysis, 2008 WL 1952027, *6. The Kansas

Commission noted the difficulty in choosing a single, appropriate customer discount rate. /d.

Testimony indicated the practical difficulties with attempting to come up with a discount rate

that was generally applicable to all customers. It would be necessary to separate expenditures

between the utility and the cu:stomers and then discount them separately. For customers, this

would involve numerous different rates since each activity involves different types of customers,

the appropriate discount rate l~’or whom is not readily observable and is subject to many different

assumptions. Graves Rebutted, 12.

The evidence and the over~vhelming weight of authority from other states demonstrate

that PNM’s WACC is the proper disconnt rate to use in the TRC. Since the EUEA requires that

cost effectiveness be determined using the TRC (Se,ztion 62-17-5(C), Staff’s recommendation

that PNM be required to provide a "ratepayer discount rate" in future cases should not be

adopted in this decision.

3. Avoided Carbon Cost

The avoided energy costs and avoided carbon costs PNM used for the TRC calculations

for the residential and commercial programs are shown at O’Connell Direct Ex. PJO-3.

Consistent with the Commi~;sion’s Integrated Resource Planning ("IRP") Rule 17.7.3.9.G(1),

(2)(c) NMAC and with PNV[’s 2011 IRP and all its previous EE plans approved by the

Commission, PNM included an avoided carbon cosl: in the TRC starting in 2018 at $10 per

metric ton of CO~_, escalating at 2.5% per year. PNM ~.ssumed the $10 per metric ton value based


on the lowest CO2 price assu~nption of :58 per metric ton in the IRP Rule which would escalate to

$9.75 by 2018. Case No. 06-0C,448-UT. Order Approving Recommended Decision and Adopting

Standardized Carbon Emission Costs t;:)r Integrated Resource Plans, Recommended Decision at

2-4 (June 19, 2007) ("Case 06-00448 Order"). PNlVl assumed 2018 is the soonest date carbon

legislation will take effect. O’ Connell Direct 13-14; O’Connell Reb., 19.

The statute requiring the IRP is a provision of the EUEA, Section 62-17-10, and requires

that utilities consider anticipated environmental costs and regulations in their integrated resource

planning. The IRP Rule rrLandates that "utilities shall evaluate all feasible supply and

demand-side resource option,,; ,an a consistent and comparable basis, and take into consideration

risk and uncertainty (including ... anticipated environmental regulation.)" 17.7.3.9.G(1) NMAC.

Utilities must discuss in their IRP filings how they considered "existing and anticipated

environmental laws and regulations, and, if determined by the commission, the standardized cost

of carbon emissions; ...." 1’7.’7.3.9.G(2)(c) NMAC.

As noted above, the Commission has adopted standardized costs of carbon emissions.

Case 06-448 Order. Although there is no presumption of reasonableness associated with this

standardized cost, it would not be reasonable for PNM to develop an IRP, assuming carbon costs,

which includes EE programs but then develops the EE programs without assuming carbon costs.

O’Connell Rebuttal, 19; Cur1 Rebuttal, 3-4. Staff agrees that the assumptions a utility makes in

its IRP should "line up" with the assumptions used in the TRC calculations. Lamberson 2/14/13

Tr. 708-709. It would be !ir~consistent with the IRP Rule and the carbon price assumptions in

PNM’s 2011 IRP, and would fail to consider anticipated environmental costs as required by

Section 62-17-10, if avoided carbon costs are not included in the TRC calculations.


Mr. O’Connell’s dete:~aination of the approp:fiate amount of carbon costs to include in

the TRC calculation is a reasonable one. As mentioned above, it is consistent with the

standardized costs adopted by the Commission. A]~though no one knows for certain if his

projection will prove to be accurate, it is unreasonable to assume that there will not be carbon

costs during the lifetime of the EE measures. Curl Reb., 4. Mr. Curl testified that the EPA had

already started the process of r.egulating carbon emissions and he did not dispute, the assumption

used by Mr. O’Connell. Curl 2/14/12 Tr. 691. This issue is further discussed at pp.30-37.

4. The Value of Demand Savings Due to Avoided Capaci ,ty Costs

PNM calculated avoided capacity costs from the demand savings3 resulting from the

2012 Plan to be $93.71 per kilowatt year. O’Connell Reb., 10, PNM Ex. PJO-2 (Rebuttal) 2.

That value incorporates the corrections to the calculation that Mr. Carrara recommended.

O’Connell Reb., 17-18. PNM calculated capacity savings using a portfolio optimization

approach that compared the costs of the optimum, least-cost resource portfolio that includes the

EE programs in the 2012 Plan ("2012 Plan Case") and the costs of the optimum, least cost

resource portfolio without the 2012 EE programs ("Base Case"). Both portfolios included the

remaining five contract years of the existing LM programs as a portfolio resource, as discussed

further belo~v. For system optimization simulations, PNM used the Strategist® modeling tool,

which is widely used in the industry and provides expertise in "optimizing" generation mix

portfolios, to determine the timing, size and type of resource additions for both portfolios.

O’Connell Reb., 5; Carrara 2/15/13, Tr. 958; Carrara Direct, 8-9. PNM used the same inputs,

including reserve margin requirements, for both scenarios, except that the load forecast was

3 The term "demand savings" refers to reduction in demand resulling from implementation of an EE or LM program;

the term "capacity savings" refers to the reduction in generation capacity additions resulting from those demandsavings.


adjusted to reflect the inclusion of the 2012 Plan deraand savings in the portfolio for the 2012

Plan Case, and to reflect the ten-nination of any further implementation of EE programs in the

Base Case portfolio. O’Connell DirecI, 4-5; O’Cormell Reb., 23-24. The resource portfolio

approach represents the most appropriate method for calculating avoided capacity costs for the

TRC calculation, because the EUEA requires a life cycle approach. Carrara Direct, 11. A life

cycle analysis, as required b:, EUEA, by definition requires analyzing and making assumptions

about future conditions that affect deferral of supply resources. /__d. PNM relied upon market

indices for fuel inputs and ’.specific costs of resource alternatives for the life-cycle avoided

capacity calculations.

After the Strategistg~ modeling identified the optimal resource additions to PNM’s

existing resource portfolio g0r the Base Case and the 2012 Plan Case, PNM calculated the annual

capital and fixed O&M revenue requirements for each of the resource additions in the two

portfolios, and then calculated the year by year differences between those cumulative revenue

requirements over a twenty-year period, using standard ratemaking conventions. O’Connell

Direct, 6. PNM used a twenty year period for the analysis because that is consistent with the

portfolio modeling done for I RP analysis and is a sufficiently long period of time to capture most

of the demand savings that will result from the 2012 Plan. O’Connell, 2/12/13 Tr. 270-271. The

net present value ("NPV") of the future stream of the differences in the annual revenue

requirements of the 2012 Case and the Base Case, discounted to 2012 and using PNM’s WACC

of 8.2% as the discount rate, results in a savings o:~" $56,130,000 under the 2012 Plan Case.

O’Connell Reb., 9, PNM Ex. PJO-2 (Rebuttal). This is the NPV of the total amount of capacity

savings that ~vill be created tiTom implementation of the proposed EE programs in PNM’s 2012

Plan. Notably, it does not include the value of any capacity savings due to implementation of the


LM programs through 2017, since that resource was included in both the Base Case and 2012

Plan Case to reflect the continuation of the LM programs through their remaining contract terms.

O’Connell Direct, 5. Thus, tl~.e avoided capacity benefits attributed to the 2012 Plan by PNM

can be characterized as conservative. That does not mean that demand savings associated with

the LM programs should be ignored in allocating the value of avoided capacity costs. Attorney

General Witness Gegax agreed with PNM that these demand savings contribute to the avoided

capacity costs. Gegax 2/13/113, Tr. at 539-540.

In order to apply the toIal capacity savings of $56.1 million in the TRC calculations, that

value must be allocated to the demand savings that will be created by the 2012 Plan to derive a

$/kW-yr. or $/MW-yr. value. The demand savings projections for the EE programs in the Plan

are based on the independent M&V analysis for existing programs and on calculated values for

the new programs; they are identified in the 2012 Plan for each of the EE programs. Bean

Direct, 38-9, PNM Ex. SMB-.I,

the 2012 Plan EE programs as

Appendix C, 41-60. The total amount of demand savings from

calculated is 292 MW-yr; the total amount of demand savings

from the five remaining contract years of the LM prc.grams is 307 MW-yr. O’Connell Reb. Ex.

PJO-2 (Rebuttal); Carrara Direct, Ex. BEC-2, PNM Table Staff, 1-18.

To derive the $/MW-yr value for demand savings created by the 2012 Plan, PNM

allocated the $56.1 million NPV of tl~e total capacity savings equally to the total MW-yr of

demand savings that will be achieved under the 2012 Plan by dividing $56.1M by 599 MW-yr,

giving the value of $93.71/MW-yr. O’Connell Reb. 8-9. Although the $56.1 million NPV of

capacity savings is due to the 292 MW-yr of demand savings from the EE programs, since both

the Base Case and 2012 Plan Case include the 307 MW of the LM programs, it is appropriate to

include the 307 MW-yr of [.,IV[ demand savings in tl~te allocation because the LM resource has


already postponed capacity investmel~.ts and set the stage for the future capacity deferrals

resulting from the EE programs. This approach of allocating the total amount of $56.1 million

ensures that exactly the sam.e amount of avoided capacity benefits found in the Strategist(g)

comparisons are attributed back to the activities in the 2012 Plan, which comprise both the EE

and LM programs. O’Connell Reb., pp.10-11, 13.

Staff disputes PNM’s corrected avoided capacity benefit value of $93.71 per kW year.

Tr. pp.901, 11.5-9. Staff also disputes NMIEC’s proposal to value avoided capacity benefit for

EE at $0 per kW year. Staff Ex. 7 (Carrara Reb., pp.5-9). See, pp. 31-32 for an analysis of

NMIEC’s position on avoided, cost.

Staff calculated the TRCs of Load Management programs using an avoided capacity cost

of $123.12 per kW year, excluding CO2 costs. Staff Ex.2, Reynolds Direct, at 50, and Ex. J JR-3.

Prorating $60.7 million of cumulative portfolio benefits PNM identified in discovery between

prospective capacity benefits aItributed to EE and LM programs then dividing the LM share by

the total capacity projected to be provided by the LM programs over the remaining 5 years of the

10 year contracts. Staff Ex. 6,, Carrara Direct, 16-18 and Ex. BEC 4.

Mr. Carrara conceded that Staft’s approach to a "remaining life" analysis, is not "fully

consistent" with the statutory requirement for the application of a life cycle analysis. See,

2/15,/13, Tr. 954-956.

Staff recommended a Commission initiated process to establish a uniform method to

quantify avoided costs and calculate the TRC. Staff Ex. 6 (Carrara Direct, p.21, 11.12-15). Staff

further recommends the initial:ire resolve the status of Rule 17.7.2 NMAC and provide a uniform

process for evaluating program review, results and ic~centives. Staff Ex. 1 (Lamberson Direct,


pp.11, 11.9-14). PNM has a1~eed to these recommendations. PNM Ex. 2 (Ortiz Rebuttal pp.4,

11.9-14. The recommendations were not disputed by the intervenors. Staff Brief, p.8.

Based upon the foregoing, the Hearing Examiner finds that PNM’s calculation of demand

savings due to avoided capacity costs should be deemed to be $93.71 kW for the purposes of this

case only. The Hearing Examiner recommends tha! the Commission initiate a proceeding to

standardize the program review, program results, and appropriate incentive calculations.

Whether to include gas benefits where the electric programs create them should also be part of

the Commission process.

II. PNM’S PROGRAM PROPOSALS

A. Introduction

The five proposed new EE programs for which PNM requests approval are: Whole House

Program, Low Income Home Efficiency Program, Residential Stay Cool Program, Home Energy

Reports Program, and Student Efficiency Kits Program. The nine existing EE and load

management ("LM") programs that PNM proposes to continue to implement with revised

budgets and participation lew~l:~ are: Refrigerator Recycling, Residential Lighting, Easy Savings

Kit, Community CFL, Power Saver Load Management, Peak Saver Load Management, Low

Income Refrigerator and CFL Replacement, Commercial Comprehensive, and Market

Transformation. PNM included complete descriptions of the EE/LM programs in the Program

Plan submitted by PNM with :its Application, Bean Direct Ex. SMB-1 ("Program Plan"). The

Program Plan and testimony and exhibits PNM filed in support of its Application contain the

inforrnation required for program approval by Section 9 of the 2007 version of the Commission’s

former Energy Efficiency Rule, 17.7.2 NMAC. While the status of this rule is in controversy,

the Hearing Examiner applie:~ its parameters for guidance in reviewing these programs. PNM

states that the 2012 Plan pro~gams are designed to give all customers in the targeted customer


classes the opportunity to participate in the programs and to obtain the benefits of increased

energy efficiency and other economic benefits.

The 2012 Plan benefits are expected to exce.ed the costs over the lives of the EE/LM

programs; therefore, the 2012 Plan as a whole, as ~vell as each of its component programs, satisfy

the total resource cost ("TRC’") test as required by tl~.e EUEA, and are cost effective. Inclusion

of a profit incentive in the cost side of the TRC ratio still provides a TRC ratio above 1.0 for the

programs.

