BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION IN THE MATIER OF PUBLIC SERVICE COMPANY OF NEW MEXICO'S RENEWABLE ENERGY ACT PLAN FOR 2018 AND PROPOSED 2018 RIDER RATE UNDER RATE RIDER NO. 36 ) ) ) ) ) ) ) PUBLIC SERVICE COMPANY OF NEW MEXICO, Case No. 17-00129-UT ) ) PETITIONER ) RECOMMENDED DECISION October 17, 2017 I. TABLE OF CONTENTS IL Statement of the Case .................................................................................................................................................................. 1 Summary of (1) PNM's 2018 Plan and Contested Issues; (2) Parties' Recommendations; and (3) III. Hearing Examiner's Recommendations ............................................................................................................................................ 6 Summary of PNM's Uncontested 2018 Plan and Hearing Examiner's Recommendation to Approve the 2018 Plan With Two Modifications ......................................................................................................................................... 6 A. B. Request for Variance From "Other" Diversity Requirement in 2018 ................................................................. 7 C. Contested Issue: Correction of Large Capped Customers' Double Receipt of Avoided Fuel Cost Savings ............................................................................................................................................................................................................ 7 D. Contested Issue: NMIEC's Motion for Partial Dismissal... ...................................................................................... 8 E. Contested Issue: Calculation of Renewable Cost Threshold .................................................................................. 8 F. Contested Issues: PNM's Proposed Procurements for 2019 and 2020 ............................................................ 9 1. New Mexico \'Vind Energy Center.................................................................................................................................... 9 2. Dale Burgett Geothermal Facility .................................................................................................................................... 9 Affordable Solar Project...................................................................................................................................................... 10 N. The Renewable Energy Act and Rule 572 ....................................................................................................................... 11 v. PNM's Existing Renewable Energy Resources and Their Costs.......................................................................... 12 v..rind Resources ............................................................................................................................................................................ 12 A. 1. New Mexico Wind Energy Center.................................................................................................................................. 12 2. Red Mesa Wind Energy Ccntcr ....................................................................................................................................... 13 B. Solar Resources ............................................................................................................................................................................ 13 c. "Other" Resources ....................................................................................................................................................................... 13 D. Distributed Generation ............................................................................................................................................................. 14 E. 2018 Per kWh Procurement Cost of Renewable Energy Resources in PNM's Portfolio ............................... 14 VI. Correction of Large Capped Customers' Double Receipt of Avoided Fuel Cost Savings ........................ 15 VII. NMIEC's Motion for Partial Dismissal.. ................................................................................................................................ 25 VIII. PNM's 2018 Renewable Energy Portfolio Procurement Plan .............................................................................. 27 A. Calculation of the Renewable Portfolio Standard....................................................................................................... 27 B. Request for Variance from "Other" Diversity Requirement .................................................................................. 29 c. Calculation of the Renewable Cost Threshold.............................................................................................................. 31 1. Avoided Capacity Costs ....................................................................................................................................................... 31 2. Backup and Load Following Costs ................................................................................................................................ 34 3. Resulting RCT .......................................................................................................................................................................... 37 D. Renewable Energy Rider ......................................................................................................................................................... 38 E. PNM's 2018 Solar REC Incentive Program (SIP) ....................................................................................................... 40 F. 2018 IX. A. Not to Exceed Price for Additional RECs ............................................................................................................ 41 Proposed Procurements for 2019 and 2020 .................................................................................................................... 42 New Mexico V..Tind Energy Center ....................................................................................................................................... 42 Recommended Decision Case No. 17-00129-UT i L Description of Original Procurement and Proposed Procurement ............................................................. .42 2. Staffs Position ......................................................................................................................................................................... 44 3. ABCWUA's Position .............................................................................................................................................................. 46 4. WRA and CCAE's Position ................................................................................................................................................ 47 5. NMIEC's Position ................................................................................................................................................................... 47 6. PNM's Response ..................................................................................................................................................................... 48 7. Analysis/Hearing Examiner's Recommendation .................................................................................................. 50 B. Dale Burgett Geothermal Facility........................................................................................................................................ 50 1. Description of Original Procurement and Proposed Procurement.. ............................................................ 50 2. History of Lightning Dock and Filing of Bankruptcy .......................................................................................... 53 3. Staffs Position ......................................................................................................................................................................... 57 4. ABCWUA's Position .............................................................................................................................................................. 58 5. WRA/CCAE's Position ......................................................................................................................................................... 59 6. NMIEC's Position ................................................................................................................................................................... 59 7. PNM's Response ..................................................................................................................................................................... 59 8. Analysis/Hearing Examiner's Recommendation .................................................................................................. 60 c. Affordable Solar Project ........................................................................................................................................................... 63 1. Description of Project .......................................................................................................................................................... 63 2. CCN Requirement .................................................................................................................................................................. 64 3. The 2017 RFP ........................................................................................................................................................................... 67 4. New Energy Economy's Objection ................................................................................................................................ 68 5. Staffs Position ......................................................................................................................................................................... 71 6. WRA and CCAE's Position ................................................................................................................................................ 72 7. 8. ABCWUA's Position .............................................................................................................................................................. 72 9. Analysis/Hearing Examiner's Recommendation .................................................................................................. 75 PNM's Response to Objections ....................................................................................................................................... 73 X. Request for Variance from Data Filing Requirements ............................................................................................. 