The EUEA states that the TRC must be used ~:o evaluate programs and that utilities must

acquire all EE and LM resources that meet this test. Curl Reb. p.3.

B. THE 2012 PLAN

The EUEA requires electric utilities to acquire, EE and LM resources that will save 5% of

its total retail kWh sales to New Mexico customers by 2014 and 10% of sales by 2,020. NMSA

1978, Section 62-1755(G). For PNM, the minimum savings requirements are 411 gigawatt hours

("GWh") in 2014 and 822 GWh in 2020. Ortiz Direct, 5. PNM designed the existing and

proposed new programs contained in the 2012 Plan to meet the energy reduction requirements

and the cost effectiveness requirements of the EUEA Section 62-17-5(G). PNM estimates that

its cumulative savings towards meeting the 2014 statutory requirement were about 255 GWh, or

62% of the goal, at the end c,f 2012. PNM projects that with approval of the 2012 Plan, it will

save an additional 74 GWh in 2013 and 82.5 GWh plus annual demand savings of about 76 MW

in 2014. PNM claims that the accumulated and projected savings put PNM on course to achieve

or exceed the 2014 EUEA total savings requirement of411 GHW. Bean Direct 4; Bean Reb. 17.

The threshold criteria, as delineated by PNM for programs in the 2012 Plan were cost

effectiveness as measured by the TRC ratio. Other major considerations were the potential for

broad participation among residential and low income residential customers and non residential


customers, and amount of system benefits in the form of energy and demand savings. Candidate

programs came from the 2011 statewide Potential Study prepared by Global Energy Partners,

programs implemented by other utilities in the region and ideas from the Public Advisory Group.

Bean Direct, 36-37. The proposed year 1 budget for low income programs is $1,631,216, more

than double the budget in 2012 for low income programs and a more than 94% increase.

Reynolds Reb. 19. PNM solicited recommendations from the Commission Staff, Attorney

General, Energy, Minerals and Natural Resources Department("NMEMNRD") and others, and

developed the programs in the 2012 Plan with input from the Energy Efficiency Public Advisory

Group in accordance with NMSA 1978, Section 62-17-5(E). Bean Direct 5-6.

C. Overall Plan Statistics

PNM states that participation estimates for existing programs that are requested to

continue in the 2012 Plan are 5ased on the most recent participation results, known changes in

the market and discussions with the third-party contractors implementing the programs.

Participation targets for the proposed new programs were determined primarily based on

discussions with the third..party implementation contractors and on participation in similar

programs implemented by those entitie~ for other utilities. Projected participation levels are as

follows:


Commercial EEComm. Comp.- Retrofit/NCComm. Comp. - O, uickSaverComm. Comp. Build. Tune Up (N~_L

Residential EERefril~erator Recycli ngResidential LiBhti nl~Whole House (New)Student Efficiency Kits (New)Residential Stay Cool (New)Home EnerGy Reports (New) _._

low Income EE

Low Income Refrigerator & CFLEasy Savings KitEnergy Smart RentersCommunity CFL

Load ManagementPower Saver Load ManagementPeak Saver Load Management

Pa rticiF,a nt 350 350Participant 625 625Pa rti ci F,a nt 42 42

RefrigeratorCFL

ParticiF,antParticiF,ant

Cool erParticipant

BulbsKit

Pa rtici pantCFL

8,0001,000,000

1,5754,5002,375

48,000

1,9476,000

05,000

8,000125,000

1,5754,5002,375

48,000

1776,000

01,250

MW 40 I 36,364MW 20 I 78

Bean Direct, 39-40.

PNM derived the projected annual electric energy and demand savings for each program,

shown in the following table:, using ;savings estimates for each measure multiplied by the

projected level of participation. For existing programs, the savings estimates per measure are

based on the latest measurement and w~’rification ("M&V") report of the statewide independent

evaluator, ADM Associates, Inc. ("ADM"). For proposed new programs, the savings estimates

are based on evaluation of similar programs at other utilities, the statewide potential study

conducted for the NMEMNRD, data for program analysis from professional organizations and

PNM’s internal engineering assessments. Bean 2/13/13, Tr. 438-439. Specific details on all

savings assumptions are shown in the 2012 Plan, Bean Direct, Ex. SMB-1, Appendix C, pp.41-

60.



Commercial EEICommercial ComprehensiveResidential EERefrigerator RecyclingResidential Lighting

=ner6y Star Homes~Vhole House (New)Student Efficiency Kits (New)Residential Stay Cool (New)Home Ener6y Reports (New)Low Income EELow Income Refrigerator & CFL

IEasy Savings KitLl~e Effi ci ency (New)I Community CFLLoad Management

rPNM Power Saver

PNM Peak Saver

38,455,0391 374,997,7511 8,2051

7,372,2399,647,718

114,4961,500,329

702,5551,161,8547,920,000

36,861,194137,534,029

3,434,88813,502,960

4,917,88212,547,969

7,920,000

281,4031,977,9822,135,743

99,502

4,051,66415,823,85329,900,400

696,512

1,2632,501

11386255

1,688i7201

3318234311

.__ 450,000 450,000I 40,000675,000 675,000 20,000

IMarket Transformation

Savings estimates for compact fluorescent light ("CFL") bulbs reflected in the above chart

are based on deemed savings per bulb found by ADM in its M&V report for PNM’s 2011 calendar

prog!am. ADM has adjusted those deemed savings estimates in its draft report for ]?NM’s 2012

calendar program which will. be finalized and was filed by April 1, 2013 to take into account the

phasing out of incandescent bulbs pursuant to the federal Energy Independence and Security Act of

2007, Public Law 110-140, Dec. 19, 2007 ("EISA"). Staff has recommended reduced savings

estimates for CFLs which are lower than those used by PNM in its 2012 Plan as reflected in the

above chart and lower than those recommended by ADM for use going for~vard. See PNM’s

Initial Brief, pp.8-9; Bean 2/13/13, Tr. 435. PNM agrees that it will use the savings per bulb

determined by ADM, as accepted by the Commission, to recalculate the TRC ratios for programs

with CFLs and will adjust the savings, TRC calculations, incentive and Rider accordingly in the

compliance filing made after receipt of the Commission’s Final Order. Staff’s recommended


savings projections for CFL products should be rejected to the extent they are inconsistent with

ADM’s findings. ~ als__£ PNlVI’s Initial Brief, pp.8-11.

The projected total pro:~am costs for all programs, as proposed, for the first full year of

implementation are estimated to be $22.,493,227, not including profit incentives. The 2012 Plan

costs are comprised of inte:mal administrative costs (primarily labor costs), third party

administrative costs, rebates;, promotion, and costs associated with M&V of the individual

programs. The rebate lewds are consistent with industry practice, the internal administrative

costs are about five percent (5%) of the total cost and the M&V costs are about two percent (2%)

of the total cost. All of the costs associated with the development and implementation of the

programs are excluded from PNM’s electric cost of service used to determine base rates. The

following table provides a breakdown of the total cost:;:

Comme~cia~ EECommercial Comprehensive

Residential EERefrigerator RecyclingResidential Lightin8Energy Star HomesWhole House (New)Student Efficiency Kits (New)Residential Stay Cool (New)Home Energy Reports (New)

Low Income EE

IL ow Income Refrigerator & CFLEasy Savings KitLI Home Efficiency INew)Community CFL

Load ManagementPNM Power SaverPNM Peak Saver

Market Transformation

TOTALS

[ s 39~,278j s 2,110,5681 S 4,609,1201 s 10,0001 5201,135 1 s 7,328,1021

SS

_S

. S

72,0211 $ 668,00095,250 I $ 488,4227,925 $ 67,500

57,235i $ 671,79417,1351 $ 132,75037,9001 $ 108,43427,62~, $ 468,013

7,132i S 32,44417,710 $ 120,00063,293 $ 458,407

576 $

400,0001,115,061

66,750287,733157,500508,568

78,368180,000603,750

8,750

S152,00010,000

10,000

25,000

10,0oo

lO,OOO1,ooo

21,00031,5oo

3,55425,6697,685

~6,99812,391

3,1997,943

28,386258

1,313,0211,740,233

145,7301,052,430

315,069696,899508,033

131 142325,653

1,163,83710,584

111,869 s 1,095,000 $ 800,000 s S 13,125 s 2,o19,99418,3591 S - J $ - ] 5311,0001 S - ] S 329,359

~__S_~,~32,n41 510,11~,3n I 510,~18,60~ I ss~9,000 1 5385,568 1 sn,49~,n~

Bean Direct, 44, 46.


These are calendar year costs and budget projections for each full calendar year the 2012

Plan will be implemented, i.e., 2014 and 2015. The 2013 calendar year budgets will be

determined according to the proration method approved by the Commission in Case No.

l l-00123-UT, Final Order F’artially Adopting Recommended Decision, Section VI, pp.21-23,

and Recommended Decision, pp. 30-31. If the proposed new programs are implemented by the

end of May, 2013, the program budgets for calendar year 2013 will be prorated based on five

months of the budgets approved in the previous energy efficiency, Case No. 10-00280-UT, and

seven months of the 2012 Plan budgeIs. Bean Direct, 51-52. PNM will include the prorated

2013 calendar year budgets, based on the date the Commission enters its Final Order in this case,

in its compliance filing made after the conclusion of the proceeding.

The TRC ratio is the ratio of the present value of savings and the present value of costs

associated with a given ef~ciency program. A program with a TRC exceedin.g 1.0 is cost

effective. The TRC costs include program administrative costs and incremental participant costs

over a 12-month period. The savings are determined by multiplying the expected energy and

demand savings over the useful life of each program measure times PNM’s avoided costs. Bean

Direct, 38. PNM’s avoide, d energy and carbon costs are shown in Bean Direct, Ex. SMB-1,

Appendix A, p.39. The un.it value of PNM’s avoided capacity costs are $93..71/kW-yr as

discussed in the previous section. The program TRC ratios, calculated using PNM’s avoided

cost values, energy and demand savings and company proposed profit incentive, as set out in

PNM’s Initial and Reply BriefS, are shown in the following table for illustrative purposes. The

actual profit incentive recon:tmended to be applied will be discussed in a later section of this

Recommended Decision and the incentive included in the chart is for illustrative purposes only.


Commercial EE

Commercial ComprehensiveResidential EERefrigerator RecyclingResidential! Li ltingEnergy Star nes (end in 2013)WholeHousc-, rogram(New)

StudentEffici ~cy Kits (New)

Residenti a I~i~y Cool (New)Home Ener&~_ .~ports (New)Low Income I-’ELo___~w Incom______e_ ~:e_frigerator & CFLEasy Savi ngj :.K__itLI Home Efficiency (New)

/Communib/CFILoad Management

tPower Saver Load Manasement

Peak Saver Load Management

1.40 1.252.08 1.771.46 1.341.27 1.181.61 1.502.17 1.851.32 1.27

2.695.542.464.67

2.174.222.083.32

1.21 I

1.122.13 1.88

[Market Tran<.fformation I n/a I n/a I

Bean Reb., 30-31 Table 1 ; O’Connell Reb., 17-18.

The TRC calculations perforrned by Staff Witness Reynolds and NMIEC Witness

Bothwell, based on different values for savings and avoided costs, are detailed, as follows:

Staff has accepted PNM’s avoided kWh energy savings calculations, less; any carbon

credits assumptions, for purposes of .evaluating cost-effectiveness of proposed EE and LM

programs. Staff’s position is that PNM generally calculated kWh avoided energy savings

appropriately, and Staff recommends that guidance to the utilities be provided in a Commission

rule to be developed. Staff Ex. 6 (Carrara Direct), pp.10, ll. 9-18. Howew~’r, Staff has

specifically disputed PNM’s :inclusion of CO2 credits as unkno~vn at the present time, and has

questioned inclusion of natural gas costs in PNM’s avoided kWh calculations used in its TRC

calculations. StaffEx. 1 (Lamberson Direct), p. 8, I. 19 to p. 9, 1. 8.


Staff recommends CO2 credit exclusion because, at this time, carbon costs are

undetermined and their specificity is m~own. Staff Ex. l, (Lamberson Direct); pp. 8-9; and

Tr. p.710, 11. 16-22; and p.715, 11.5-12. PNM argues that an amount should be included, since

carbon credits are mandated by the Commission’s IRP Rule, and the IRP filings are required by

the EUEA.

According to WRA/CCAE, Staff ignores a prior eftbrt by the Commission to develop a

standardized, uniform methodology for incorporating CO2 costs into utility planning, as

mandated in Final Order in Case No. 06-00448-UT, Notice of Inquiry into Adoption of Staged

Standardized Carbon Costs. In addition, "It would be wrong and contrary to customer interests

for PNM or the commission to ignore that CO2 emission costs will be assigned to power plants

during the 20 year horizon o1: the IRP planning process or the resulting 30-40 year life of new

and existing generating capacity." Curl Reb. 4.

While PNM has used a conservative value for future carbon credits, the amount of the

credits is clearly not known and measureable. This adjustment should be reviewed after ADM’s

final M&V report for 2012 i:~ filed and approved. Should the report show lower deemed

savings than PNM used to calcalate the TRC ratios, PNM should recalculate the TRC ratios and

incentive using ADM’s deemed savings in the compliance filing made after entry of the

Commission’s Final Order.

NMIEC witness Bollhwell contends that PNM’s portfolio approach to determining

avoided capacity costs is flawed because PNM did not use proper inputs for its reserve margins

in the Strategist® modeling program. She also claim.,; that PNM did not use the reserve margin

target of 13% consistently, as established by the Commission in the modeling of these

programs. Witness Bothewel]. asserts there is only one correct industry standard method to


calculate reserve margin, a method used by the United States Energy Information

Administration ("EIA"). NMIEC argues that if those values were substituted for PNM’s values,

more than half of PNM’s programs fail to meet the requirements of the EUEA. Witness

Bothwell’s assertion that there are no avoided capacity costs associat:ed with the 2012 Plan, is

not supported by any other evidence in the record. SM~e_ ~eneral!v, Direct Testimony of Cynthia

Bothwell (NMIEC Ex. 5).

The calculations presented by PNM in this case have been presented, with some

variations, to the Commission in the Company’s previous filings, and aside £rom Witness

Bothwell’s assertion, there is no evidence in the record that her preferred EIA values are utilized

for these purposes in any jurisdiction. In fact, there is no evidence that EIA either requires or

recommends all utilities use a specific reserve margin calculation, or that it has the authority to

direct utilities to do so. Ttz~ere is no evidence that EIA has a role in overseeing reliability

standards, since there is industry consensus that is the role of the North American Electric

Reliability Corporation ("NERC"). EIA appears to use this standard calculation for information

reporting purposes. As Staff has also pointed out, the Commission has not established a specific

method for calculating reserve margiv~, and there is no evidence in the record that a single

industry standard exists. O’Connell Reb., 21-22, PNM Ex. PJO-4 (Rebuttal); Carrara Reb., 5-6,

Ex .BEC-2RB; Carrara 2/15/i[3 Tr. 961-962.

Therefore, the calculations provided by the Company, and as mathematically corrected

by Staff, should be accepted in this proceeding, with tlhe Commission to determine at a later date

whether they want to codify a specific calculation in a future rulemaking.

D. Proposed New Programs

PNM selected third-.party providers to implement each of the new programs through a

request-for-proposal ("RFP") process that PNM states permits them to evaluate the best approach


and most qualified proposal [br implementing the program. PNM was able to select contractors

with proven expertise and experience in delivering similar programs, thereby reducing the risks

associated with implementing a new program and achieving targeted participation.

Witness Bothwell opines that PNM’s use of third party facilitators is not an investment in

programs, and that PNM can and should invest in and manage the programs for which facilitators

are currently employed. However, asking the utility to create new businesses would add

additional expense and require expertise that the utility does not currently possess.

CCAE and WRA Witness Curl testified that rnany utilities diversified into a wide variety

of businesses during the 1980’s, and states, "Most such diversification efforts did not end

happily." Rebuttal Testimony of John Curl, p.5. He fiarther states, "I would not recommend that

PNM get into any diversification business other than what is required to do in its role as a New

Mexico public utility. Outside of its core business, PNM probably lacks the knowledge and

expertise needed to effectively compete within existing businesses that already provide a

particular good or service." See, Curl Reb. 5.

PNM details additional benefits to using tlq.ird-party providers: (1) co:mpanies that

specialize in specific program, delivery can start a new program quickly after PNM receives PRC

approval; (2) program scale can be adjusted up or down quickly through the use of contractor

personnel; and (3) contracts can be designed to limit PNM and customer risk by including

provisions to pay for performance achieved. Bean Direct, 20.

The Company’s and WRA and CCAE’s arguments on this point are persuasive, and the

use of third party implementation should be continued.

1. Whole House Program

Participants in the Whole Hous,e program will receive a walk through home assessment

perfi)rmed by a trained assessor for a participant fee of $40. The home assessor will discuss the


results of the assessment with the participant, provide a detailed report and other educational

materials including information about other incentive programs available to the participant, and

install energy efficient measures including up to twenty CFLs, a low flow showerhead, faucet

aerators, and a programmable thermostat. Tailored combinations of rebate applications for

ENERGY STAR-qualified appliances, early retirement and replacement of HVAC equipment

with a higher SEER rating (SEER 13 and above), and high efficiency evaporative cooling

equipment, are designed to encourage additional energy and cost savings. HVAC replacement

using the rebates will be completed by PNM participating contractors trained in quality

installation practices. Bean Direct, 21-.22. The program is further described in the 2012 Plan

Section 5.2.3, pp.23-25.

CCAE recommendecl that PNM include rebate:~ for insulation, air sealing and the western

cooling control device ("WCCD") in this program. Response Brief, p.8. As discussed in PNM’s

Initial Brief, p. 17, PNM agrees that rebates for the WCCD can be included but not tbr insulation

and air sealing. PNM has determined that the WCCD is cost effective and can be included

without materially increasing the program cost, but insulation and air sealing for this program

would not be cost effective. Bean Reb. 21. Specialty CFL bulbs should also be included ~vith

this program for homes that receive fewer than expected standard bulbs, as CCAE recommended

Response Brief, p.8., but LED lamps should not be included at this time, because PNM has

dete~xnined that they are not needed to meet the goals of the Whole House program and including

them could increase program costs significantly. Bean Reb., 22.

Program participants, will be PNM account holders residing in homes older than 15 years.

Customers that rent their homes can participate provided they get landlord approval for

incentives related to the purchase and installation of components that impact the permanent


housing structure, if the renter does not own the existing appliance(s) in need of replacement.

The third-party selected to iraplement the program is. Ecova, Inc. ("Ecova"), whose duties will

include recruitment and training of contractors, home assessors and retailers (trade allies), rebate

fulfillment, marketing and advertising, data tracking and reporting, and quality assurance. Bean

Direct, 22-23.

The proposed annual budget of $1,052,430, including costs of the third-party

implementation contractor and PNM administration, is based on participation of 1,575 homes

receiving the audit, direct install measures and a combination of rebates. The proposed customer

rebates pay 25% to 50% of the incremental cost of the upgrade, based on comparisons with

similar programs at other utilities. PNM is proposing :initial rebate levels which PNM may adjust

within the ranges specified in the 2012 Plan, p.24, depending on the response rate. The specific

assumptions for each item are listed in the 2012 Plan, Appendix C, p.57.

Staff Witness Reynolds contends the TRC will be less than 1.0 in the first year of

implementation without inclus!Lon of gas savings. As; discussed in PNM’s Initial Brief, pp.2-7,

and Reply Brief, pp. 1-7, and the briefs of WRA and CCAE, there is no justification for excluding

gas savings from the TRC tbr this program or for other programs that produce collateral gas

savings. The Whole House program will achieve a TRC greater than 1.0 when gas savings are

included.

2. LI Home Efficier~cy Program

This program provides a comprehensive approach to energy efficiency for’ low income

customers. A home energy assessor will conduct a walk-through energy assessment of the home,

install applicable energy efficiency measures such as CFLs, fimcet aerators, low flow

showerheads and a programmable them~ostat, discuss results of the assessment with. participants,

and provide education abow. ways to reduce energy consumption.

Recommended DecisionCase No. 12-00317-UT

Finally, the assessor will

Page 33

determine if the refrigerator is eligible for replacement and, if so, provide a new ENERGY

STAR refrigerator at no charge. Participants will have the option to receive the additional rebates

offered in the Whole House program. Bean Direct, 24. This program is further described in the

2012 Plan Section 5.3.3, pp.3.4-.36.

Participants will be PNM residential electric customers ~vho earn 200% of the Federal

Poverty Level or less and pay their own electric bill. Renters must obtain their landlord’s

permission to receive a new refrigerator if they do r~,ot own the appliance. The proposed first

year budget is $1,163,837, based on a participation ~:arget of 1,250 homes, including the costs

associated with recycling the replaced refrigerators. There are no participant costs. The program

will be implemented by Ecova, the same third-party contractor implementing the proposed

Whole House program, providing an opportunity to leverage program resources. Bean Direct,

25-26.

Staff does not support continuation of the low income refrigerator and CFL replacement

program. Mr. Reynolds rec(~rnmended that costs associated with this program exclusive of the

costs of CFLs and refrigerators go the Low Income Home Efficiency program. Staff Ex.2,

Reynolds Direct, p.40. Evidence in the record indicates that the target market for the LI Home

Efficiency program is diffi:rent than the LI Re~igerator and CFL Replacement program

implemented by MFA, which targets low income participants whose homes would benefit from a

complete weatherization and energy retrofit prograrn. The LI Home Efficiency program will

target customers ~vho do not necessarily want or need the more extensive weatherization

services, and PNM projects, that this program will reach a larger group of customers by gaining

participation from low income customers living in rental property. PNM projects 1,250

participants in the first calendar year, compared to the target of 177 participants in the


Refi-igerator and CFL Replacement program. Unlike the Energy Smart for Renters program

which PNM is proposing to discontinue, the measures in this program do not require

modification to the building structure and the landlord is not required to pay for a portion of the

program. Customers can receive the audit and installation of the CFLs and other direct install

measures without contacting: tlhe landlord. Bean Direct 27. CCAE agrees with PNM that Mr.

Reynolds is mistaken in his belief that the target market for this program is the same as the target

market for PNM’s new proposed Low Income Home Efficiency Program. Response Brief, p.9.

This program should be approved as proposed by PNM.

3. Residential Stay Cool Program

The Residential Stay Cool program is designed to provide incentives for purchase and

installation of advanced ewaporative coolers, high efficiency central air-conditioning units

(SEER 14 and above), ENERGY STAR qualified window air-conditioning units and variable

speed pool pumps. One of the program goals is to retain the market share of evaporative cooling

which has been decreasing due to increased installations of more energy intensive refrigerated

Bean Direct, 29. ~]his program is further described in the 2012 Plan Section 5.2.3 pp.cooling.

25-29.

Third-party contractor EFI, Inc. ("EFI") will implement the Residential Stay Cool

program, which will initially be implemented as a mail in rebate program, although PNM will

work with EFI to evaluate options for upstream or point of purchase rebates if that delivery

method is more cost effective. EFI will inform contractors, distributors, and wholesalers of the

program details and incentives, provide., contractor training, and design and deliver point of sale

materials to retail locations;. The target market is primarily residential customers considering

replacement of existing cooling systetns and pool pumps who will learn about the program

through point of sale inforlnation at participating retailers and HVAC contractors. However, the


program will also be promoted as part of the rebate package that participants receive in the

Whole House program. 13ean Direct, 29-30.

The proposed customer rebate levels are based on paying between 25% and 50% of the

incremental cost of the upgrade and on comparisons; with similar programs at other utilities.

PNM is proposing initial rebate levels which PNM may adjust within the ranges specified in the

2012 Plan p.27, Bean Direct, Ex. SMB-I, depending on the response rate achieved:

¯ $300 rebate for the purcl’~ase of advanced evaporative coolers;

¯ $100 rebate for the purct~ase of advanced evaporative cooler window units;

¯ $25 rebate for tl~.e purchase of ENERGY STAR qualified window A/C units;

¯ $200 rebate for purchase of refrigerated A/C’s listed as CEE tier 1 or greater;

¯ $300 incentive for the in~tallation of a variable speed pool pump; and

¯ $750 rebate for the purcl~ase of an indirect-direct evaporative cooler;

The total proposed budget is $696,899 based on providing 2,375 rebates which are a

combination of the items listed above. The specific assumptions for each measure are listed in

the 2012 Plan, Appendix C, p.59. Bean Direct, 30-31.

In PNM’s Initial Brief, pp.18.:-19, the Company disputes the inclusion of Quality

Installation ("QI") incentiw,~s and training in the Stay Cool program as recommended by CCAE.

(A QI feature is included in the Whole House program.) The evidence demonstrates that costs

could be extensive and the potential for offsetting savings is uncertain. PNM asserts, therefore,

that more research is required before this measure is offered on a broader scale. Bean Reb. 23-4.

The Hearing Examiner find,,; that the Company should conduct this research as part of the

preparation of its next filed plan.


4. Home l~nergy Reports Program

The Home Energy Reports ("HERS") program is designed to help customers reduce

energy consumption by prow, ding them with reports tlhat compare their usage with the usage of

similar customers. The HERS program will target 48,000 homes within the PNM service

territory. Each of the 48,000 l:,articipants will receive., an average of five individualized reports

per year that compare electricity use to the average use of 100 neighbors in similar :sized homes

with similar characteristics, t)rovide targeted efficiency recommendations based on analysis of

the household’s energy usage and promote PNM’s other energy efficiency programs.

Electronic reports, for the customers who choose that delivery method, ~vill include embedded

links to an on line tool that giwes customers greater in.sight into becoming more energy efficient

including: customer electriciIy data, an efficiency recommendation database including

community ratings and revi(,~ws, and customer comments collected and analyzed regionally

regarding which tips work best for customers specific: to New Mexico. Bean Direct, 31. Third

party contractor OPower, Inc. ("OPower") will devei[op and implement the program which is

further described in the 2012 Plan Section 5.2.3 pp.30-.33.