80 XI. Preparation of Exhibits A, B & C ......................................................................................................................................... 81 XII. Striking of Part of PNM's Initial Posthearing Brief ................................................................................................... 81 XIII. Findings of Fact and Conclusions of Law ....................................................................................................................... 82 XN. Decretal Paragraphs ................................................................................................................................................................... 83 Recommended Decision Case No. 17-00129-UT ii Carolyn R. Glick, Hearing Examiner for the New Mexico Public Regulation Commission, submits this Recommended Decision to the Commission under i.2.2.29(D)(4) and i.2.2.37(B) NMAC. The Hearing Examiner recommends that the Commission adopt this Recommended Decision in its Final Order. II. STATEMENT OF THE CASE On June 1, 2017, Public Service Company of New Mexico (PNM) filed its Application for Approval of its Renewable Energy Act Plan for 2018. The Application requests approval for the following: 1. Procure the increased output from upgrades to the New Mexico Wind Energy Center, which is projected to result in 80,000 additional megawatt hours (MWh) in 2019 and 105,000 MWh in 2020 and beyond without an increase in the per MWh purchase price; 2. Procure the increased output from upgrades to the Dale Burgett geothennal facility, which is projected to result in 55,000 MWh in 2019 and 77,000 MWh in 2020 and beyond at a decreased per MWh price; 3. Procure 50 megawatts (MW) of solar facilities under a turnkey agreement with Affordable Solar to begin serving customers in 2019 and expected to generate 140,000 MWh in 2020 at an estimated cost of $72,861,898; 4. A variance from the Rule 17.9.572.11 "other" diversity requirement in 2018; 5. A Capacity Reservation Program of 2 MWAc of capacity at a purchase price of $0.0025 per kilowatt hour (kWh) of renewable energy certificates (RECs) for distributed generation systems sized over 100 kWAC and up to 1 MWAC; 6. A not-to-exceed price of $3.00 per MWh/REC for any RECs that PNM may need to procure in 2019 to make up for any deficiency in the number of RECs available to meet the 2018 Renewable Portfolio Standard (RPS); 7. Reset the rate for PNM's Renewable Energy Rider at $0.0062269 per kWh effective January 1, 2018, an increase from the 8. $0.0054419 current rate; and To the extent necessary, a variance from the data filing requirements of 17.9.530 N:MAC On June 14, 2017, the Commission initiated this proceeding and designated the undersigned to preside over it. The Commission extended the review period to the maximum of days or November 28, 2017. 180 The following parties filed Motions for Leave to Intervene: • New Mexico Industrial Energy Consumers (NMIEC) • Bernalillo County • Albuquerque Bernalillo County Water Utility Authority (ABCWUA) • New Energy Economy (NEE) • Western Resource Advocates (WRA) • City of Albuquerque • Coalition for Clean Affordable Energy (CCAE) • Interwest Energy Alliance PNM filed an Affidavit of Publication shnw:ing that the Notice to Customers was published in theAlbuqILerqILe Journal on June 30, 30, 2017; 2017. 2017; the Alamogordo Daily News on June the Las Cruces Sun News on July 7, 2017; and the Union County Leader on .July 7, The Affidavit of Publication also shows that PNM completed sending the Notice to its customers via bill insert or email by August 1, 2017. A public hearing was held on September 18L11, 20th, 21st and 22nd, 2017. Oral public comments were received. The follmving witnesses testified: For PNM.:. • Patrick O'Connell, Director, Planning & Resources for PNM • Gary Barnard, Director of Strategic Energy Planning & Development, PNMR Services Co. Recommended Decision Case No. 17-00129-UT 2 • Shane Gutierrez, Engineer IV in PNM's Planning & Resources Department • Henry Monroy, Director, Cost of Service and Audit Services, PNMR Services Co. • Scott Vogt, Manager of Pricing & Business Analytics for PNM • Susan Taylor, Manager of Utility Margin for PNM For WRA: • David Effross, Senior Energy Policy Advisor for WRA For NEE: • Nicholas Muller, former Executive Director of Colorado Independent Energy Association For Staff • John Reynolds, Staff Economics Bureau Chief • Heidi Pitts, Staff Economist Other Witness: • Nicholas Goodman, CEO of CYRQ Energy and Lightning Dock Geothermal. Mr. Goodman did not prefile testimony but appeared at the hearing to make public comment. Tr. 242-46. After Mr. Goodman gave public comment, WRA's counsel suggested that Mr. Goodman be sworn in so that his statements could be relied on as evidence. Staff counsel did not object as long as she was allowed to cross examine Mr. Goodman. Id. at 258-59. After being sworn in, Mr. Goodman testified and was cross examined and examined by the Hearing Examiner. Tr. 262-339. His testimony under oath is evidence. The Hearing Examiner admitted the following exhibits into evidence: PNM Exhibits: 1 Direct Testimony of Patrick O'Connell 2 July 7, 2017 Supplemental Testimony of Patrick O'Connell 3 Rebuttal Testimony of Patrick O'Connell 4 Direct Testimony of Gary Barnard Recommended Decision Case No.17-00129-UT 3 5 July 7, 2017 Supplemental Testimony of Gary Barnard 6 Rebuttal Testimony of Gary Barnard 7 Direct Testimony of Shane Gutierrez 8 July 7, 2017 Supplemental Testimony of Shane Gutierrez 9 September 13, 2017 Supplemental Testimony of Shane Gutierrez; 10 PNM Exhibit SG-2 Corrected Alternative 1 11 PNM Exhibit SG-2 Corrected Alternative 2 12 Corrections to Shane Gutierrez Prefiled Testimonies 13 Direct Testimony of Kyle Sanders (adopted by Henry Monroy) 14 Resume of Henry Monroy 15 PNM Response to September 21, 2017 Bench Request 16 Direct Testimony of Scott Vogt 17 Corrections to Scott Vogt Prefiled Testimony 18 Direct Testimony of Susan Taylor 19 July 7, 2017 Supplemental Testimony of Susan Taylor 20 PNM Exhibit SAT-1 Supplemental 21 Corrections to Susan Taylor Prefiled Testimonies 22 May 23, 2017 UtilitiJ Dive article 23 January 10, 2017 Uti.litlJ Dive article NSEExhibits: 1 Case No. 14-00158-UT, Pages of Patrick O'Connell's Testimony in Support of Stipulation 2 Case No. 08-00305-UT, Pages of Cynthia Bothwell's Direct Testimony in Support of Stipulation 4 Page showing partial results of 2016 PNM RFP 5 Case No. 14-00158-UT, Affidavit of Patrick O'Connell 6 Pages from June 2017 Investor Meetings Powerpoint Recommended Decision Case No.17-00129-UT 4 7 PNM Responses to NEE Discovery Requests 8 Case No. 16-00191-UT, Pages of PNM's Supplemental Response to Commission Second Bench Request Order 10 Case No. 16-00191-UT, page of Gerard Ortiz's Direct Testimony 11 PNM Responses to NEE Discovery Requests 12 Case No. 16-00191-UT, PNM's Response to Commission Third Bench Request Order 13 PNM Responses to NEE Discovery Requests 15 Xcel Energy 2017 RFP announcement 17 Direct Testimony of Nicholas Muller CCAE Exhibits: 1 PNM Response to CCAE Discovery Request 1-2 2 PNM Response to CCAE Discovery Request 3-1 VVRA Exhibits: 1 Rebuttal Testimony of David Effross NMIEC Exhibits: 2 DOE Staff Report to Secretary on Electricity Markets and Reliability 3 PNM Response to NMIEC Discovery Requests Staff Exhibits: 1 March 16, 2017 Utility Dive article 2 DOE 2016 Wind Technologies Market Report 3 Disclosure Statement for Debtors' Third Amended Joint Chapter 11 Plan 4 Exhibit JJR-3 (Bench Request) 6 E-mail from Nick Goodman & LDC Confirmation Plan 7 Direct Testimony of John Reynolds 8 Supplemental Exhibit to Reynolds Direct 9 Case No. 17-00221-UT, Application for Location Approval Recommended Decision Case No.17"00129-UT 5 10 Direct Testimony of Heidi Pitts {:_pmmission Exhibits: 1 Amended & Restated Geothermal Power Purchase & Sale Agreement 2 Energy.gov printout on Production Tax Credit 3 Energy.gov printout on Investment Tax Credit NEE sought admission of NEE Exhibit 9, which was portions of PNM's Notification of Class I Transaction, filed on April 28, 2017. The Hearing Examiner granted PNM's request to take administrative notice of the entire document, and it was admitted into evidence but not made an exhibit because of its length. Tr. 370-71. On October 2, 2017, NMIEC filed a Motion for Partial Dismissal and Brief in Support. The Hearing Examiner ordered that responses to NMIEC's Motion could be filed as part of Initial Posthearing Briefs. PNM filed Suggested Corrections to the Transcript of Proceedings, which are unopposed. Initial Posthearing Briefs were filed by NMIEC, WRA/CCAE Gointly), PNM, ABCWUA, NEE and Staff. Posthearing Response Briefs were filed by NMIEC, WRA/CCAE (jointly), PNM, ABCWUA, NEE and the Interwest Energy Alliance. III. SUMMARY OF (1) PNM's 2018 PLAN AND CONTESTED ISSUES; (2) PARTIES' RECOMMENDATIONS; AND (3) HEARING EXAMINER'S RECOMMENDATIONS A. SUMMARY OF PNM's UNCONTESTED 2018 PIAN AND HEARING EXAMINER'S RECOMMENDATION TO APPROVE THE 2018 PIAN WITH Two MODIFICATIONS This summary incorporates the Hearing Examiner's two recommended modifications to PNM's 2018 Plan. In its application, PNM requests Commission approval for its 2018 Renewable Energy Act Procurement Plan. PNM does not propose any new procurements in Recommended Decision Case No. 17-00129-UT 6 2018, and no party opposes PNM's 2018 renewable energy portfolio mix. The Hearing Examiner recommends approval of the 2018 Plan with two exceptions: (1) recalculate the Renewable Portfolio Standard requirement to reflect using gross cost to calculate the Large Customer Adjustment (which PNM does not oppose); and (2) completely terminate PNM's Dale Burgett geothermal procurement effective January 1, 2018. The RPS requirement is 15% for 2018 and 2019, and PNM expects to exceed that requirement in both years. Overall, PNM projects that it will meet its diversity percentage requirements for all resource types in both 2018 and 2019 with one exception: the "other" diversity requirement. In both 2018 and 2019, PNM's portfolio costs are well within the 3% RCT limit. PNM's projected gross cost to comply with the RPS is $42,303,904 in 2018 and $43,974,188 in 2019. In 2018, the projected portfolio RCT is 2.3%, while in 2019 it is 2.0%. PNM proposes to increase the current Renewable Energy Rider (Rider No. 36) rate to $0.0060571 per kWh effective January 1, 2018. B. REQUEST FOR VARIAN CE FROM "OTHER" DIVERSI1Y REQUIREMENT IN 2018 PNM requests a variance from the "other" diversity requirement in 2018. This request is unopposed, and the Hearing Examiner recommends granting it. Staff recommends that the Commission revisit the necessity of the "other" diversity requirement in light of the severe challenges in meeting the requirement economically. C. CONTESTED ISSUE: CORRECTION OF LARGE CAPPED CUSTOMERS' DOUBLE RECEIPT OF