The representative cro:~s section of 48,000 customers will be selected from warious energy

consumption strata, with consideration to including high usage groups which can provide the

greatest savings, and also giving consideration to the g~:ographic distribution of PNM’s customers,

age and size of homes. PNM projects an average savings rate of 1.5% of participants’ annual

electric consumption based (:,n recent I~A&V studies of similar programs with proven results at

various utility programs acro:ss the cotmtry. Preliminary results from the Southwestern Public

Service Company ("SPS") curr~mt program indicate that savings will be within the range of 1.4%

to 3.3% as seen at other programs. It is reasonable to use a conservative energy savings value of

1.5%, rather than higher valaes as suggested by CCAE, since the average electricity usage of


PNM’s customers is lower thar~t in many other utility service areas. See PNM’s Initial Brief, pp.

15-16. However, savings are expected to increase significantly in the second and future years of

program deployment, which will increase the TRC ratio and cost effectiveness of the program.

The savings will be validated by comparing energy consumption of the participants to that of a

control group that is statistically equivalent to the participant group. Bean Direct 32; Bean Reb. 25.

The budget for the HERS program is $508,033 based on the participation target of 48,000

homes, and on information submitted in OPower’s response to the RFP. Bean Direct, 32-33, 35.

The HERS program was described by PNM as critical to meeting PNM’s 2014 EUEA

savings goals. As discussed in PNM’s Initial Brief, pp.14-15, and the Initial Brief.of WRA and

CCAE p. 15, the Hearing Examiner recommends that the Commission not defer approval of the

HERS program pending SPS" filing of the M&V repo:X in August, 2013, for the SPS program as

recommended by Staff, because there is evidence from other utilities’ experience that

demonstrates it will be a cost effective program for PNM. There is no evidence indicating the

PNM program will not be cost effect:ire and the delay in implementation after the summer

cooling season would cause the loss of the bulk of cuslomer savings for 2013.

5. Student Efficiency Kit Pro~am

This program will prowide energy efficiency education for 5th grade students in PNM’s

service territory. Each participating school will host an interactive presentation focused on

energy efficiency and conservation rSelivered by PNM and its implementation contractor

National Energy Foundation ("’NEF").

measures to be installed in their home.

Each student will receive a kit with energy efficient

NEF will be responsible for general program oversight,

web design, kit production, warehousing and distribution, marketing, program tracking, data

tabulation, and reporting. PNM projects annual costs for the Student Efficiency Kit program to

be $315,069 based on a partic.ipation target of 4,500 students, on information submitted in NEF’s



response to the RFP and on :[h:Tther information from NEF. Bean Direct, 35-36. This program is

further described in the 2012 Plan, Section 5.2.3 pp.29-30.

CCAE recommends that the target participation level should be increased over time

above 4,500 per year if feasible. CCAE, WRA Initial Brief at 13. The participation level should

be evaluated for the next program filing based on the results of this initial program. The

evaluation should be based on the M&V results from PNM’s Easy Savings program.

E. Proposed RevMons to Existing Programs

PNM proposes relatively small budget increases ibr four programs, significant budget

decreases for three programs.., and significant increases for two programs. The percentage

change in budgets being reque:~ted compared to the previous plan budgets approved in Case No.

10-00280-UT are shown in the following table along with the reasons for the proposed

significant budget changes.

Percent ChangeExisting Program Status in 2012 Plan Change in from Existing

BudgetBudget

Refrigerator Recycling Continue $ 80,516 7%Residential Lighting Continue $ 63,348 4%Easy Savings Kit Continue $ 9,046 3%Power Saver Load Management Continue $ 395,518 5%Peak Saver Load Management Continue .- Budget Decrease $ (870,714) -18%Community CFL !Continue .. Budget Decrease $ (11,466) -30%Low Income Fridge and CFL Continue .. Budget Decrease $ (338,397) -72%Commercial Comprehensive Continue .- Budget Increase $ 2,630,242 56%Market Transformation Continue .. Budget Increase $ 235,759 147%Energy Star Homes Proposin~c~ to End in 2013Energy Smart Renters Proposinc~ to End in 2013

as

1. Low Income Refi-igerator and C.FL Replacement Program

This program is implemented by the New Mexico Mortgage Finance Authority ("MFA")

part of its New Mexico Energy Smart Weatherization Program which is funded by

governmental sources that vary from year to year. MFA’s projections show a lower than

anticipated funding level for its program in 2013 and 2014, which will reduce participation in


PNM’s program. PNM proposes to reduce the budget for this program to $131,1142 to match

MFA’s anticipated program participation level of 1.77 participants within the PNM service

territory. Bean Direct, 11-12.

This program is designed to ser~e customers who wish to make major renowLtions to their

home through MFA’s program, and not to just implement the EE measures offered through

PNM’s contribution towards that program that replaces the refrigerator and CFLs.. There is no

overlap in the participant pool between this program and the proposed new LI Home Efficiency

program, as discussed abow,~. Bean 2/13/13, Tr. 410-11.

2. Comrntmity CFL Program

The Community CFL program distributes free CFL bulbs to low-income populations at

various community events sponsored big PNM and by Interfaith Power and Light, a community

based organization. The proposed budget is based on distribution of about 5,000 bulbs, lowered

from the previous target for the program of 10,000 bulbs, because Interfaith Power and Light has

lowered its estimate for the 2012 Plan. The 2012 Plan also addresses energy efficiency for low

income customers through three other existing low income programs and the proposed new Low

Income Home Efficiency program. Bean Direct, 12-13.

PNM proposes to terminate the Community CFL program after 2014. It should not be

continued after 2014 as suggested by CCAE because three of the five new programs PNM is

proposing include CFLs and customers will have opportunities to receive CFLs through more

targeted delivery channels. Bean Reb. 126. Staff’s recommendation that this program should be

terminated prior to 2015 and the same amount

Transformation ("MT") program should be rejected.

of bulbs distributed under the Market

Staff did not specify that the MT budget

should be increased and PNM’s proposed MT budget does not include any amount for this

purpose. Bean 2/13/13, Tr. 411.

Recommended DecisionCase No. 12-00317-UT

Furthermore, the MT program is intended for general

Page 40

educational and promotional activities that are not subject to the TRC calculation and PNM does

not claim energy savings from the activities in the MT program.

3. Commercial Corr~prehensive Program

PNM proposes to increase the budget for this program to allow for growing participation

and for implementation of a new Building Tune up component. The revised annual budget is

$7,328,102, including $497,54’7 for the proposed Building Tune Up component. The increased

participation target and budget that PNM proposes are based on current customer interest in the

program and participation projections by PNM’s third party implementation vendor; KEMA

Services, Inc. PNM projects about 38 GWH of savings for the Commercial Comprehensive

program in the first calendar year of the 2012 Plan. The Company asserts that there is potential

to achieve large savings through this program. PNM believes the continued success and growth

of the Commercial Comprehensive program are essential for PNM to achieve the EUEA savings

requirements in 2014 and 2020. Bean Direct, 13-15.

The Commercial Comprehensive program offers rebates for a wide range of energy

savings measures for the most common upgrades in non residential buildings. The program has

over 100 lighting measures in addition to a wide range of motor, fan, refrigeration, food service,

HVAC and building envelope measures. The Commission should reject CCAE’s proposal to

include on site combined heat and power ("CHP") systems as a custom measure in the

Commercial Comprehensive program at this time. However, CHP programs are an integral part

of many commercial programs around the country, and PNM should include an analysis for the

inclusion of this measure in its next plan filing.

Rebates in the retrofit and new construction component of the program are intended to

cover between 25% and 50% of the incremental costs of the measures. The rebates in the Quick

Saver or small business pro:i~.am component are higher and typically cover up to 70% of the


incremental cost, because small businesses historicall.y do not have the capital to make facility

improvements unless the pay-back is v.ery short. PNM reviews the rebate amounts periodically

and makes appropriate adjustments in response to customer participation. Bean Direct, 15-16.

Under the Building Tune-up component of this program, PNM proposes a rebate to

commercial customers who "tuneup" their mechanical and electrical systems and building

controls to achieve peak performance. Existing systems will be analyzed, system parameters and

set, points adjusted and equipment repaired as necessary. The goal of the program is to identify

low cost operational improvements that deliver high energy savings. For more complex systems,

a building analysis may be performed. The program will provide a customer rebate based on a

percentage of the one-year annualized energy savings and is further described in the 2012 Plan,

Bean Direct, Ex. SMB- 1, Sect:ion 5.1.2 pp. 19-21. Bean Direct, 14.

About 36% of the avoided cost benefit of this program is due to avoided capacity since

non residential customers use a significant amount ol.-" their energy during PNM’s peak demand

period. There is no evidence of any modifications that could be made to the Commercial

Comprehensive program that would result in a cost el~’fective program if no capacity savings are

recognized, as NMIEC Witness Bothwell recommends. If the demand reduction benefits of the

program are ignored, the program would not be cost effective and there is no evidence of any

modifications that would provide a TRC greater than 1. Ms. Both~vell’s recommendation would

result in termination of a program that has been used extensively by commercial and industrial

customers, including members of NMIEC, and is not persuasive or practical, and should be

rejected. Bean Reb. 27.

4. Market Transformation Program

PNM offers the MT program which authorized programs designed primarily for general

energy efficiency education activities and not subject 1:o the TRC requirement, although the costs



of the MT program are included in the calculation of the total 2012 Plan portfolio TRC. The

goals of the MT program are to: 1) increase awareness of the importance and benefits of energy

efficiency; 2) encourage behavior changes that result in the adoption of energy efficient

measures; and 3) promote emerging technologies that are not part of existing EE programs but

have the potential for inclusi(~n in future programs. The MT program uses promotional activities

and advertising channels to target efforts aimed at specific customer segments, including hard-to-

reach segments. Bean Direct, 16.

PNM proposes to expand efforts to raise awareness of the nature and importance of

energy efficiency by implementing an on-line energy audit tool as part of the MT program and

conducting a mass media coramunications campaign that would promote the importance of

energy efficiency and direct customers to explore the offerings through the PNM programs. The

audit tool would provide customer specific savings information and direct customers to the EE

programs applicable to their situation. PNM is also proposing to work with the Southwest

Energy Efficiency Project ("SWEEP") to provide building code awareness and technical training

to code officials and building professionals. Finally.~ PNM proposes to work with community

based organizations to comn’mnicate the potential to save energy through efficiency programs

and behavior changes. Bean DJ,rect, 17.

PNM proposes to increase the current MT budget of $93,600 by $235,759 to allow for

the program expansion. Eighty percent of the additional budget is for the mass media

communication strategy with the remaining 20% for implementing the code training and

community organization outreach. PNM believes that a broad campaign to increase awareness

of the PNM programs is ess.~,’ntial for ~neeting the aggressive participation targets contained in

the 2012 Plan and to achieve the EUEA. required savings. Bean Direct, 17-18. Staff and CCAE


support the MT program proposals. Reynolds Direct, 47-48; Reynolds Reb. 18; Quaid Direct,

19-20.

5. Residential Lightin~ Program ("RLP")

Staff recommends two major changes to the RLP that would drastically reduce

participation and savings and affect participation in the program: (1) greater reduction in the

deemed savings per CFL bulb than found by ADM, and

50%. Staff’s recommendations are not adequately

(2) reduction of average rebates by

supported on the record. These

recommendations should be rejected. See earlier discussion of this issue.

CCAE recommends that PNM include LED lamps in addition to CFL bulbs in the

Residential Lighting program. PNM a~ees that it will begin to include incentives for LEDs in

the Residential Lighting program as the price point improves and customer demand increases.

Since PNM estimates that I, ED incentives will represent a small percentage of the total lighting

incentives during the term of the 2012 Plan, relatively minor adjustments to other incentive

levels will allow PNM to keep the program budget at the level proposed in the 2012 Plan even

though incentives for LEDs will be higher than incentives for CFLs, provided the rebate budget

is not cut in half as Staff suggests. Bean Reb. 20.

F. Programs to be Terminated

1. Energs~ Star Homes Program

PNM proposes to temfinate tl-~e Energy Star Homes Program due to recent U. S.

Environmental Protection Agency ("EPA") implementation of ENERGY STAR version 3.0,

which has increased builders" costs to achieve ENERGY STAR certification. The additional

costs are causing many builders to no longer participate in ENERGY STAR Home programs and

PNM is projecting significantly lower participation. In addition, the incremental cost to

construct a home to meet ENERGY STAR version 3.0 standards is high compared to the


incremental annual energy savings that can be achieved over the savings resulting from a

"conventional" home built to the new state building code standards. The combination of a higher

incremental cost, lower savings and lower participation levels will cause the ENERGY STAR

Home program to fail to achieve a TRC of more than 1..0 going forward. PNM, therefore,

recommends that the program be discontinued in 2013. Bean Direct, 8. PNM proposes that

builders who have already been approved for rebates under the existing program will have until

September 30, 2013, to cornplete construction and receive the rebates. The 2012 Plan includes

the estimated cost to provide these rebates and close out the program. PNM’s efforts to design

an alternative cost effective replacement program have been unsuccessful to date, but PNM

should continue to research a potential program for new residential construction.

2. Energy Smart fc,r Renters

This program is implemented by MFA which has notified PNM that it will not be cost

effective for MFA to continnae the program in 2013. Participation in the program has been

much less than projected, due to difficulty in contacting landlords, reluctance of landlords to

contribute the required ten percent of the costs of the energy efficiency upgrades, and delays in

performing work in rental units, mav~y times beca~ase tenants ~vho were approved for the

program moved before the wo~:k could be completed. PNM submits that it should discontinue

this program and direct the.. resources to programs with greater potential to reach low income

renters. Bean Direct, 10-11.

G. Duration and [Dual Savings Programs_)

PNM projects that apl:.roved new programs can be implemented within six weeks of entry

of the Final Order grantin~ Commission approval. ~[~he 2012 Plan proposes that the programs

included in the 2012 Plan would be implemented for two full calendar years, 2014 and 2015, and

would continue until they are modified or terminated hy entry of a Commission order, except for


the Community CFL program which PNM proposes to terminate automatically at the end of

2014. If program costs are expected to deviate from the budgets approved by the Commission in

this proceeding by more than 25%, PNM will file a request for budget modification. See,

October 5, 2012, Applicatic.n for Approval of 20113 Electric Energy and Efficiency Load

Management Program Plan and Revision to Tariff Rider.

Staff proposes that programs which produce collateral gas savings should only be

approved for implementation in year 1 of the 2012 Plan and that continuation thereafter be made

contingent on PNM reaching a collaborative agreement with New Mexico Gas Company for

splitting the costs and benefits, or on the programs having a TRC greater than 1.0 without

inclusion of the costs and benefits of gas savings. Staff’s dispute is not whether gas benefits can

be added to the TRC test, but whether it is fair for electric customers to pay for them. Staff Ex. 1,

Lamberson Direct, p.8, 11.3-10.

On March 8, 2013, New Mexico Gas Company Inc. (NMGC) filed a Motion for Leave

to File Amicus Brief, and the Brief itself. In the brief, NMGC concurs ~vith the testimony of

CCAE witness Quaid, as follows:

All savings produced by PNM’s programs, whether gas or electric,are elegible to b.e counted towads the EUEA goals. The TRC testis well defined and widely applied, and includes all energy savingsin program benefits. This standard definition should be maintainedby the PRC, and gas savings that accrue to PNM’s program effortsshould be counIed. If the PRC requires PNM to remove gassavings from the: benefits; in the TRC tests, while still accruing thecosts to produce the savings, the TRC results may fall below 1.0,and PNM m.a2i be forced to shut down cost effective programs.Stopping cost effective PNM programs will reduce net economicbenefits for households and businesses served by PNM to meet thestatutory savings require~nent of 5 percent savings by 2014 and 10percent savings by 20201. Quaid Reb. at 3.


NMGC adds that it is uncontroverted that including gas energy savings as benefits under the

TRC for electric utility programs is standard across the industry, as well as consistent with the

California Standard Practice Manual tbr Energy Efficiency. /__d.; Tr. 2/11 at 104-105. Amicus

briefp.2.

Additionally, Staff witness Reynolds recommended that the Commission approve these

programs for only one year of the Pl.an, and that continued implementation in year two be

contingent on PNM reaching a cost sharing agreement with NMGC by the beginning of year

two. While both PNM and NMGC are open to discussions regarding such an arrangement,

Staff’s position is impractical, and xvo~ld harm the consumers participating in these programs.

The Hearing Examiner relies apon the: reasons discussed in PNM’s Initial Brief, pp. 2-7, and

Reply Brief, pp.1-7, the NMGC Amicus brief at 3, and witness Quaid’s Rebuttal opinion. This

recommendation should be r@~’cted. Gas savings should be included in the TRC calculations for

these programs and they slhould be approved for the same period as programs which do not

produce gas savings in addition to electric savings. PNM should be required to discuss offering

the programs in collaboratior,, with NMGC and should file a report one year from the entry of the

Commission’s Final Order on tlhe result~ of those discussions.

Staff also recommended that the Commission put a two year limitation on

implementation of the programs in the 2012 Plan so that, barring further Commission order, all

programs would automatically terminate two years after entry of the Final Order. This would

unnecessarily put the programs at risk of automatic: termination, and would serve no useful

administrative purpose. Therefore, this recommendation should be rejected, and all programs

proceed for the entirety of the two :gears proposed until further order of the Commission

modifying or terminating them.


H. M&V

Once the Commission .enters its. Final Order in this case, PNM has indicated it will take

several months to fully establish the approved new programs. Customer participation will take

time to develop and program costs are often higher at the start of new programs, causing the new

programs to have lower TRC ratios if the evaluation is based on only the first few months of

deployment in calendar year 2013. PNM recommends that the new programs be evaluated by

the independent evaluator at the end of :2014, after at least a full calendar year of implementation,

to provide a more accurate assessment of the cost effectiveness of the new programs. This

would be similar to the evaluation process for PNM’s initial EE programs approved in Case No.

07-00053 UT. Bean Direct, 39. No party opposed this proposal.

Staff and NMIEC recommend that PNM be ~.’equired to provide program participation,

budgets, costs and projected energy and demand savings by rate class in future Annual Reports

("AP,"), as well as projected program badgets and energy and demand savings by eight specified

rate classes beginning with PNM’s next plan application. Reynolds Reb. 20-21, Ex JRR-1 Reb.

PNM indicates that this. information would not lead to any useable end product, because

PNM’s programs are not o~]2ered by rate class; rather they are offered by type of customer-

commercial, residential, or industrial customer. PNM also indicates that no other utility has been

required to provide this information regarding their programs.

A review of the briefs; and the testimony on this issue does not indicate that the programs

are offered based on the rat~:: class of the participant. In fact, all agree that the programs are

offered by the type of customer. Staff has also admitted that "no customer class is inherently

prevented from participating in and benefitting from PNM’s proposed programs." Reynolds Reb.

18-19, Reynolds 2/15/13, Tr. 806. There would clearly be an administrative burden to separate


the rate class participants in each offering, without a substantial rationale for doing so.

Therefore, the Hearing Examiner recommends that the Staff proposal should be rejected.

Based on the record in this case. and the forgoing discussion of the various programs, the

Hearing Examiner recommends the adoption of the programs with the changes suggested for

each program as delineated.

III. NMIEC’s Motion in L,imine to Exclude the Testimony of Frank C.Graves and Portions of the Testimom, of Gerard Ortiz

NMIEC filed its Motion seeking to exclude both the Direct Testimony and the Rebuttal

Testimony of PNM witness Frank Graves, and the portions of the Direct Testimony and Rebuttal

Testimony of PNM witness Gerard Ortiz offering opinions in support of Mr. Graves’ testimony

on the grounds that neither Mr. Graw~s nor Mr. Ortiz are attorneys and Mr. Graves did not

possess the familiarity with New Mexico law to offer an opinion as to the proper incentive to be

authorized for PNM under the EUEA at the beginning of the hearing on February 11, 2013, the

Heating Examiner ordered PNM to file its respons~ to the Motion within ten days, i.e. by

February 21, 2013.

NMIEC does not contend that Mr. Graves is unqualified to provide expert testimony on

valuation, risk analysis, aw>ided costs, present value analyses, capacity markets, resource

planning, lost profits, oppor’mnity costs or any other economic or financial field associated with

the determination of a reasonable profit incentive ~br energy efficiency programs. NMIEC

admits that Mr. Graves "has an extensive background in many matters related to the economics

of utility regulation." Motion at 4-5. Instead, NMIEC argues that his testimony is an attempt to

provide a legal interpretation of New Mexico law, an exercise that he is not qualified to perform.

Motion at 4-7.


The Commission’s R~des of Procedure state that "all evidence is admissible which, in the

opinion of the presiding ot"ficer, is the best evidence most reasonably obtainable, having due

regard to its necessity, compeIence, availability, and trustworthiness." 1.2.2.35(A)(1) NMAC

The New Mexico Rules of Evidence provide: "A witness who is qualified as an expert by

knowledge, skill, experience, ~:raining, or education may testify in the form of an opinion or

otherwise if the expert’s scientific, tecl’mical, or other specialized knowledge will help the trier of

fact to understand the evidence or to de!ermine a fact :in issue." Rule 11-702 NMRA. This Rule

has a liberal thrust such that any doubts regarding admissibility should be resolved in favor of

admission rather than exclusion. Lee ~. Martinez. 2004-NMSC-027, ¶16, fn 1, 136 NM 166, 96

P.3d 291. "Evidence should be excluded on a motion in lirnine only when the evidence is clearly

inadmissible on all potential ~7ounds." Re McWane~ .Inc., 2012 WL 3719035, *3 (FTC) ~

Hawthorne Partners v. A T& T Technologies, Inc., 831 F.Supp. 1398, 1400 (N.D. Ill. 1993)).

The primary inquiry under Rule 1 t-702 is to assure that expert testimony is both relevant

and reliable. State v. And~, 118 N.M. 284, 291, 881 P.2d 29, 36 (1994). While it must

appear that a witness has acquired sufficient knowledge or experience to testify, no rule can be

laid do~vn as to the extent ofthat kno~vledge. Dahl v.. Tttrner, 80 N.M.564, 568, 458 P.2d 816,

820 (CT.APP.1969). Whether an expe~’t has the nece:~sary qualifications to testify on any given

proposition is within the discretion of the trial court and the court’s ruling will not be disturbed

unless that discretion has been abused. State v. Alberico, 116 N.M 156, 169, 861 P.2d 192, 205

(1993).

"The foundation for del:ermining whether the expert is qualified is to identify what the

issue is that requires expert testimony. This insures tMt an accurate determination can then be

made...that the witness has the requisite knowledge, skill, experience, training, or education to


qualify as an expert in the relevant field." Parkh~!ll v. Alderman-Cave Milling and Grain

Compan!: of New Mexico, 2010-NMCA-110, ¶ 62, 149 N.M. 140, 245 P.3d 585 (Vigil, J.,

specially concurring). Mr. Graves tes;timony focuses solely on what profit on cost-effective

energy efficiency programs is financially more attractive to PNM than investments in supply-

side resources.

Mr. Graves did not, in any way, indicate tlaat he was opining on the New Mexico

statutory scheme in his testimony. It is undisputed that Mr. Graves has more than thirty years of

experience in utility planning, regulatory approvals, and financial analysis. His experience, as

detailed as an attachment to his testlimony is 26 ipages long and includes seven pages of

testimonies and seven pages of publications, papers, ~tnd presentations. He is qualified to create

and testify on his profit-ince~Jtive model designed for PNM under the guidance of its attorneys.

Therefore, the Motion in Limine is not granted, and the testimony of Mr. Graves and Mr. Ortiz

are fully accepted in the record.

IV. INCENTIVES

The EUEA requires, in addition to recovery of program costs, the commission to provide

public utilities an opportunil:y to earn a profit on cost-effective energy efficiency and load

management resource develop:ment that, with satisfactory program performance, is financially

more attractive to the utility than supply-side utility resources." Section 62-17-5(F). The

Attorney General and NMIEC have arg,,ued that a profit can only be granted using the return on

rate base method which requires a capital investment to derive a profit, i.e. a return on equity

("ROE"). Their theory is completely at odds with the end result test of ratemaking long adhered

to in this State and has been consistently rejected by the Commission. E.__ge_, Case No. 11-00308-

UT, Final Order, para. 23-35 (Novembe.r 3,2011) ("11[-00308-UT Order"); accord, Case No. 10-

00266-UT, Final Order Partiality Adopting Certification, para. 8, 10, at 4-7, 7-8 (November 22,



2011); Case No. 11-00047-UT, Final Order (December 11, 2012), adopting Certification at 27-

28, Final Order Adopting Certification of Partial Stipulation and Recommended Decision,

Certification at 56-57 (Februa~:y 21, 2(i)12). Although NMIEC and the Attorney General have

appealed the Commission’s rejection of their position, that by itself does not render the

Commission’s order unlawful. NMSA 1978, Section 62-11-6 (1983). Unless the New Mexico

Supreme Court chooses to overrule the Commission’,s rejection of their theory, the law is that a

capital investment is not required for a regulated business to receive a fair opportunity to earn a

reasonable profit in addition to recovery of its reasonable costs.

EE/LM programs do not typically result in utility capital investment and use of the return

on rate base formula is theret~re not appropriate. Further, utility capital investment may not

improve the cost-effectiwmess of EE/LM programs and instead may impair their cost-

effectiveness thus reducing lhe progra~ns that would pass the TRC. Also, at times it may be

more cost-effective to rely on third-party contractors with the necessary expertise in the

particular line of business who also can rely on economies of scale to reduce costs to PNM

customers. Ortiz Direct 13-14; Ortiz Rebuttal 13-1zl; Direct Testimony of Frank C. ("Graves

Direct") 3-7, 26; Curl Rebuttal 5; Bean Direct, PNM Ex. SMB-1 9; Ortiz 2/11/13, Tr. 50-52;

Curl 2/14/13, Tr. 684-685,687-.688.

Consequently, using mechanisms to provide a profit incentive for EE/LM programs that

do not rely on a return on rate base fbrmula is appropriate. Courts have agreed. Arkansas

Electric Energf Consumers, Inc. v. Arkansas Public Service Commission, 2012 Ark. App. 264,

* 11, rehearing denied, (May 30, 2012) (rejecting argument that traditional ratemaking practices

are violated if return on rate base is not used, stating that use of incentives for EE programs "is

more in the nature of a pragmatic ad2iustment, necessitated by the practical consideration of


requiring utilities to pursue energy conservation"); Countv Board of Arlington Coun.tv~ Virginia

v. b~ffted States, 101 F.Spp.328, 330 (D.C.E.D. Va. 1951) (determination of rates by primarily

considering operating cost.,; and income rather than investment was dictated by nature of the

business). The Attorney General’s witness also agreed that any business seeks to make a profit

over and above actual costs, even if no capital is invested. Gregax 2/13/13, Tr. 548-550, 552-

553. NMIEC’s witness Bothwell similarly stated tlhat a business can make a profit without

making a capital investment. Bothwell 2/4/13, Tr. 608.