AVOIDED FUEL COST SAVINGS In PNM's last general rate case, the Commission ordered PNM in this case to address methods for eliminating a remaining cost misallocation involving Large Capped Customers (LCCs) which results in LCCs receiving the monetary benefit of avoided fuel cost savings twice. PNM identified three methods, and recommended one method, to eliminate the cost Recommended Decision Case No.17-00129-UT 7 misallocation. All three methods would result in LCCs paying more, but in different amounts. LCCs would pay more under all methods because each method removes the double counting of the avoided fuel cost benefit. The Hearing Examiner recommends adopting PNM's Proposed Method. This would result in LCCs paying $356,766 more toward the RPS in 2018. Adopting this method would require the Commission to overrule its decision in Case No. 15-00166-UT to use net cost, rather than gross cost, to calculate the Large Customer Adjustment. It would also result in PNM procuring a lower number of Renewable Energy Certificates (RECs) on a going forward basis. WRA and CCAE recommend that the Commission not adopt PNM's Proposed Method, but one of the other two methods, which would result in LCCs paying either $1,080,380 or $791,237 more. D. CONTESTED ISSUE: NMIEC's MOTION FOR PARTIAL DISMISSAL NMIEC argues that the Commission has no jurisdiction to correct the double counting of avoided fuel savings to LCCs because eliminating that problem would materially change Method A, the adoption of which NMIEC appealed and is pending in the New Mexico Supreme Com1. WRA and CCAE oppose NMIEC's Motion for Partial Dismissal. The Hearing Examiner recommends rejecting NMIEC's Motion because eliminating the double counting will not materially change Method A E. CONTESTED ISSUE: CALCULATION OF RENEWABLE COST THRESHOLD No party objects to PNM's calculation of the Renewable Cost Threshold (RCT) for Plan Year 2018. However, WRA and CCAE ask the Commission to order PNM in future cases to include avoided capacity costs from all renewable energy resources in PNM's renewable energy portfolio, not just renewable energy resources added in the plan year. NMIEC asks the Commission to order PNM in future cases to separately identify costs of backup generation and load following caused by renewable energy. The Hearing Examiner recommends rejecting both WRA/CCAE's and NMIEC's arguments. Recommended Decision Case No. 17-00129-UT 8 F. CONTESTED ISSUES: PNM's PROPOSED PROCUREMENTS FOR 2019 AND 2020 PNM seeks approval of three procurements that it would use toward compliance with the RPS in 2019 and 2020. Staff recommends that the Commission disapprove a11 three procurements and require PNM to consider all reasonable options in a new RFP process that is "open and transparent to all bidders and the public." Staffs Initial Posthearing Brief at 19. 1. NEW MEXICO WIND ENERGY CENTER PNM seeks approval of an amended procurement of wind energy and RECs from the New Mexico Wind Energy Center (NMIEC) through a "repowering" of the Facility that would increase production by about 105,000 MWhs annually. Under the Amended PPA, the term would be extended from 2028 to 2045 and the $27.25 per MWh/REC price would not change. Staff and ABCWUA oppose this procurement for valid reasons: Staff presented solid evidence that wind energy technologies arerapid1y changing and prices are decreasing. NMIEC, WRA and CCAE recommend approving the procurement. This was a difficult call: on balance, the Hearing Examiner recommends approving this proposed increased procurement because (1) the NMWEC is a relatively low cost existing renewable energy resource and its avoided fuel cost exceeds its procurement cost, reducing the RCT; (2) sufficient existing transmission capacity exists to support the increased procurement; and (3) approving the amended procurement will not foreclose other wind energy procurements in the future. 2. DALE BURGETT GEOTHERMAL FACILITY PNM seeks approval of an amended procurement of geothermal energy and RECs from the Dale Burgett Geothermal Facility. Under the Amended PPA, the Facility would be repowered, the term would be extended from 2033 to 2042 and the 2018 per MWh/REC price would decrease from $108.64 to $89. However, the Amended PPA, like the original PPA, has an annual price escalation clause, and in the last year of the amended term, the per MWh/REC Recommended Decision Case No. 17-00129-UT 9 price would be $160.98. Lightning Dock, which operates the Facility, filed a petition for bankruptcy this year, and PNM had the opportunity to terminate the PPA upon LighLning Dock's filing of the bankruptcy peLition. Instead, PNM entered into the Amended PPA, which is designed to give Lightning Dock an opportunity to salvage the project. The Amended PPA supercedes the previous version of the PPA, and if the amended procurement is not approved, PNM would no longer have a contract with Lightning Dock In any event, if the amended procurement is not approved, PNM would have the right to terminate the procurement because of Lightning Dock's filing for banlauptcy. Staff opposes the amended procurement. ABCWUA, WRA and CCAE support it. NMIEC recommends that "the Commission give serious consideration to approving the amendment to the Dale Burgett geothermal PPA[.]" The Hearing Examiner recommends rejecting this proposed procurement and ordering PNM to tenninate its agreement with Lightning Dock effective January 1, 2018, for the following reasons: (1) PNM did not consider alternatives when it had the opportunity to terminate its PPA with Lightning Dock. In fact, PNM received a credible geothermal bid in 2016 which it chose not to pursue; (2) if the amended procurement is approved and the price of geothermal energy decreases, ratepayers would not get that benefit because PNM is tied into the contract for an additional eight years and 2 112 months; and (3) the high cost of the procurement is not justified by the Commission's "other" diversity requirement. The 2020 cost of the procurement would be $7,199,933· The 2042 cost of the procurement would be $12,395,199. The total cost of the procurement from 2019 through 2042, in today's dollars, would be $98,210,806. 3. AFFORDABLE SOLAR PROJECT PNM seeks approval of 50 megawatts of solar photovoltaic facilities. The Project is a turnkey project, meaning that Affordable Solar would construct the facilities and transfer ownership to PNM. The levelized bid cost was $44.63/MWh. The Affordable Solar Project was proposed in response to PNM's 2017 Request for Proposals (RFP). PNM received only six bids in response to the RFP. Two of the bids were for PPA proposals which did not meet the RFP Recommended Decision Case No, 17-00129-UT 10 requirements. Staff, NEE and ABCWUA oppose approval of this procurement for valid reasons. WRA and CCAE support the procurement. This was not a difficult call: the Hearing Examiner recommends rejecting this proposed procurement and ordering PNM to immediately issue a new RFP that gives bidders 90 days to respond to the RFP and offers access to PNM-controlled sites to PPA bidders if PNM offers access to those sites to turnkey bidders. The Hearing Examiner agrees with the opponents that PNM failed to show, as required, that the Affordable Solar Project is PNM's most cost effective solar resource procurement among available alternatives because the 2017 RFP process did not give PPA bidders a fair opportunity to participate and compete. I found that allowing bidders only 31 days to respond to the RFP was insufficient and that the provision in the RFP allowing turnkey bidders, but not PPA bidders, to use PNM-controlled sites was unfair and uncompetitive. IV. THE RENEWABLE ENERGY ACT AND RULE 572 The Renewable Energy Act (REA) requires a public utility to include renewable energy in its electric energy supply portfolio and to meet the REA's renewable portfolio standard (RPS). The RPS is the percentage of retail sales by a public utility to electric consumers in New Mexico that must be supplied by renewable energy. Under the REA, for public utilities other than rural electric cooperatives and municipalities, the RPS currently is 15% and increases to 20% on January 1, 2020. NMSA 1978, § 62-16-4(A)(1). However, a public utility is not required to add renewable energy to its electric supply portfolio above the reasonable cost threshold (RCT) established by the Commission, which is 3% of plan year total revenues. Id.,§ 62-16-4(C); 17.9.572.12 NMAC. A public utility demonstrates compliance with the RPS through retirement of renewable energy certificates (RECs). 17.9.572.17 NMAC. A public utility's renewable portfolio "shall be diversified as to the type of renewable energy resource, taking into consideration the overall reliability, availability, dispatch flexibility and cost of the various renewable energy resources made available by suppliers and generators." Recommended Decision Case No.17-00129-UT 11 Id.,§ 62-16-4(A)(4). The PRC, through 17.9.572 NMAC (Rule 572), has defined a fully diversified renewable energy portfolio as one in which (1) at least 30% of the RPS requirement is met using wind energy; (2) at least 20% is met using solar energy; (3) at least 5% is met using other renewable technologies such as biomass, geothermal or landfill gas; and (4) at least 3% is met using distributed generation. 17.9.572.7(G) NMAC. A public utility must file annually a renewable energy portfolio procurement plan that includes, among other things, l11e utility's determination of the plan year and next plan year RPS and RCT. The plan year is presented for Commission approval and the next plan year is presented for informational purposes. 17.9,572.14 NMAC. At the same time that a public utility files its annual renewable energy portfolio procurement plan, it must file a renewable energy portfolio report on its renewable energy generation or purchases ofrenewable energy during the prior plan year. 17.9.572.19 NMAC. V. PNM's EXISTING RENEWABLE ENERGY RESOURCES AND THEIR COSTS A. WIND RESOURCES The majority of PNM's renewable energy portfolio comes from wind energy, which totals 302 MW: 63% projected for 2018 and 53% for 2019. Pitts Direct at 9. 1. NEW MEXICO WIND ENHRGY CHN.l'HR PNM has a 25-year purchased power agreement (PPA) to purchase all of the energy and RECs produced by the New Mexico Wind Energy Center (NMWEC), a 200 MW wind generation facility in Quay County, New Mexico, owned and operated by NextEra Energy Resources. Between 2013 and 2016, the NMWEC generated behveen 496,552 MWhs and 404,766 MWhs animally. A portion of the NMWEC output supplies energy and RECs for the Sky Blue Program that PNM offers under Rule 572.18, which are not used for RPS compliance. Gutierrez Direct at 11; Exh. JJR-1 to Reynolds Direct. Recommended Decision Case No. 17-00129-UT 12 2. RED MESA WIND ENERGY CENTHR PNM has a 20-year PPA to purchase all of the energy and RECs produced by the Red Mesa Wind Energy Center, a 102 MW facility in Cibola County, New Mexico. Energy production from this facility is expected to be 208,223 in 2018, 2019 and 2020. Gutierrez Direct at 12. B. SOIAR RESOURCES PNM's utility-scale solar resources are all PNM-owned. They tota1107 MW of generation: 1 Year Facility Size Constructed (MW) 2006 or ear1ier2 2011 0.03 Case_____- --2018-; Generation -2019: Gcneratfon Reference 05-00356- for RPS Compliance for RPS Compliance (MWh) (MWh) 128 126 UT 10-0007747,182 UT ------t-------t-----------t-------------t----------; 20 12-001312013 44,015 43,854 UT 2014 23 13-0018354,216 53,945 UT 2015 38.1 14-00158110,107 UT Totals 259,406 255,647 22.5 Case No. 16-00148-UT, Certification of Stipulation at 13; Gutierrez Direct 12-14. C. "OTHER" RESOURCES PNM's only "other" resource is its 20-year PPA to purchase all of the energy and RECs produced by the Dale Burgett Geothermal Facility (formerly known as Lightning Dock) in the Animas Valley in Hidalgo County, New Mexico. The Facility generates electricity from geothermal resources. Gutierrez Direct at 14. PNM allocates the energy produced from 1.5 MW of these Facilities to PNM's Sky Blue Program. Energy produced from 1.9 MW of the Facilities was allocated to PNM's FERC customers in 2017. 2 Algodones site and Aztec building 1 Recommended Decision Case No.17-00129-UT 13 D. DISTRIBUTED GENERATION Under Commission-approved programs, PNM has numerous REC-only purchase contracts with PNM customers who interconnect solar PV systems to their homes, commercial buildings or other customer facilities. PNM acquires some or all of the RECs associated with energy generated from customer-sited solar PV facilities. These programs include the Small PV REC Purchase Program, the Large PV REC Purchase Program, the Solar REC Incentive Programs, the Capacity Reservation Program and the Customer Solar REC Purchase Program. E. 2018 PER KWH PROCUREMENT COST OF RENEWABLE ENERGY RESOURCES IN PNM's PORTFOLIO The following table shows the 2018 per kWh procurement cost of renewable energy resources in PNM's portfolio: 2018 Procurement Cost $/kWh Resource Utility Wind NM Wind Energy Center Red Mesa 2.72¢ 2.96¢ Distributed Generation Small PV RECs3 Large PV RECs4 SIP RECs $0.14 - $0.05s 2012 DG Capacity Reservation 2013 DG Capacity Reservation 2014 DG Capacity Reservation 2015 DG Capacity Reservation 2016 DG Capacity Reservation 2017 DG Capacity Reservation 2018 DG Capacity Reservation CSPP RECs6 Case No. 13-00390-UT Stipulation? 6.54¢ 15.00¢ 8.07¢ 2.00¢ 2.00¢ 2.00¢ 2.00¢ 2.00¢ 2.00¢ .025¢ 3.60¢ .025¢ This Small PV Program is closed to new applicants. PNM's 2nd Revised Rate No. 24. This Large PV Program is closed to new applicants. PNM's 1st Revised Rate No. 31. s The SIP is the Solar REC Incentive Program, which replaced the Small and Large PV Programs. Case No. 10-00037-UT, Final Order Partially Adopting Recommended Decision at 17 (8-31-10). 6 The CSPP is the Customer Solar REC Purchase Program, approved in Case No. 12-00131-UT. It was developed for systems with a capacity rating of 100 kWAc or lower to replace the fully subscribed categories of 100 kWAc and lower in the SIP. Case No. 12-00131-UT, Recommended Decision at 38 (11-712), adopted in relevant part by Final Order (12-11-12). 7 Under the Stipulation approved in Case No. 13-00390-UT, the Signatories agreed to support PNM's procurement of RECs from up to 3 MWAc per year of new customer-owned solar DG, up to 100 kWAc in 3 4 Recommended Decision Case No. 17-00129-UT 14 Utility Solar Algodones/Aztec@ 3:1 PNM Solar PV 22.5 MW 2013 PNM Solar PV 20 MW 2014 PNM Solar PV 23 MW 2015 PNM Solar PV 40 MW 0¢ 9.68¢ 10.85¢ 9.93¢ 0.00¢ Utility "Other" Dale Burgett Geothermal PPA 8.9¢ (Proposed PNM Solar PV 50 MW for 2020) 6.19¢ Exh. SG-2 Corrected, pp. 5, 7, to Gutierrez Direct. VI. CORRECTION OF LARGE CAPPED CUSTOMERS' DOUBLE RECEIPT OF AVOIDED FUEL COST SAVINGS To meet the REA's renewable portfolio standard (RPS) requirement, a public utility must include a specified amount of renewable energy resources in its electric energy supply portfolio. For 2018, the RPS is 15% of a public utility's "plan year total retail energy sales" to electric consumers in New Mexico. NMSA 1978, § 62-16-3(G); 17.9.572.7(F) NMAC. Rule 17.9.572 (Rule 572) defines "plan year total retail energy sales" as a utility's projected weather adjusted retail energy sales, measured in kilowatt-hours (kWh), adjusted for projected energy efficiency reductions and adjusted further by reductions in energy sales to: (1) large nongovernmental customers who qualify under Section 62-16-4(A)(2) of the REA; and (2) customers exempted under Section 62-16-4(A)(3) of the REA. An Exempt Customer is one who owns renewable energy generation and certifies that it will spend 2.5% of a year's projected electricity charges to continue to develop within 24 months customer-owned renewable energy generation. NMSA 1978, § 62-16-4(A)(3). size per system during 2017, 2018 and 2019. In Case No. 16-00148-UT, the Commission approved extension of the CSPP of 3 MWAC per year starting in 2017 and ending in 2019 at a price of $ 0.0025 per kWh of RECs for PV systems up to 100 kWAC in size. Case No. 16-00148-UT, Recommended Decision at 16-18 (10-21-16), adopted by Final Order Adopting Recommended Decision (11-23-16). Recommended Decision Case No.17-00129-UT 15 A large nongovernmental customer (Large Capped Customer or LCC) is one who consumes more than 10 million kWh annually. Under the REA, the kWh of renewable energy procured for LCCs is limited so that "the additional cost of the renewable portfolio standard" to such customers does not exceed a specified amount (the Large Customer Cap). The Large Customer Cap in 2011 was the lower of 2% of a customer's annual electric charges or $99,000. Starting in 2012, the Large Customer Cap is adjusted for inflation using the consumer price index-urban published by the Bureau of Labor Statistics. NMSA 1978, § 62-16-4(A)(2). In 2018 and 2019, the Large Customer Cap is the lower of 2% of a customer's annual electric charges or $110,804 in 2018 and $112,466 in 2019. Gutierrez Direct at 17. Remaining customers who arc neither Exempt Customers nor LCCs are "Other Customers." In PNM's last general rate case - Case No. 15-00261-UT- the Commission corrected a fuel cost misallocation that occurred because, while Exempt Customers arc exempt from paying for renewable energy procured by PNM, and LCCs are capped in their payment for renewable energy procured by PNM, they received offsetting fuel savings based on the total amount they would pay for renewable energy if they were not exempt or capped. The Commission adopted PNM's proposed "Method A" to correct this fuel cost misallocation, which required PNM to break the Fuel and Purchased Power Cost Adjustment Clause (FPPCAC) charge into two parts: 1. One FPPCAC charge applies to the estimated percentage of a customer's electricity use generated by non-renewable energy 2. The other FPPCAC charge applies to the estimated percentage of a customer's electricity use generated by renewable energy - this FPPCAC factor is zero because no fuel use is associated with use ofrenewable energy. The charge on this line of a customer's bill will always be zero. Case No. 15-261, Corrected Recommended Decision at 58 (8-15-16), adopted in relevant part by Final Order Partially Adopting Conected Recommended Decision (9-28-16). The adoption of Recommended Decision Case No. 17-00129-UT 16 Method A resulted in LCCs and Exempt Customers paying more in fuel costs because LCCs are billed a higher percentage of their energy use at the higher non-renewable FPPCAC factor and Exempt Customers are billed for 100% of their energy use at the higher non-renewable FPPCAC factor. Id. at 59. Under Rule 572, the Cap and Exemption effectively reduce the RPS requirement because the RPS percentage is multiplied by a reduced level of projected sales. In Case No. 15-00166UT, the Commission approved calculating the RPS requirement by subtracting all projected Large Customer sales, in MWh, from total projected sales, multiplying the result by 15%, and then adding back "Eligible Large Customer Sales" in MWh. "Eligible Large Customer Sales" arc sales up to the Cap. The adding back of Eligible Large Customer Sales is the "Large Customer Adjustment." The Large Customer Adjustment represents the maximum number of MWhs/RECs that PNM can procure for LCCs. Case No. 15-00166-UT, Recommended Decision at 10-12 (10-20-15), as corrected by Errata Notice (10-23-15), adopted in relevant part by Final Order Superceding Vacated Final Order Issued on November 18, 2015 (2-3-16). The cap on LCC procurement is based on a LCC's annual bill, so each Large Customer's cap is a dollar amount, which PNM refers to as a "hard cap." Taylor Direct at 8. However, a utility's RPS requirement is measured in MWhs/RECs. Therefore, to make the Large Customer Adjustment, the sum of the dollar caps for each LCC must be converted into MWhs/RECs by dividing that sum by the per MWh/REC cost of acquiring renewable energy. In Case No. 1500166-UT, the Commission addressed whether to use "compliance cost" or "procurement cost" as the per MWh/REC cost in converting the total dollar cap on Large Customer procurement to MWhs/RECs. Compliance cost is the net cost of acquiring renewable energy - the purchase price less avoided fuel costs from displaced energy. Procurement cost is the gross cost of acquiring renewable energy - the unadjusted purchase price, not netted for avoided fuel costs. Because the meanings of the terms "compliance cost" and "procurement cost" have proven to be elusive, this Recommended Decision substitutes the term "net cost" for "compliance cost" and Recommended Decision Case No. 17-00129-UT 17 "gross cost" for "procurement cost." PNM had been using gross cost as the per MWh/REC cost to calculate the Large Customer Adjustment. The Commission held that net cost, not gross cost, shall be used as the per MWh/REC cost in calculating the Large Customer Adjustment. Case No. 15-00166, Recommended Decision at 18. What was not realized in Case No. 15-00166-UT is that using net cost as the per MWh/REC cost creates an inconsistency because while PNM uses net cost to determine the amount of MWhs/RECs acquired for LCCs, the amount collected from LCCs is less than the cost of acquiring them. Tr. 831 (Taylor). The result of this inconsistency is that the amount collected from LCCs does not cover the cost of all of the MWhs/RECs of renewable energy purchased for those customers. Id. at 792-93, 830 (Taylor). For example, PNM projects that in 2018, the per MWh/REC gross cost will be $39.58 and the per MWh/REC net cost will be $18.84. It projects that in 2018 it will collect a capped total of $981,426 from LCCs. Therefore, the amount of MWhs/RECs that PNM will acquire for LCCs is 52,097, based on a net cost of $18.84 per