PNM’s Proposal

Based on the testimony of Mr. Graves, a Principal of The Brattle Group, an economics

consulting firm, PNM prop<~sed a profit incentive of $2,879,362 per year. Graves Direct 1;

Graves Rebuttal 2-6. PNM’s proposed profit incentive was derived using a "lost profits" or

"opportunity cost" method. Gegax 2/13/13, Tr. 455. Mr. Graves isolated the allowed ROE of

10% from PNM’s last rate case to apply to the unit capacity benefits of the 2012 Plan as

calculated by PNM witness O’Connell. Mr. O’Connell calculated the unit capacity benefits to be

$93.71 per kW-year. Mr. O’Connell calculated the unit capacity benefits using a NPV analysis

with a discount rate of 8.2%, PNM’s WACC. Isolating the equity return component of Mr.

O’Connell’s present value capacity benefits produces a lost profit of $15.59 million from two

years of the 2012 Plan. Gra:ves Rebuttal 3; O’Connell Rebuttal 9, PNM Ex. PJO-2 (Rebuttal).

Mr. Graves then divided this amount of lost profit by 599 MW years, which are the life cycle

demand savings expected to be created by two years of the 2012 Plan including the demand

savings associated with the remaining l:ives of the LM programs, resulting in $26.03 per kW year

in lost profit per on peak demand reduction. Graves; Rebuttal 3-4; O’Connell Rebuttal 10. In

order to make the profit on cos.t effective EE programs more financially attractive than investing


in supply side resources as required by the EUEA, Mr. Graves used his professional judgment

and increased the lost profit amount by 10%, increasing the rate to $28.63 per kW year. Graves

Rebuttal 5; see, Graves Dirl:’,ct, 34. Next, using the assumption based on PNM’s experience

during the period 2000-2011 that only about hall!" of the altered capacity mix would be

attributable to owned capacity :rather than under contract, Mr. Graves reduced the amount by half

to $14.315 per kW-year. Graves Rebuttal 5; Graves Direct, 35. The final step in this

"opportunity cost" or "lost profits" methodology is to apply the $14.315 per kW year to the

capacity savings of 201,137 kW years attributable to the first full year of the 2012 Plan, resulting

in a profit incentive of approximately ~’;2.88 million per year. Graves Rebuttal, p.3, 5. Half of

that amount would be based on PNM achieving aggregate kWh energy life cycle savings

projected for the 2012 Plan and half would be based ,on PNM achieving the projected aggregate

kW year life cycle demand savilngs. Graves Direct 38.-42.

In order to reflect "satisfactory program performance" as required by the EUEA, PNM’s

proposed methodology incorporates a reconciliation based on M&V reports. Bean Direct, 53-54.

In order to retain the full amount of the authorized profit incentive, the 2012 Plan must achieve

the projected savings on a portfolio basis. To the extent that the portfolio’s performance does

not achieve either the projected demand or projected energy savings, the profit incentive is

reduced ratably. Thus, if the portfolio performance is confirmed at 80% of the target savings,

PNM’s profit incentive is reduced to 80% of the authorized amount. On the other hand, if the

portfolio performance exceeds the target savings, then the incentive is also ratably increased but

only up to 110% of the authorized incentive in order to assure that customers retain an

appropriate share of net bene;fil:s. So, ill" the portfolio performance exceeds the target savings for

either demand or energy by 20%, the profit incentive would only be 110% of the authorized


amount. Half of the incentive would be applied to energy savings and half to demand savings.

Graves Direct 38-42.

The Attorney/General"s Incentive Position

The Attorney General[ asserts that PNM’s proposal would remove disincentives rather

than provide an incentive. Because PNM has disclaimed any disincentive in its last rate-case, 10-

00086-UT, granting the request would be inconsistent with the rate case stipulation.

Additionally, because there are no capacity costs that will be incurred or avoided in the period

that the plan will be in place (2013-2015) the AG asserts it is inappropriate to collect for avoided

capacity for the 2012 plan.

The Attorney General’s position continues ~:o be that no profit incentive should be

allowed unless the utility inw~sts capital in the EE programs. Gegax Direct, 17; Gegax 2/14/13,

Tr. 601-602. However, Dr. Gegax recognized that the Commission has rejected this position in

past cases so, until the New Mexico Supreme Court roles on the matter, he recommends that the

Commission award a profit incentive of between 2% and 7% of program costs, based solely on

his perception of consistency with past Commission rulings. Gegax 2/14/13, Tr. 601; see, Ortiz

Rebuttal 13, (identifying Case Nos. 10-00266-UT, 11-00047-UT and 11-0030-UT as rejecting

the requirement for capital investment). In his corrected Rebuttal Testimony, he recommended

an annual profit incentive of between $800,000 (3.6% of program costs) and $1 million (4.5% of

program costs), based on his modifications to the methods used by PNM and Staff. Gegax

Rebuttal 15; Gegax 2/13/13, Tr. 523-524.

PNM argued that the AG approach does not comport with Attorney General 2011 in that

it is not "utility specific". PNM states that there is not any evidence in the record that provides


economic justification that s~ch an approach results in a just and reasonable rate that meets the

profit requirements of the EU EA.

Staff’s Incentive Position

Staff’s criticisms of PNM’s proposal commences with its assertion that it is uncontested

that PNM’s future capacity additions are not avoided by its 2012 Plan but rather are "deferred".

StaffEx. 6, (Carrara Direct), p.9, 1. 19 referring to PNM Exhibit PJO-1. As summarized by AG

Witness Gegax, "...a specific set of e~ergy efficiency programs does not lead to a permanent

avoidance of generation c~Lpacity; sucila generation capacity is at best only deferred and this

deferral can actually lead to the speeding up of the incurred costs of other generation." AG Ex. 2

(Gegax Direct), p.3, 11. 19-22. Indeed, the cost benefit analysis performed by Mr. Carrara

demonstrates that the present value of the cost of the 2012 Plan is greater than the present value

of the benefits received from the 2012 Plan; thus, cos.ring customers $16 to $20 million more if

the programs are implement:cal. Staff Ex. 6 (Carrara Direct), p.21, 11. 1-4. While avoided

capacity savings have been imputed by PNM, they have not been demonstrated and should be

rejected as a basis for an incentive r~Lte. The Courts, says Staff, have not approved a cost

imputation which is based o~n nonexist:ent utility cos.ts or savings. In re Zia Natural Gas v.

NMPRC, 128 728, 734, 998 P.2d 564 (2000); AG Decision, ~ 18 (EUEA rates must be utility

specific, cost-based, and based on substantial evidence in the record); and Alto Village Services

Corp. v. New Mexico Public Service Commission, 92 N.M. 323, 587 P.2d 1334 (1978) ("It]he

Commission is required to base rates on substantial ewidence in the record.").

Second, Staff assert’.~ that the re.cord demonstrates that estimating the future benefits of

the 2012 Plan, with an average progra~n life of 8 years, through 2031 as shown on PNM Ex.

PJO-1, is uncertain at best. As Mr. Carrara testified, the "timing and size of planned capacity


additions may change, depewding on what one expec~:s the future load to be"/(,L~., pp.ll. 20-21);

load "forecasting in imprecise at best" (/__d. pp. 11, 1,. 16); load forecasts are inherently inaccurate

as demonstrated in Staff Ex. EEC-2 (~4. pp. 12, 11.2-3); and "the lack of certainty increases as

the look into the future increases" (L4. pp- 11, 7-8). Mr. Gegax summarizes this uncertainty as

"[a]pproaching the issue of a profit incentive by attempting to estimate what would have

happened to profit if not for energy efficiency programs inevitably yields a process that is highly

speculative, contentious, and extremely sensitive to changes in the assumptions made". AG Ex.

2.

Lastly, Staff has "ident:ified a n~amber of errors which call into question the reliability of

the deferred capacity savings and cost calculations performed by PNM." Staff Ex. 6, (Carrara

Direct), p.11, 11. 4-9. These errors are identified and explained by Mr. Carrara/(/~., pp.11-18);

and many corrections were adopted by PNM in Mr. O’Connell’s rebuttal testimony. While PNM

corrected its avoided cost calculations lbr mathematical errors identified by Staff and has agreed

to Staff’s recommended workshops to establish a uniform method to quantify avoided costs and

calculate the TRC, Staff disputes PNM’s position thai: its incorporation of some of Mr. Carrara’s

recommendations and corrections clarify and support its methodology. O’Connell Rebuttal, p.4,

11. 7-10. Accordingly, Staff’s position is that PNM’s avoided cost methodology, even as

corrected, does not provide a reasonable or valid foundation for establishing a EUEA incentive.

StaffEx. 1 (Lamberson Direct), p.7, 11. ,5-8.

Instead, Staff proposed a different incentive methodology for purposes of this case, and

limited recovery to a two year period to correspond to the two year period Staff has

recommended for approval of the 2012 Plan. Staff recommended a hybrid approach to

developing a profit incentive consisting of two components. The first component is what Staff


called a "proxy regulatory asset." Cavrara Direct, 22. Although recommending that program

costs be recovered as an e~:pense item through a taril~f rider, Staff calculated a surrogate for an

equity return on approved prc,gram cc, sts that is based on PNM’s WACC amortized over an

eight-year period, reflecting the approximate useful lives of the programs and with PNM

receiving a 10% share of llhis amount as the first component of Staff’s Hybrid approach.

Essentially, Staff recommend.s that PNM be authorized a 5.06% return on the regulatory asset

proxy, representing the weighted average ROE component of PNM’s WACC as authorized in

PNM’s last rate case. Brack DJlrect, 8-10; Carrara Direct, 22; Brach 2/15/3, Tr. 877. This results

in $390,419 per year. Carrara Direct, 22. The second component of Staff’s proposed approach

would provide PNM a 10% sh~tre of the estimated energy savings of the 2012 Plan. This results

in $1,310,263 per year. Brack Direct, 10; Carrara Direct, 23. Staff chose a 10% sharing because

that is the amount the Commis:~ion has allowed other electric utilities, though not PNM, as their

share in the net margins from off-system sales. Brack 2/15/’13, Tr. 867-868. Combining the two

components, Staff’s approach would result in an annual profit incentive of $1,700,703. Brack

Direct, 8; Carrara Direct, 23. Staff’s recommendation is that the profit incentive only be allowed

for two years implementation of the 2012 Plan since future programs may result in different

benefits to customers. Carrara Direct, 23-24.

According to Staff, ils proposal is cost based, utility specific and based on substantial

evidence in the record and meets the rate requirements of the PUA and EUEA established in the

AG Decision. For example, the first, component is based on 2012 Plan costs and PNM’s

weighted cost of equity, 5.0(i,% (Staff Ex. 5 (Brack Direct) p.10, 11. 9-14), if such costs were

allowed to be booked as a regulatory asset, using an 8 year amortization period which coincides

with the average lives of the proposed programs and PNM’s weighted cost of capital, 8.2%, as


the discount rate. Staff Ex. 5 (Brack Direct) p.10.. 11. 5-7; and Staff Ex. BEC-7, p. 1 of 2,

attached to Staff Ex. 6 (Carrara Direct). As explained by Mr. Brack, this component is designed

to provide PNM an opportunity to earn a profit on cost effective energy efficiency and load

management resource development that is greater than the utility’s supply side resources, as

required by Section 62-15-5.F, by hypothetically "addressing what the equity would be if PNM

funded the program costs and was able to recover the: program costs through a regulatory asset."

StaffEx. 5, (Brack Direct), pp.9, 1l. 17-19.

The second component of Staft’s proposal is also cost based, based on PNM’s projected

fuel savings associated with PNM’s proposed programs. /d., p. 10, 11. 17-18; and StaffEx. BEC-

7, p. 2 of 2, attached to Staff l?;x. 6 (Carrara Direct). This component is performance based in so

far as it is based on the projected performance associated with approved EUEA program/(.~_~., pp.

10, 11. 19-21 ), and thus meet:_~’, the EUEA requirement of satisfactory performance. Section 62-1-

5F.

Staffs argued that its’, proposal is the only incentive proposal that incorporates the two

components of PNM’s Application that none of the intervenors in this case have objected to,

namely: the program cost thrc~ugh a regulatory asset proxy (this notion is actually accepted by

AG Witness Gegax at page 3 of his direct testimony), and the avoided kWh energy deemed to be

saved. While disputing Staff’s proposed incentive essentially on the basis that it is too low, PNM

has admitted that Staff’s proposal has "’some merit". PNM Ex. 8, (Graves Rebuttal), p.9, 1. 11.

PNM Ex. 2 (Ortiz Rebuttal), p.6, 11. 15-20. StatUe’s incentive proposal, therefore, is more

consistent with PNM’s current authorized incentive mechanism and previous Commission

action, than PNM’s proposal. Significantly, Staff’s proposal also is the only incentive proposal


in this case supported by substantial undisputed evidence (program cost and avoided kWh energy

deemed savings.