MWh/REC. However, the total $981,426 collected from LCCs will pay the cost of only 24,798 MWhs/RECs based on a gross cost of $39.58 per MWh/REC. The cost of the other 27,298 MWhs/RECs procured for LCCs, in the amount of $1,080,380, would be collected from Other Customers, effectively increasing the RPS requirement for Other Customers from 15% to 15-4%. Taylor Direct at 3-4. This "cost misallocation" is equal to the difference between the gross and net cost of the MWhs/RECs procured for LCCs, which is the amount of avoided fuel savings attributable to those MWhs/RECs. Tr. 831 (Taylor). This inconsistency was brought to the attention of the Commission by WRA "vitness Douglas Howe in Case No. 15-00261-UT, and the Commission adopted Dr. Howe's recommendation to address and correct the inconsistency in PNM's next renewable energy portfolio procurement plan case - this case. Case No. 15-00261-UT, Corrected Recommended Decision at 62-64. The Commission referred to the inconsistency as a fuel cost misallocation, but as PNM witness Susan Taylor said in this case, the problem is not related to the allocation of Recommended Decision Case No. 17-00129-UT 18 fuel costs and should be referred to as a "cost misallocation" rather than a "fuel cost misallocation." Ms. Taylor said that the source of the cost misallocation is calculation of the Large Customer Adjustment. Taylor Direct at 2. Ms. Taylor explained that LCCs are receiving the benefit of avoided fuel cost savings twice because, while the amount they pay under the Renewable Rider is the net cost of M\l\!hs/RECs procured for them, the amount of avoided fuel savings they receive under the FPPCAC is based on the gross cost. Using 2018 as an example, LCCs would receive avoided fuel cost savings through the FPPCAC for the 52,097 MWhs/RECs acquired for them rather than the 24,798 MWhs/RECs they actually pay for. Taylor Direct at 8; Tr. 801, 819-20 (Taylor). Ms. Taylor testified that the cost misallocation should be corrected in some manner. Tr. 820. In response to the Commission's directive in Case No. 15-00261-UT, PNM identified three possible methods for correcting the cost misallocation: (1) PNM's Proposed Method; (2) the "Dr. Howe" Method; and (3) the WRAAlternative Method. In response to a Bench Request, PNM addressed a fourth possible method. Because Ms. Taylor considers the Fourth Method to be the same as the Dr. Howe Method, id. at 798, this Recommended Decision does not discuss the Fourth Method. PNM's Proposed Method would correct the cost misallocation by going back to using gross cost as the per MWh/REC cost in calculating the Large Customer Adjustment. If gross cost rather than net cost is used, PNM would procure only 24, 798 M\l\!hs/RECs for LCCs in 2018, equal to the projected $981,426 to be recovered from LCCs divided by the $39.58 per MWh/REC projected gross cost. PNM's RPS requirement therefore would decrease. Id. at 821 (Taylor). PNM says this method would be the simplest to implement because it does not require adjustment of the Renewable Energy Rider rate applied to LCCs or PNM's FPPCAC. It would reduce the 2018 RPS by 27,298 MWh, which would reduce the net RPS from 13.3% to 12.9%. Taylor Direct 5-6. PNM's Proposed Method, if adopted, would increase the estimated percentage of a LCC's electricity use generated by non-renewable energy to which the FPPCAC Recommended Decision Case No.17-00129-UT 19 applies. This Method would eliminate double counting of the avoided fuel cost benefit because LCCs would only receive avoided fuel cost savings for the 24, 798 MWhs/RECs they actually pay for. A second method discussed, but not recommended, by PNM is the method that Dr. Howe suggested in Case No. 15-00261-UT. This method would continue to use net cost as the per MWh/REC cost in calculating the Large Customer Adjustment. It would increase the Renewable Energy Rider rate charged to LCCs to recover an additional amount equal to the extra avoided fuel cost savings they receive and reduce the Renewable Energy Rider rate charged to Other Customers commensurately. This Method would eliminate double-counting of the avoided fuel cost benefit by recovering the extra amount of the avoided fuel cost benefit from LCCs through the Renewable Energy Rider. The 2% of bill amount collected from LCCs would be a net amount. Tr. 800, 822 (Taylor). A third method discussed, but not recommended, by PNM is the method suggested by WRA in its Brief in Chief in Case No. 15-00261-UT as an alternative to Dr. Howe's recommended method. This method would change the estimated percentage of LCCs' electricity use generated by non-renewable energy used in determining the FPPCAC charges from 3.92% to 0%. LCCs would pay only a single FPPCAC rate which allocates no avoided fuel cost savings to LCCs. Taylor Direct at 11-12. This method would eliminate the double-counting of the avoided fuel cost benefit by eliminating avoided fuel cost savings from the FPPCAC for LCCs. Tr. 802 (Taylor). Recommended Decision Case No. 17-00129-UT 20 The following table shows each alternative's impact on the Large Customer Adjustment, the FPPCAC percentage of renewables and the amount collected from LCCs under the Renewable Energy Rider: ----- Large Customer Adjustment (MWhs/RECs) $Increase to Large Capped Customers Current PNM Reconunended 52,097 Dr. Howe WRA Alternative 24,798 52,097 52,097 $356,766 $1,080,380 $791,237 Taylor Direct at 13. LCCs would pay more under a11 methods because each method removes the doub1e counting of the avoided fuel cost benefit. The amount of this increase is least under PNM's Proposed Method because it would decrease the amount of MWhs/RECs purchased for LCCs, so the amount of the avoided fuel cost benefit to be eliminated would be smaller. LCCs would pay $356,766 more in 2018 under PNM's Proposed Method because their allocated percentage of renewable energy consumed would decrease and more of their energy consumed would be subject to the FPPCAC. Tr. 796-97 (Taylor). LCCs would pay the most under Dr. Howe's Method because it would not change the amount of RECs being procured for LCCs. LCCs would pay $1,080,380 more in 2018 under Dr. Howe's Method, and the increased amount would be collected through the Renewable Energy Rider. Under WRA's Alternative Method, the amount of RECs being procured for LCCs would not change, as with Dr. Howe's Method. However, the amount of the increase to LCCs under the WRAAlternative Method- $791,237-would be less than under Dr. Howe's Method because of a difference in the way the cost of fuel is calculated. The increase under Dr. Howe's Method is equal to the avoided fuel cost, which would be recovered under the Renewable Energy Rider. The increase under WRA's Alternative Method is equal to the average cost of fuel, which would be recovered through the FPPCAC. Today, the avoided cost of fuel is higher than the average Recommended Decision Case No. 17-00129-UT 21 cost offuel because calculation of the avoided cost of fuel is based on eliminating the highest system cost. Id. at 813-14 (Taylor). PNM says that adopting Dr. Howe's method would require using "a forecasted, theoretical fuel cost savings" to determine the amount of additional revenue to be collected from LCCs, which appears to PNM to be contrary to the Commission's Final Order in Case No. 1500166-UT in which the Commission said, "When formulating rates, it is improper to account for so-called 'costs' that are not actually incurred, whether as costs or 'benefits."' Taylor Direct at 10 (citing Final Order Superseding Vacated Order of Nov. 18, 2015 at 10-11, ii 24). Ms. Taylor explained: The problem with that methodology ... is that actual avoided fuel costs cannot be empirically calculated. And that's what bothers me, quite frankly ... is we can't validate that the avoided cost that we use to create the rates and charge the customer can be validated in actuals. Tr. at 822-23. This is because PNM cannot know with hindsight what it would have cost to run its system without rcnewablcs "because you do not know all the decisions that would have been made had you not had renewables on the system and you had a different load and you had different resources." Tr. at 823. Also, adopting Dr. Howe's method would result in LCCs being charged a Renewable Energy Rider rate more than the statutory 2% cap even though the total net charge to LCCs would not be more than 2% because of the offsetting avoided fuel savings. PNM refers to this as a "soft cap." Taylor Direct at 10. PNM witness Taylor said that WRA's Alternative Method is relatively straightforward and easy to implement because it does not require a calculation of avoided fuel costs. PNM would adjust its FPPCAC so that all avoided fuel savings from renewable energy would flow to Other Customers. However, PNM says that VVRA's Alternative Method appears inconsistent with the Commission's Final Order in Case No. 15-00261-UT, which requires PNM to charge customers separate FPPCAC rates for non-renewable energy and renewable energy. Id. at 12. Recommended Decision Case No. 17-00129-UT 22 As WRA. witness Howe explained in Case No. 15-00261-UT, a benefit of Method A was that it would "clarify the costs and benefits of renewable energy: Customers would see explicitly the fuel costs of the conventional resources that serve them, and the :t:ero fuel cost of the renewable energy that serves them." Case No. 15-00261-UT, Corrected Recommended Decision at 60. If WRA.'s Alternative Method is adopted, LCCs' bills would reflect zero use of renewable energy, which is not accurate. Tr. 836 (Taylor). PNM acknowledges that its recommended method is inconsistent with the Commission's ruling in Case No. 15-00166-UT that net cost, not gross cost, be used as the per MWh/REC cost in calculating the Large Customer Adjustment. Taylor Direct at 7-8. The Commission in Case No. 15-00166-UT said that whether to use net cost or gross cost depends in part on the meaning of "additional cost" in Section 62-16-4(A)(2) of the REA That Section states that the k.Whs of renewable energy procured for a LCC shall be limited so that "the additional cost" of the RPS to each customer does not exceed the lower of 2% of that customer's annual electric charges or $110,804. The Commission said that interpreting "additional cost" to mean "gross cost" would render the word "additional" unnecessary. The Commission also said that Rule 572.12 requires using net cost to calculate the Large Customer Adjustment because it says that a public utility "shall calculate the large customer adjustment consistent i,vith the methodology for the reasonable cost threshold[,]" and the RCT is determined by applying a traditional revenue requirements impact approach. Additionally, the Commission said that using net cost to calculate the Large Customer Adjusbnent is consistent mth the purpose of the REA to encourage renewable energy development. Case No. 15-00166-UT, Recommended Decision at 18-19. WRA. and CC.A.E support adopting either Dr. Howe's Method or the WRA. Alternative Method, which arc consistent with the Commission's ruling in Case No. 15-00166-UT that the LCC applies to the "additional" or net cost of renewable energy rather than the gross cost. WRA./CCAE's Initial Posthearing Brief at 20. Recommended Decision Case No. 17-00129-UT 23 The PRC may change its policy through an adjudication so long as it does not do so arbitrarily and capriciously. Mountain States Tel. & Tel. Co. v. New Mexico State Corp. Comm'n, 1986-NMSC-019, if 26, 104 N.M. 36. A departure from precedent is not arbitrary and capricious if it is preceded by notice and it is supported by reasonable justification. Id. Reasonable justification supports overruling the Commission's decision in Case No. 1500166-UT. The Commission found in that case that it was reasonable to interpret "additional cost" in Section 62-16-4(A)(2) as net cost. That interpretation was reasonable at the time. With hindsight, however, it is more reasonable to interpret "additional cost" in Section 62-16-4(A)(2) as gross cost. The legislative intent of the Large Customer Cap is to reduce a utility's procurement of MWhs/RECs: Section 62-16-4(A)(2) states that the RPS shall be reduced, as necessary, to provide for "specific procurement requirements" for LCCs so that the kWh of renewable energy "procured for these customers" is limited so that the additional cost of the RPS to these customers does not exceed a percentage of the customer's annual electric charges or a dollar amount. (Emphasis added). The next sentence refers to these caps as "procurement limit criteria[.]" NMIEC's Initial Posthearing Brief at 8-9. \!\Then PNM procures MWhs/RECs, it procures them at their gross cost; it does not procure them at gross cost less avoided fuel. The directive in Rule 572.12 that a public utility calculate the large customer adjustment consistent with the methodology for the RCT seems inconsistent with the REA's treatment of the Large Customer Cap and the RCT. The Large Customer Cap is a bill impact protective device for LCCs. The RCT, on the other hand, is not a cap on each customer's bill. Case No. 12-00007-UT, Final Order at 2, ir 2 (8-14-12). Using Dr. Howe's Method would be inconsistent with the purpose of the Large Customer Cap, which is to limit the bill impact to LCCs by capping their cost of compliance v.rith the RPS as a percentage of their electric charges or a dollar amount, either of which is a gross amount. NMSA 1978, § 62-16-4(A)(2). Adopting Dr. Howe's Method would effectively interpret the Recommended Decision Case No.17-00129-UT 24 statutory cap to be a net cap, which it is not. As Ms. Taylor said, it is also inconsistent with the Commission's directive in Case No. 15-00166-UT that in ratemaking it is improper to account for costs not actually incurred as costs or benefits. WRA's Alternative Method is inconsistent with the purpose of the Commission's adoption of Method A: to inform customers that renewable energy has a :.i;cro fuel cost. The double counting of avoided fuel cost benefits for LCCs should be eliminated by overruling the Commission's decision in Case No. 15-00166-UT and using gross cost to calculate the Large Customer Adjustment. VIL NMIEC's MOTION FOR PARTIAL DISMISSAL After the hearing, NMIEC filed a Motion for Partial Dismissal of "all issues related to the Method A fuel allocation methodology from this case" because Method A is the subject of an appeal in the New Mexico Supreme Court. As explained in Section VI, the Commission adopted Method A in its Final Order in Case No. 15-00261-UT to correct a fuel cost misallocation. PNM appealed the Final Order and NMIEC cross appealed, contesting the Commission's adoption of Method A. NMIEC has argued on appeal that the Large Customer Cap and exemptions were intended to be firm limits on large customers' rates and that eliminating the fuel cost misallocation subjects Exempt and LCCs to an additional charge. In its Motion for Partial Dismissal, NMIEC argues that the alternatives identified by PNM to eliminate the remaining cost rnisallocation "arc a material change to Method A[,]" and because the legality of Method A is on appeal, "the Commission has lost any jurisdiction to make these fundamental changes to that allocator." Motion for Partial Dismissal NMIEC relics on Kelly Inn No. 102, Inc. v. Kapnison, for the general proposition that a court loses jurisdiction of a case upon the filing of a notice of appeal except for the purposes of perfecting the appeal or of passing upon a motion directed to the judgment pending at the time. Recommended Decision Case No. 17-0012 9-UT 25 1992-NMSC-005, ,I 32, 113 N.M. 231. A related general proposition is that "a pending appeal does not divest the trial court of jurisdiction to take further action when the action will not affect the judgment on appeal[.]" Id. 33 (emphasis in original). NMIEC's Motion for Partial Dismissal should be denied because correcting the remaining cost misallocation in this case will not affect the Commission's decision in Case No. 15-00261-UT to adopt Method A. The key component of Method A that resulted in Exempt and LCCs paying more is its breaking up of the FPPCAC into two components: one that applies to electricity use generated by renewable energy and one that applies to electricity use generated by non-renewable energy. Contrary to NMIEC's argument, the fact that correction of the remaining cost misallocation would result in LCCs paying more docs not mean that correction of the remaining cost misallocation would change Method A. WRA/CCAE's Initial Posthearing Brief at PNM's Proposed Method, which the Hearing Examiner has recommended adopting, changes the method of calculating the Large Customer Adjustment. Ms. Taylor testified that if PNM's Proposed Method is adopted: You would still be Method A. Method A doesn't change. It does not have any impact on Method A, except the percentage would change .... So nothing changes with Method A. It's just how you apply Method A to the different customers. So in PNM's proposal, I think cunently or at least in the forecast 'for 2018 is about 3.5% under the current, and it would drop down to - I don't knmv - like, i.7%. So you would be paying more additional fuel and the same 2% cap that you're paying today in the renewable rate rider.... Nothing would change there other than the percentage would change. Tr. 797-98. The "percentage" referred to by Ms. Taylor is the estimated percentage of a customer's electricity use generated by renewable energy, to which an FPPCAC factor of zero is applied because no fuel use is associated ·with use of renewable energy. The change in this percentage that would result from adoption of PNM's Proposed Method does not change the key component of Method A: breaking the FPPCAC into two components. PNM's Initial Posthearing Brief at 27-28. Recommended Decision Case No.17-00129-UT 26 VIII. PNM's 2018 RENEWABLE ENERGY PORTFOLIO PROCUREMENT PLAN The "plan year" for which PNM seeks approval in this case is calendar year 2018. PNM seeks approval of no new renewable energy procurements to include in its 2018 Plan. Staff believes that PNM's 2018 renewable energy portfolio is a diverse mix of renewable energy resources at reasonable cost and supports it, Pitts Direct at 12, 29, and no party opposes it. The Hearing Examiner recommends approval of PNM's 2018 Plan with two exceptions: (1) use gross cost rather than net cost to calculate the Large Customer Adjustment (which PNM does not oppose); and (2) completely terminate PNM's Dale Burgett geothermal procurement effective January 1, 2018. A. CALCULATION OF THE RENEWABLE PORTFOLIO STANDARD This discussion of calculation of the Renewable Portfolio Standard (RPS) reflects the RPS calculations from Exhibit A to this Recommended Decision, which is Exhibit SG-2 (HE October 11, 2017 Email), which incorporates (1) the Hearing Examiner's recommendation from Section VI that gross cost, rather than net cost, be used to calculate the Large Customer Adjustment; (2) the Hearing Examiner's recommendations from Section IX that PNM's proposed amended NMWEC procurement be approved and its proposed amended Dale Burgett procurement and Affordable Solar Project be disapproved; and (3) the Hearing Examiner's recommendation from Section IX that PNM terminate its PPA with Dale Burgett effective January 1, 2018. 8 s PNM prepared several versions of Exhibit SG-2 to reflect different scenarios. Exhibit SG-2 Corrected, filed on July 7, 2017 and part of PNM Exhibit 7, reflects (1) using net cost to calculate the Large Customer Adjustment; and (2) approval of PNM's proposed amended NMWEC and Dale Burgett procurements and the Affordable Solar Project. Exhibit SG-2 (September 13, 2017 Supplemental), which is part of PNM Exhibit 9, reflects (1) using net cost to calculate the Large Customer Adjustment; (2) disapproval of PNM's proposed amended NMWEC and Dale Burgett procurements and the Affordable Solar Project; and (3) continued procurements from Dale Burgett without the repowering. Exhibit SG-2 (September 13, 2017 Supplemental - Alternative 1), which is PNM Exhibit 10, reflects (1) using net cost to calculate the Large Customer Adjustment; (2) disapproval of PNM's proposed amended NMWEC and Dale Burgett procurements and the Affordable Solar Project; and (3) termination of the Dale Burgett procurement effective January 1, 2018. Exhibit SG-2 (September 13, 2017 Supplemental - Alternative 2), which is Recommended Decision Case No. 17-00129-UT 27 PNM used projected 2018 and 2019 retail energy sales to determine the annual RPS requirements. Total projected energy sales were then reduced by projected sales to Large Capped Customers (LCCs) and Exempt Customers. PNM projects that it will have 27 LCCs in 2018 and 1029. Exh. A to this Recommended Decision at 2-3. PNM projects that it will have two Exempt Customers in 2018 and 2019: ABCWUA and the University of New Mexico (UNM). Both ABCWUA and UNM certified to the New Mexico State Auditor that they were Exempt Customers in 2017. Gutierrez Direct at 3, 19. The resulting annual MWh sales, which are defined by Rule 572 as "plan year total retail energy sales," were multiplied by 15% in 2018 and 2019 to determine the RPS requirements for Other Customers. Projected capped MWh sales to Large Capped Customers were added to this amount to determine the total RPS requirement: Line RPS Requirement 2018 2019 2020 1 Annual Sales - All Customers (MWh) 8,102,251 8,292,897 8,462,860 2 (-)Exempt Customer Sales (MWh) 244,707 242,045 239,465 3 (-)Large Capped Customer Sales (MWh) 1,033,326 1,292,374 1,523,370 4 Net Annual Sales - Other Customers (MWh) 6,824,218 5 RPS - Other Customers (%) 15% 6,758,478 15% 6,700,025 20% 6 RPS - Other Customers (MWh) 1,023,633 1,013,772 1,340,005 25,175 26,944 28,093 1,048,808 1,040,716 1,368,098 12.9% 