Additionally, Staff alleged that this proposal balances the interests of the ratepayer

against the interest of investors, falls within the zox:Le of reasonableness of other Commission

approved EUEA rates, and therefore results in a just and reasonable EUEA rate. For example,

Staff’s proposal is the equivalent of an approximate 7!% return on 2012 Plan costs of $22 million;

is reasonably consistent with PNM’s current $1.4 million incentive, (Staff Exhibit 5 (Brack

Direct), p. 11, 11. 10-11); and falls ~vithin the zone of reasonableness recommended by the AG to

be between 2% and 7% return of approved program costs. AG Decision, ¶ 13. Further, Staff’s

proposal recognizes EUEA programs are ratepayer funded, does not include capital expenditures

at this time and therefore presents little if no risk to the utility. Taking these facts into

consideration, Staff’s proposed sharing; mechanism balances the interests of ratepayers against

the interests of investors and provides that 90% of Staff’s calculated savings is retained by

ratepayers and provides PNM the remaining 10% share. StaffEx. 5, (Brack Direct), p.11, 11. 12-

15.

PNM argued, howew.’r~, that Staff’s approach does not result in a profit incentive that

meets the EUEA requirement that it be financially more attractive than investing in supply side

resources. For example, Staff uses the weighted average ROE from PNM’s capital structure

(5.06%) rather than the allowed ROE (10%). Staff justifies use of this lower return on the

grounds that recovery of program costs is less risky and program costs are not investments in the

"bricks and mortar" sense. Brack Direct, 10. Focusing on the risks of program cost recovery,

says PNM, ignores the relevant risks to the utility as a whole and devalues the benefits associated

with EE/LM programs. Grave, s Rebuttal 10; Graves Direct 6-12. In addition Staff’s approach


fails to adjust for income taxes. The 5.06% weighled average ROE in PNM’s WACC is an

after-tax return but is before taxes in Staff’s approach. Thus, Staff’s recommendation really only

provides a 3.06% weighted return on an after-tax basis. Brack 2/15/13, Tr. 877. PNM asserts

that Staff’s approach does not result in a profit opportunity that is financially more attractive than

investing in supply side resources as claimed by Staff, since the Company has to disgorge a

significant portion of the profits to pay taxes and this is not financially more attractive than

receiving the profit after taxes, as occurs with supply-side investments. Further, tax recovery is

generally allowed as a reasonable cost of doing business. Zia Natural Gas, 2000-NMSC-011,

¶ 13; Gegax 2/14/13, Tr. 5;92. Compensating for taxes increases the amount resulting from

Staff’s methodology to $2,815,344 ($1,700,703 x 1.6554 (tax gross-up factor)), very close to

PNM’s proposal. Gegax 2/14/13, Tr. 593-595.

PNM further states that Staff does not explain why a 90/10 customer/shareholder sharing

for these purposes is reasonable. Staff’ s only justification is that this is the sharing approved for

other utilities with regard to net margins from off system sales. Brack 2/15/13, Tr. 867-868.

Such reasoning fails to demonstrate that Staff’s approach is sufficiently "utility specific" as

required by Attorney General; see alxo, American Automobile Association. It also fails to

demonstrate that this amount of sharing is fair, properly balancing the interests of customers and

shareholders. Finally, Staff does not provide any test to demonstrate that the result of its method

is a fair opportunity to earn the profit required by the EUEA. Indeed, Staff’s rationale for the

10% sharing is related to supply-side resources. Staff provides no justification for why that

sharing amount should not be higher in order to provide a profit opportunity that is financially

more attractive than investing in supply-side resources. Increasing that sharing amount to 15%,



for example, to reflect the [!UEA requirement would result in a profit incentive allowance of

approximately $2.55 million, again very close to PNM’s proposal. Brack 2/15/13, Tr. 878.

WRA/CCAE’s Incenlive Proposal

WRA and CCAE propose another alternative approach . CCAE and WRA propose to

capitalize PNM’s program costs as a regulatory asset. The regulatory asset is depreciated over

the average life of the programs, and PNM is given a return on the asset plus an additional 150

basis points as the amount of profit required to make the investment in demand side resources

more attractive than supply side resources. WRA Ex. 2, Curl Direct, pp.5-6. This results in a

rate rider amount of $5.7 million in 20113 (assuming 12 months of recovery), of $5.33 million in

2014, and decreasing each year thereafter for a period of 8 years. WRA Ex. 2, Curl Direct, JEC-

1. The annual costs to ratepayers of the 2012 Plan, says WRA!CCAE, will be far less under this

methodology. Even as the costs of new plan years are added, the annual cost of ratepayers will

be less for the first eight years; before it levels off.

PNM opposed this approach and stated that Mr. Curl’s approach merely substitutes one

method of cost recovery for ar~other, and results in a riskier and costlier method. Only the 150

extra basis points on return is an incentive. The rest is just relabeling cost recovery while

increasing the riskiness of cost recovery. Graves Rebuttal 13; Graves 2/13/13, Tr. 492. There

are differences in the risk characteristics of expense items and hard assets. Capitalizing

something that is ordinarily an expense item doesn’t create value for the utility. Graves 2/13/13,

Tr. 490. Mr. Curl’s approa.cl:t only pro’~ides about $1 million in present value incentive accrued

in smaller amounts over several years, which is below the amount that is reasonable with costly

side effects in terms of the tax burdens. Further, PNM claims that Mr. Curl’s 150 basis points


incentive is too low relative to the opportunity costs displaced by the EE. Graves 2/13/13, Tr.

495.

In addition, PNM argued that tl~e tax burdens associated with Mr. Curl’s plan are greater

than those associated with PNM’s plan with less incentive. Under Mr. Curl’s approach,

extrapolated through 2020 to show how it operates, incentives would have a total nominal value

of $11.24 million and a present value of $6.67 million. Taxes associated with this approach and

paid by customers would be $34.24 million nominally over time and $20.32 million on a present

value basis. PNM’s proposal, if continued over the same time frame, would involve no new

customer payments for income taxes and provide shareholders $24.61 million of nominal

payments and $17.38 million of present value incentives. As a result of the relabeling of cost

recovery, the additional taxes created by using Mr. Curl’s approach alone would exceed the full

costs of PNM’s approach. Graves Rebuttal 14-17; Graves 2/13/13, Tr. 493.

PNM alleged that these financial consequences may become even more severe in the

future as more and more costs are capitalized. If the additional costs exceed the amounts being

amortized on an annual basis, then the regulatory asset will continue to grow. Graves 2/13/13,

Tr. 503-505. The severe financial consequences associated with the regulatory asset method

proposed by Mr. Curl may explain why very few states have chosen to use this method for

developing incentives and why one of those states, Nevada, abandoned the approach. Graves

Direct, 22-24. Further, in addition to the additional cisk created by Mr. Curl’s approach, it does

not take into account the possiSle impacts on cash flow and reduction in credit capacity. Those

issues created serious financial difficulties for PNM in the past. Curl Tr. 2/14/13,693-695; Ortiz

Rebuttal 8. By requiring hitcher costs to be imposed on customers with lower profits to PNM,

PNM argued that Mr. Curl’s approach fails to properly balance customer and investor interests.


See, New Mexico Industrial Energy Consumers v. New Mexico Public Service Commission,

104 N.M. 565, 571,725 P.2~5 244, 250 (1986 ("NMIEC 1986") (affirming NMPSC rejection of

model that would have provided greater savings to customers at the expense of drastically greater

exposure to shareholders).

Wal-Mart’s Position

Wal-Mart asserts that PNM’s proposal in this case would essentially implement a full

decoupling structure for tlh~--: recovery of lost revenues due to reduced sales from energy

efficiency and load management. If the plan is approved, Wal-Mart states that PNM will be able

to maintain and even increase its net profits even though it is selling less electricity as a result of

the energy efficiency programs included in the 2012 plan. While this is one potential outcome of

the full implementation of the EUEA, constructing a decoupling plan requires the breadth and

depth of review provided in a general rate case and is; beyond the scope of an energy efficiency

plan filing. PNM’s rates have historically contained clLass cross subsidies that can be exacerbated

by rider based recovery me::hanisms. In addition, PNM agreed in a prior case not to seek

decoupling until its next general rate ca:~e. (PRC Case No. 10-00086-UT) Wal-Mart Reply Brief,

p.3.

Wal-Mart further stat:,’s that removing disinceatives to energy efficiency is an important

piece of achieving the counlry’s energy efficiency goals, but it is a complicated problem that

regulators and utilities have just begu~ to address. Walmart encourages the Commission to

reject PNM’s attempt to imp]~ement clecoupling without adequate analysis. Wal-Mart Reply

Brief, p.4.


EnerNOC’s Position

EnerNOC takes no position on the PNM proposal, or on any of the other incentive

positions parties to this proceeding have espoused. EnerNOC encourages the Commission to

adopt Staff’s view that the incentive rnechanism chosen for PNM in this case should be "[f]or

purposes of this case only." (Staff Ex.5, Brack Direct at 8, see also Staff Ex. 1, Lamberson Direct

at 4.) EnerNoc Position Statetnent and Brief-In-Chief, p.13.

Staff’s recommendation that the Commission initiate a

Additionally, EnerNOC supports

process to establish a uniform

methodology for calculating the benefits associated with energy efficiency and load management

programs as part of the rulemaking to resolve the status of the Energy Efficiency Rule, 17.7.2

NMAC, including guidelines for specific incentive rate proposals. EnerNoc Brief at 13.

NMIEC’s Position

NMIEC objects to tlhe incentive mechanism, because PNM has based its proposal on the

notion that the EUEA requires the Commission to compensate the Company for its anticipated

lost profits for not building generation plant at some point in the future. (Direct Testimony of

Frank Graves, pp. 1-2)NMIEC Initial Brief at 5.

NMIEC shares the Attorney General’s opinic.ns that because PNM’s shareholders have

not provided any capital resources to fund the energy efficiency and load management programs,

there is no economic justification for awarding PNM a profit on those expenses. Adding the cost

of the proposed incentive to customers’ bills is net just and reasonable because it requires

ratepayers to compensate the utility for a risk they have not taken. Additionally, like the AG,

NMIEC believes that the proposal is simply a disguised mechanism to deal with a perceived

disincentive of implementing energy efficiency. PNM agreed to not request Commission

approval of any mechanism to address disincentives to utility energy efficiency programs


pursuant to the EUEA until, at the earliest, its next general rate case. (Case No. 10-00086-UT,

Amended Stipulation to Cor~form to Commission Order, p.12) NMIEC Initial Brief, p.9.

Finally, NMIEC shares the opinion, detailed above by Wal-Mart, that PNM’s incentive proposal

is, in fact, a decoupling rate under a different name. NMIEC Initial Brief, p. 10.

Recommendation

As noted earlier, tE.e EUEA requires the Commission to allow public utilities the

opportunity to earn an energy efficiency incentive - or more specifically stated, "to earn a profit

on cost-effective energy efficiency and load management resource development that, with

satisfactory program perforraance, is financially more attractive than developing supply-side

resources." The Commission should not accept the Company’s proposed methodology to

determine the amount of ener~iy efficiency incentive Io award PNM. PNM’s proposed incentive

methodology would, among other things, recover forgone or lost profits. Allowing recovery of

something foregone or lost is; not an incentive as envisioned in Section 62-17-5.F. PNM’s

proposal is also amazingly complex, and speculative in that it relies upon future events that may,

or may not, occur as "planned". While the Company employs a sophisticated planning tool and

has a base line of past experience, it is difficult to recommend that customers begin paying an

incentive so heavily based ov~ future events and outco~nes.

The WRA/CCAE Proposal is also problematic in that it would have to be implemented

for the full life of the program. The Commission could not very well begin to implement this

proposal and keep its flexibility� to dew:lop a different methodology in a future rulemaking. The

Cornmission also recognizes that there may be a problem with the approach in its relabeling of

items that are expense items as hard assets or capital items. There are differences in the risk

profiles of these categories. The result of the relabeling of the cost categories, and the future


implications of this proposal as additional programs are added, make it difficult for the Hearing

Examiner to recommend it at this time. At the same time, the Hearing Examiner recognizes that

the CCAE/WRA proposal matches the cost recovery period to the benefit period. This temporal

matching is a recognized reg,datory principle. Tr. Vol. 3, p.496. In other words, ratepayers pay

for the program during the period that they will .also obtain the benefits of the program.

Witnesses agreed that an eight year energy efficiency program life was the appropriate period to

use for the benefits timefrarne. Tr. Vol. 5, p.929 (Carrara); Tr. Vol. 4, p.497 (Graves; WRA Ex.

2, Curl Direct, p.6. The present value of year one of the CCAE/WRA proposal is $26.1 million.

PNM Ex. 8 Graves Rebuttal,. p.15 (corrected), Figure FCG-3. However, the cost to ratepayers

for the first year is only $5.(; million and $5.3 million in the second year, and decreasing each

year thereafter. Therefore, this approach may limit the alternatives that could realistically be

considered in the proposed mlemaking.