12.5% 16.2% 7 (+)Large Customer Adjustment (MWh) 8 Net RPS Goal -All Customers (MWh) 9 Net RPS Goal - All Customers (%) Exh. A to Recommended Decision at 1. The total RPS requirement, or "net RPS," is less than 15% because of the allowed downward adjustments for Exempt and LCCs. Pitts Direct at 7. PNM Exhibit 11, reflects (1) using net cost to calculate the Large Customer Adjustment; ( 2 ) disapproval of PNM's proposed amended NMWEC and Dale Burgett procurements and the Affordable Solar Project; and (3) minimal Dale Burgett procurements in 2018-2020. Recommended Decision Case No.17-00129-UT 28 PNM then compared the total RPS requirement to the projected number of renewable energy certificates (REC) retirements from its existing renewable energy resources and found that, for 2018 and 2019, no additional procurements are necessary: - ·- ·- 2019 2020 1,085,147 1,169,117 1,192,773 2018 RPS Compliance 10 Portfolio RECs for Compliance - All Customers 11 REC Surplus/(Deficit) -All Customers 36,340 128,401 (175,325) 12 Portfolio Percent of Annual Sales - All Customers(%) 13.4% 14.1% 14.1% 13 Portfolio Percent of Net RPS Goal - All Customers (%) 103.5% 112.3% 87.2% Exhibit A to Recommended Decision at 1. B. REQUEST FOR VARIANCE FROM "OTHER" DIVERSITY REQUIREMENT This discussion of PNM's projected compliance with the diversity requirements reflects the RPS calculations from Exhibit A to this Recommended Decision, which is Exhibit SG-2 (HE October 11, 2017 Email), which incorporates (1) the Hearing Examiner's recommendation from Section VI that gross cost, rather than net cost, be used to calculate the Large Customer Adjustment; (2) the Hearing Examiner's recommendations from Section IX that PNM's proposed amended NMWEC procurement be approved and its proposed amended Dale Burgett procurement and Affordable Solar Project be disapproved; and (3) the Hearing Examiner's recommendation from Section IX that PNM terminate its PPA with Dale Burgett effective January 1, 2018. The following table shows, for 2018 and 2019, for each type of renewable energy resource, the percentage diversity requirement and the amount and percentage that PNM expects to achieve. Type of Resource % Diversity Requirement Wind Solar Other Recommended Decision Case No. 17-00129-UT 30% 20% 5% 2018-MWh 2018- % 2019- 2019-% Expected to be Achieved Expected to be Achieved Expected to be Achieved 695,651 260,621 0 62.9% 34.1% 0% MWh Expected to be Achieved 693,754 259,027 0 29 62.0% 35.0% 0% Type of Resource % Diversity Requirement DG 3% 2018-MWh 2018- % Expected to be Achieved Expected to be Achieved 128,875 3.0% 2019- MWh Expected to be Achieved 2019- % Expected to be Achieved 3.0% 136,336 Exh. A to Recommended Decision at 1, rows 14-17 & at 5 & 6, column A. As shown in the table, PNM expects to meet or exceed, in 2018 and 2019, the diversity requirements for wind, solar and DG. PNM does not expect to meet the "other" diversity requirement in 2018 or 2019 if the Dale Burgett procurement is terminated. If the Commission approves PNM' s request to amend its PPA with Lightning Dock to increase the output, PNM expects to meet the other diversity requirement in 2019. Exh. SG-2 Corrected at 1, row 16. PNM was granted a variance from the "other" diversity requirement in Case Nos. 11- 00265-UT and 12-00131-UT.9 Southwestern Public Service Company and El Paso Electric Company have been granted numerous variances from the "other" diversity requirement. 10 Staff supports PNM's request for a variance from the "other" diversity requirement in 2018. In fact, Staff recommends that the Commission revisit the necessity of the "other" diversity requirement in light of the severe challenges in meeting the requirement economically. Reynolds Direct at 18. Staff further recommends that the Commission direct PNM to address the "other" diversity requirement in its 2019 renewable energy portfolio procurement plan filing 9 Case No. 12-00131-UT, Recommended Decision at 68, if I (11-15-12), adopted by Final Order (12-11-12); Case No. 11-00265-UT, Recommended Decision at 4 7, ii F (12-7-11), adopted in relevant part by Final Order (12-22-11). 10 Case No. 16-00109-UT, Recommended Decision at 34, if F (10-26-16), adopted by Final Order (11-2316) (EPE); Case No. 15-00117-UT, Recommended Decision at 26, if E (9-15-15), adopted in relevant part by Final Order Adopting Recommended Decision with a Modification (10-7-15) (EPE); Case No. 1400121-UT, Corrected Recommended Decision at 36, if E (9-24-14), adopted in relevant part by Final Order Partially Adopting Recommended Decision (10-22-14) (EPE); Case No. 13-00223-UT, Recommended Decision at 35, if E (10-23-13), adopted in relevant part by Final Order Partially Adopting Recommended Decision (11-20-13) (EPE); Case No. 12-00217-UT, Recommended Decision at 35, ii E (11-27-12), adopted by Final Order (12-11-12) (EPE); Case No. 10-00200-UT, Order Granting Variance (2-9-12) (EPE); Case No. 13-00222-UT, Recommended Decision at 37, if G (11-25-13), adopted in relevant part by Final Order Partially Adopting Recommended Decision (12-18-13) (SPS); Case No. 12-00219-UT, Recommended Decision at 29, if E (11-27-12), adopted by Final Order (12-18-12) (SPS); Case No. 11-00264-UT, Certification of Stipulation at 48, if G (12-9-11), adopted by Final Order (12-20-11) (SPS); Case No. 1000196-UT, Recommended Decision at 36, if D (11-23-10), adopted by Final Order (12-23-10). Recommended Decision Case No. 17-00129-UT 30 and require PNM to show that any proposed "other" resources are necessary and economic based on a contemporaneous RFP. Staffs Initial Posthearing Brief at 20-21. PNM's request for a variance from the "other" diversity requirement in 2018 should be granted. C. CALCULATION OF THE RENEWABLE COST THRESHOLD No party objects to PNM's calculation of the RCT for the 2018 Plan Year. WRA/CCAE ask the Commission to order PNM in future cases to include in its RCT calculation, avoided capacity costs from all renewable energy resources in PNM's renewable energy portfolio, not just renewable energy resources added in the plan year. NMIEC asks the Commission to order PNM in future cases to separately identify costs of backup generation and load following caused by renewable energy. 1. AVOIDED CAPACJTYCOSTS Under Sections 62-16-2(A)(6) and 62-16-4(B) of the REA and Rule 572, when the cost of renewable energy needed to comply with the RPS would exceed the Renewable Cost Threshold (RCT), a public utility is not required to incur that cost. The PRC has set the RCT at 3% of "plan year total revenues." 17.9.572.12(A) & (B) NMAC. Rule 572 gives specific directions for calculating the RCT. It states that a public utility is not required to add renewable energy to its portfolio when its "annual renewable energy plan revenue requirement" is above the RCT. Therefore, the purpose of the RCT calculation is to project whether the cost of a utility's procurements will be more than 3% of its plan year total revenues. It requires two calculations: (1) the plan year revenue requirement; and (2) plan year revenues. For RCT purposes, Rule 572.14(C) states that a utility's plan year revenue requirement is determined using a traditional revenue requirement impact approach for all renewable resources procured to satisfy a utility's RPS, including previously authorized regulatory assets, excluding normalizations, annualizations, and out of period adjustments. Revenue requirement Recommended Decision Case No. 17-00129-UT 31 adjustments shall include net avoided fuel and purchased power costs, cost savings resulting from environmental credits (if not already included in the net avoided fuel costs) pursuant to compliance rules in effect during the plan year, and cost savings or increases for capacity, generation, transmission, or distribution, operation and maintenance expense, back-up and load following generation, off-system sales oppo1tunity impacts, or other facilities and improvements or functions that may be required and that can be shown to result in actual reductions or increases in plan year revenue requirements to be collected from ratepayers. 17.9.572.14(C)(1) NMAC. Avoided fuel costs are expected or modeled fuel savings that result from the procurement ofrenewable resources in the plan year. 17.9.572.14(C)(2) NMAC. PNM did not include any avoided capacity costs in calculating its 2018 plan year revenue requirement. PNM's reasoning is "[s]ince no new renewable capacity is proposed in the plan year, no capacity cost is being avoided." Gutierrez Direct at 20. In other words, PNM interprets Rule 572.14(C)(1) to require including avoided capacity costs only if a renewable energy resource is being added in the plan year. Tr. 191-93 (O'Connell). PNM does not interpret Rule 572.14(C)(1) as requiring including avoided capacity costs from all of the renewable energy resources in PNM's renewable energy portfolio. Id. at 635 (Gutierrez). For 2019 and 2020, PNM performed a Strategist simulation with and without the 50 MVVof proposed solar generation and the NMWEC repower project. The results showed that no new capacity was avoided when these procurements were removed from PNM's portfolio. Therefore, PNM also did not reduce its plan year revenue requirement by avoided capacity costs in 2019 or 2020. Gutierrez Direct at 20. PNM relies on the language in Rule 572.14(C) that says that revenue requirement adjustments shall include, among other things, cost savings for capacity "that can be shown to result in actual reductions or increases in plan year revenue requirements to be collected from ratepayers." Another reason for PNM's interpretation is a practical one: it is difficult to estimate avoided capacity costs assuming that all renewable energy procurements are removed Recommended Decision Case No. 17-00129-UT 32 because doing so ignores that the past was different and that different actions likely would have been taken. PNM says that the RCT calculates costs going forward. Mr. O'Connell said that the fact that PNM has never reached the RCT not including avoided capacity costs in the plan year revenue requirement gives him comfort with using PNM's interpretation. Tr. 192-94. WRA and CCAE argue that Rule 572 does not limit avoided capacity costs to those that are avoided by renewable generation added in the plan year. WRA/CCAE's Initial Posthearing Brief at 15-19. In response to a discovery request from CCAE, PNM calculated that if it removed all of its renewable energy resources contributing to RPS compliance from its system, it would add 41 MW of natural gas peaking capacity in 2018, vvith a 2018 revenue requirement of $8,801,682, to meet its planning and operating reserve requirements. CCAE Exh. 1; Tr. 188-89 (O'Connell). CCAE argues that Rule 572 requires PNM to offset its 2018 plan year revenue requirement by savings from not adding 41 MW of capacity. CCAE says that nothing in Rule 572 says that avoided capacity is avoided