The Hearing Examiner recommends Staff’s approach for this proceeding. Staff’s

approach results in a profit incentive of $1,700,703 which is reasonable for the size of PNM’s

energy efficiency program. Additionally, Staff".; approach equals a profit margin of

approximately 7.6%. The Commission in PNM’s last energy efficiency case determined that a

profit margin of 7.6% was reasonable. The Attorney General witness also recommended that

based on previous Commission decisions, a profit margin in this range was appropriate. The

Hearing Examiner finds that although not endorsing all the aspects of Staff’s methodology nor

the methodology itself, the: end result of Staff’s approach is fair, just and reasonable. An

appropriate profit incentive like a fair :t’ate of return :is not susceptible to precise mathematical

calculation or to any certain f617mula and is, instead, dependent on the exercise of informed and

rational judgment. Mountain State Telephone & Telegraph Co. v. New Mexico State


Corporation Commission, 99 N.M. 1., 8, 653 P.2d 501 (1982). The reasonableness of the

ultimate decision of the Con;tmission i:~ the measure of the judgment exercised. New Mexico

Industrial Energy Consumers v. New Mexico Public Service Commission, 104 N.M. 565, 725

P.2d 244 (1986) There is a zone of reasonableness within which the Commission is free to set a

fair rate of return. State v. Mountain States Telephone & Telegraph Company, 54 N.M. 315,

338, 224 P.2d 155 (1950). The Commission must rely on its expert judgment in establishing a

fair rate of return. New Mexico Industrial Energy Consumers, supra; Attornel: General of New

Mexico v. New Mexico Public Service Commission, 101 N.M. 549, 686 P.2d 957 (1984). The

Commission is not bound by or limited to any one method of determining a fair rate of return for

it is the "end result" rather than the methodology used that matters. Hobbs Gas Co., 94 N.M. at

733, 734; Mountain States 1;el. & Tel. Co. v. New Mexico State Corporation Commission, 90

N.M. 325, 338, 563 P.2d 588 (1977). Although the Hearing Examiner recommends Staff’s

proposal as a basis for awarding an ince:tative in this case, the Hearing Examiner, emphasizes that

it should be accepted for this. case only. Until the Commission adopts a particular method for

determining an energy efficie~,acy incentive award, a utility’s award should continue to be

determined on a case-by-case basis, in conside~:ation of the particular evidence and

circumstances. The Commis’,sion is not foreclosed from refining its regulatory approach, and

parties are encouraged to do tlte same and make appropriate recommendations.

V. THE 2012 PLAN RATE RIDER

PNM recovers the cos;t.’; associated with energy efficiency programs and related profit

incentives through Rider No. 16 which is assessed to the applicable rate classes as a percent of

bill surcharge. PNM propose~ to increase the program cost element of the Rider from 2.150% to

2.595% of customers’ bills and to increase the profit incentive element from 0.112% to 0.332%


of customers’ bills. Bean Direct, 4"7 and Ex. SMB-3, p.1; Bean Reb. 32 and Ex. SMB-4

(Rebuttal). These amounts should be corrected to reflect the recommendation regarding the

incentive included in the prior section of the recommended decision. The revised program cost

element of the Rider will recover the $22,493,227 2012 Plan cost for 12 months of program

participation over a 12 month period. The profit :incentive element of the Rider should be

adjusted to recover the propo:~ed $1,700,703 profit incentive. The total revised Rider rate will be

less than 3% of customers’ bills, before taxes and franchise fees. The proposed Rider omits the

reconciliation elements approved in Case No. l.l-00123-UT and in the 2011 Annual

Reconciliation filing made on March 127, 2012 which expired in November and December of

2012 and April of 2013. Bean Direct, 47. Only seven customers are potentially affected by the

$75,000 annual Cap the EU15,A imposes on individual customer bills. PNM estimated that under

its proposal, the net impact of the energy efficiency rider change on residential customers ranges

from approximately $0.13 $7.76 per month depending upon kWh use, and for Small

Power/General Service customers ranges from approximately $0.22 -$59.31 per month

depending upon kwh use. Tln..e average residential bill impact is $2.01/month for PNM North and

$2.13 for PNM South. Bean Reb. 32 and Ex. SMB-4 (Rebuttal), p.5. These estimates will be

slightly reduced considering the recommendations herein.

The Commission’s Final Order in Case No. 10-00280-UT approved inclusion of the

following statement in PNM customer bill inserts: "The energy efficiency line on your bill pays

for programs that save energy and avoid the cost of new electricity generation." PNM proposes

to continue to include this stalement in customer bill inserts, and the Hearing Examiner agrees.

FINDINGS AND CONCLUSIONS

The Hearing Examiners recommend that the Commission FIND and CONCLUDE as

follows:


1. The Statement of the Case and Discussion and all findings and conclusions

contained therein are incorporated by reference herein as findings of fact and conclusions of law

of the Commission.

2. PNM is authorized to conduct the business of providing public utility service

within the State of New Mexico and is a public utility as defined by NMSA 1978, Section

62-3-3(G). PNM is subject to the jurisdiction of the Commission under the Public Utility Act,

NMSA 1978, Subsection 62-3-1, et seq.

3. The Commission has jurisdiction over the parties and the subject matter of this

case.

4. PNM satisfied the requirements of the EUEA Section 62-1-5(E) to solicit non

binding recommendations o~z. the design and implementation of the proposed Programs from

Commission Staff, the Attorney General, the Energy, Minerals and Natural Resources

Department and other interested parties.

5. PNM’s Application and supporting exhibits and testimony demonstrate that it

considered the appropriate criteria and explain how PNM applied the criteria in selecting the

proposed Programs.

6. The portfolio of EE/LM programs proposed by PNM in the 2012 Plan is cost

effective and designed to provide every affected customer class with the opportunity to

participate and benefit economically, and satisfies the requirements of Section 62-17-5(C) of the

EUEA.

7. The overall design of the programs in the 2012 Plan will achieve broad program

access within each affected customer class and some of the programs are designed to allow

participation by low income customers.


8. PNM demonstrated that the proposed set of programs will produce system

benefits in the form of energy savings and peak demand reductions that are necessary in order for

PNM to meet the 2014 energy savings requirement in the EUEA Section 62-17-5(G).

9. The educatiolml measures and other indirect impact measures proposed in the

Market Transformation program are not subject to the TRC test, do not negate the overall cost

effectiveness of the 2012 Plan and should be approved.

10. With the exception of the Market Transformation program which is included as an

indirect impact measure that need not in and of itself be cost effective, each program individually

and the portfolio of programs in the 2012 Plan as a wlq.ole, satisfy the TRC test.

11. PNM’s assumpIions, calculations and other elements associated with its TRC

calculations, including the projected costs and benefits for the programs, are appropriate and

should be approved. The incentive calculation used in this calculation is not approved.

12. PNM’s methodology for calculating the TRC ratios of the programs and the 2012

Plan as a whole is appropriate for the purposes of this case and is approved, except for the

incentive calculation proposed by the Company.

13. The projected energy savings per CFL bulb used in the calculation of the TRC

ratios for the EE programs in the 2012 Plan, the total EE savings and profit incentive should be

the savings recommended by ADM in its M&V report to be filed on or before April 1, 2013 for

PNM’s programs implemented in 2012. PNM should include recalculations of the TRC ratios,

the total EE savings, the profit :incentive and the Rider using the ADM recommended savings for

CFL bulbs, as accepted by the Commission, and the costs of including a limited number of LED

bulbs, in a compliance filing; due 15 days after entry of the Commission’s Final Order.



14. The five proposed new EE programs in the 2012 Plan-Whole House Program,

Low Income ("LI") Home Efficiency Program, Residential Stay Cool Program, Home Energy

Reports ("HERS") Program, and Student Efficiency Kits Program-meet the requirements of the

EUEA and should be approw,’d.

15. The revisions to the budgets and p~Lrticipation levels for nine existing PNM

EE/LM programs as proposed iin the 2012 Plan are reasonable and should be approved.

16. The new and existing EE/LM programs approved for inclusion in the 2012 Plan

should be implemented in accordance with the Program Plan, with the program changes agreed

to by PNM as discussed in this Recommended Decision, and with the various additional

information proposed by the Hearir~g Examiner for those programs, until order of the

Commission modifying or terminating them.

17. Although the existing Energy Star Home and Energy Smart for Renters programs

have been implemented for’ an adequate period, those programs have not sufficiently met their

goals and purposes and they should be lerminated. Builders currently participating in the Energy

Star Home program who lmve already been approved for rebates should be given until

September 30, 2013 to complete construction and receive the rebates.

18. The 2012 Plan program costs of $22,493,227 for the first full calendar year of

implementation of the programs (2014) are just and reasonable and should be approved for

recovery over a twelve month period. This should be the approved calendar year budget for the

2012 Plan until further Commission order modifying tlne 2012 Plan budget.

19. The individual, program budgets for calendar year 2013, as prorated by PNM in

accordance with the Commiss:ion’s Final Order in C, ase No. l l-00123-UT and shown in this

Recommended Decision, should be approved.



20. The individual program budgets proposed in the 2012 Plan for the first full

calendar year of implementation of the 2012 Plan are reasonable and should be approved as the

calendar year program budgets until fu~:her Commission order modifying the program budgets.

21. PNM’s proposed program costs are reasonable and PNM should be authorized to

recover those costs subject to reconciliation and true-up on a calendar year basis. PNM should

act reasonably to address signi:ficant changed circumstances which may occur between the time

of program approval and progr~tm expenditure and file requests for budget modification if annual

program costs are projected to vary by more the 25% of the approved budgets.

22. The initial measurement and evaluation of the approved new programs by the

independent evaluator should be at the end of 2014, after at least a full calendar year of

implementation, to provide a more accurate assessment of the cost effectiveness of the new

programs.

23. The Rider elements for ~:he approved program costs 2.595% of customers’ bills

should be adjusted to reflect the recommendation regarding the incentive rate, after which the

total Rider rate should be app:~oved under PNM’s cost recovery proposal, the program costs and

profit incentive will be recovered only from the electric customer classes that are eligible to

participate in the programs.

24. The Rider does not exceed the limit established in the EUEA, NMSA Section 62-

17-6(A), and provides for the recovery on a monthly basis of the reasonable costs of the

programs and incentive.

25. The Rider will not permit PNM to earn an excessive rate of return.

26. Staff and NM]~.F’,C’s recommendations that PNM provide data in future plan

applications and annual report.,; on program costs and benefits by rate class should be rejected.


27. The 2012 Plan meets the requirements of the EUEA and should be approved.

The Hearing Examiner recommends that the Commission ORDER as follows:

A. The EI!;/LM programs in PNM’s 2012 Plan are approved.

B. PNM’s program Rider adjusted for the incentives amount described herein

is approved.

C. Within 115 days of the filing of the Final Order, PNM shall make a

compliance filing consisting of the revised Program ]Rider, program budgets for calendar years

2013 and subsequent years, TRC calculations. The revisions shall reflect the incentive method

approved herein and all changes resulting from amendments to the programs as proposed in the

2012 Plan, as described herein.

D. Any outstanding matter not specifically ruled on is disposed of consistent

with this Final Order.

I S S U E D at Santa Fe, New Mexico this 24th day of May, 2013.

NEW MEXICO PUBLIC REGULATION COMMISSION


BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF THE APPLICATIONOF PUBLIC SERVICE COMPANY OF NEWMEXICO FOR APPROVAL OF ELECTRICENERGY EFFICIENCY PROGRAIVIS ANDPROGRAM COST TARIFF IRIDERPURSUANT TO THE NEW MEXICOPUBLIC UTILITY AND EFFICIENT USE OFENERGY ACTS,

PUBLIC SERVICE COMI?ANY OF NEWMEXICO,

APPLICANT.

))))))))))))))

Case No. 12-00317-UT

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing Recommended

Decision, issued May 24, 201.3, was sent by electronic mail to the individuals listed below.

Benjamin PhillipsMark FentonRebecca DempseyPeter GouldThomas DommeMary HomanSteven MichelCharles NobleCarmela StaraceJami Porter LaraLewis CampbellJay KumarAnastasia StevensMona Tierney-LloydJoartne ReuterEd ReyesJeffrey AlbrightHoward GellerSanders MooreTammy FiebelkornStephen FischmannThomas SingerNatisha Demko

Ben.phillips@pnmres ources.com;Mark. fenton@pnmre’,;o urces.com;[email protected];pgoul [email protected];Thorn [email protected];Mary. homan@nmgcc,.com;[email protected];[email protected];[email protected];[email protected];[email protected];j [email protected];[email protected];[email protected];[email protected];ereye~,[email protected]:aa;j [email protected];hgelle [email protected];Sande [email protected];[email protected];[email protected];[email protected]~rg;[email protected];

David Van WinkleGlenda MurphyMariel NanasiMaureen QuaidJeffrey HassW.H. Payne

Copy to:Nancy BurnsJames BrackRyan JermanJohn ReynoldsSandra Skogen

And Mailed to:

Abelardo Suniga1721 Villa Contesa Drive, NWLos Lunas, NM 87031

[email protected];[email protected];[email protected];mqua:[email protected]@aol.com;!~ [email protected];

[email protected];[email protected];Ryan. [email protected];John.Reynolds@stat e.nm.us;[email protected];

James and Nichol Brown6104 Bancroft Ct., NEAlbuquerque, NM 87111

DATED this 24th day of May, 2013.

NEW MEXICO IPUBLIC REGULATION COMMISSION

Elizabett~ffaiz,~La~v Cler"~

Certificate of ServiceCase No. 12-00317-UT Page 2

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