capacity only from renewable energy resources added in the plan year, not from renewable energy resources added in the past. Tr. 636 (Noble). PNM's interpretation of Rule 572.14(C)(1) is correct. Before its amendment in 2014, Rule 572.14(C)(1) read: Revenue requirement adjustments shall only include avoided fuel and purchased power costs, environmental credits pursuant to compliance rules in effect during the plan year, and costs for capacity, transmission, or distribution that can be shown to result in actual reductions in costs to ratepayers. Case No. 11-00218-UT, Order Adopting Rule 17.9.572 NMAC as Issued on December 18, 2012, Exh. A (5-1-13). In 2014, Rule 572.14(C)(1) was amended and, specifically, the last part of the Section was amended to state"... that can be shown to result in actual reductions or increases in plan year revenue requirements to be collected from ratepayers." Case No. 13-00152-UT, Revised Final Order on Rehearing Amending Rule 17.9.572 NMAC; Renewable Energy for Electric Utilities, Exh. One (4-16-14) (emphasis added). The addition of the words "in plan year revenue requirements" shows the Commission's intent that avoided capacity is capacity avoided Recommended Decision Case No.17-00129-UT 33 from renewable energy resources added in the plan year. See State v. Rowell, 1995-NMSC-079, 20, 121 N.M. 111 (legislature's amendment to statute indicated intent to restrict the single- larceny doctrine). Additionally, in its Order amending Rule 572, the Commission expressly rejected the argument that WRA and CCAE raise in this case. The Commission explained that the commenters "tended to be in two camps" and one group "particularly asse1ted that benefits such as avoided capacity cannot be measured or are not achieved in the plan year." Id. at 7, if 27 (emphasis added). The Commission rejected this argument, stating that the RCT calculation incorporates the costs and benefits "of adding renewable energy to the supply portfolio[.]" Id. (emphasis added). Moreover, in a recent El Paso Electric Company case, the Commission rejected the argument that "some measure of capacity savings related to renewable resources that EPE acquired in the past should be counted against the costs of renewables in the future." It found, to the contrary, that capacity savings achieved through renewable energy resources should be counted only when the renewable resources obviate the need for acquisition of short-term capacity in the plan year. Case No. 16-00109-UT, Recommended Decision at 20 (10-26-16), adopted by Order Adopting Recommended Decision at 4-8 (11-23-16). WRA and CCAE's argument that Rule 572 does not limit avoided capacity costs to those that are avoided by renewable generation added in the plan year is rejected. 2. BACKUP AND LOAD FOLLOWING COSTS Rule 572.14(C)(1) says that, for RCT purposes, the plan year revenue requirement shall be determined by applying a traditional revenue requirements impact approach and that adjustments shall include "cost savings or increases for ... back-up and load following generation[.]" The Commission has said that "if back-up or back-up generation costs exist, they should be included in the RCT calculation[.]" Case No. 13-00152-UT, Revised Final Order on Rehearing Amending Rule 17.9.572 NMAC: Renewable Energy for Electric Utilities at 10, if 33 Recommended Decision Case No. 17"00129-UT 34 (4-16-14). Backup generation is generation capacity that is raised or lowered as necessary to follow moment-by-moment changes in load. Load following is the actual changes in power output in response to changing demand. Tr. 27, 43 (O'Connell). All PNM generation resources require backup generation and load following. Id. at 728, 737 (Taylor). Variable renewable energy resources, in particular, require backup generation and load following because of their intermittency. For example, if wind speed decreases, wind energy production drops; if clouds float over a solar panel, solar energy production drops. Id. at 26, 29, 37 (O'Connell). PNM's operating reserves automatically respond and increase production. Id. at 734 (Taylor). PNM maintains the amount of reserves necessary to handle intra-hour load fluctuations. Id. at 773 (Taylor). All of PNM's conventional units, excluding the Palo Verde Nuclear Generating Station units, provide backup or load following capabilities. PNM operates its system as a whole to meet system requirements, including load following and backup generation, and does not assign specific generating units to specific tasks. Therefore, according to PNM, it is not possible to specifically identify costs associated with backup generation and load following. NMIEC Exh. 3 at 4-5. PNM does not track how its resources are dispatched, so is unable to state what percentage of time or output PNM's generation units are used for load following for variable renewable energy resources: that information does not exist. Tr. 42, 46 (O'Connell); 658 (Gutierrez); 730 (Taylor). PNM agrees that there are backup costs related to using renewable energy. Id. at 829 (Taylor). PNM says that it captured backup and load following costs in calculating the RCTby using computer software called AURORA to compare system costs with and without renewable energy resources. This comparison, according to PNM, captures costs of backup generation and load following by including both costs of contingency and regulation reserves. NMIEC Exh. 3 at 9; Tr. 830 (Taylor). More specifically, AURORA used annual energy production curves for each of the resources to derive hourly production costs to meet anticipated demand, 'Nith and without Recommended Decision Case No. 17-00129-UT 35 renewable energy resources. The cost difference is the cost avoided due to the renewable resources on PNM's system. The following table shows the avoided costs used in PNM's calculations of the RCT: 2018 Avoided Cost $26.65 2019 2020 $28.70 $33.67 Taylor Direct at 15. PNM says that these avoided cost values incorporate the costs and cost savings identified in Rule 572.14(C)(1), such as avoided generation or purchased power costs, backup, load following, regulation costs and off-system sales opportunity impacts. PNM says that costs of integrating renewable energy into its system, while not separately identified, are embedded in the avoided costs because "AURORA captures dispatchable resource starts, ramping rates and costs, and changes in ancillary service requirements on an hourly basis[.]" Id. at 15-16. Ancillary service requirements for modeling purposes are contingency and regulation reserves. Changes in these requirements are measured from hour to hour. NMIEC Exh. 3 at 9. Aurora determines detailed production costs on an hourly basis and not an intra-hourly basis. Aurora does not identify changes in individual cost components of the system operation cost, so load following costs cannot be specifically identified. Tr. 650-54 (Gutierrez); 732-33, 771 (Taylor). PNM has no software program that segregates load following costs from other costs. Id. at 730 (Taylor). So, for example, PNM has not quantified how much these cycling costs add to its O&M expenses. Id. at 752 (Taylor). While there is a cost associated with ramping up the backup generation, Aurora does not identify this specific cost. Id. at 735-36 (Taylor). NMIEC argues that PNM should separately identify costs of backup generation and load following caused by renewable energy. NMIEC further argues that because PNM has not separately identified these costs, PNM's calculation of the Renewable Energy Rider rate is incorrect and PNM has violated the caps for Exempt and LCCs. NMIEC asks the Commission to Recommended Decision Case No. 17-00129-UT 36 require PNM, in its next general rate case and next renewable energy portfolio procurement plan filing, to: 1. accurately calculate, based on historical data, the percentage of hours in a year that each of its generation units (1) is being held in reserve in anticipation for the need to provide backup and load following generation services; and (2) is actually being used to provide those services; 2. remove a corresponding percentage of those units' annual capital costs from PNM's base rates and include those costs in its RCT calculation; and 3. make the same calculations and adjustments for the units' operation and maintenance expenses. NMIEC's Posthearing Response Brief at 11-12. NMIEC's argument should be rejected because the evidence indicates that PNM does not have the information necessary to make the recommended calculations and adjustments. NMIEC made the same argument in its Exceptions to the Recommended Decision in PNM's 2017 renewable energy portfolio procurement plan case, and the Commission rejected it. Case No. 16-00148-UT, Final Order Adopting Recommended Decision at 8, ii 17 (11-23-16). 3. RESULTINGRCT This discussion of calculation of the RCT reflects the RCT calculations from Exhibit A to this Recommended Decision, which is Exhibit SG-2 (HE October 11, 2017 Email), which incorporates (1) the Hearing Examiner's recommendation from Section VI that gross cost, rather than net cost, be used to calculate the Large Customer Adjustment; (2) the Hearing Examiner's recommendations from Section IX that PNM's proposed amended NMWEC procurement be approved and its proposed amended Dale Burgett procurement and Affordable Solar Project be disapproved; and (3) the Hearing Examiner's recommendation from Section IX that PNM terminate its PPA with Dale Burgett effective January 1, 2018. Recommended Decision Case No. 17-00129-UT 37 To determine the RCT for Other Customers, PNM first calculated its renewable energy plan revenue requirement by determining the estimated net portfolio cost for Other Customers, which is $18,877,401in2018 and $16,947,769 in 2019. Next, PNM calculated its plan year total revenues for Other Customers, which are $813,687,291in2018 and $812,723,407 in 2019. Multiplying plan year total revenues by 3% yields the RCT for Other Customers in dollars, which is $24,410,619 in 2018 and $24,381,702 in 2019. For Other Customers, PNM's projected renewable plan revenue requirement is 2.3% of its plan year revenues in 2018 and 2.0% in 2019. Exh. A to Recommended Decision at 1, rows 18-29. D. RENEWABLE ENERGY RIDER This discussion of calculation of the Renewable Energy Rider reflects the calculations from Exhibit B to this Recommended Decision, which incorporates (1) the Hearing Examiner's recommendation from Section VI that gross cost, rather than net cost, be used to calculate the Large Customer Adjustment; (2) the Hearing Examiner's recommendations from Section IX that PNM's proposed amended NMWEC procurement be approved and its proposed amended Dale Burgett procurement and Affordable Solar Project be disapproved; and (3) the Hearing Examiner's recommendation from Section IX that PNM terminate its PPA with Dale Burgett effective January 1, 2018. In Case No. 12-00007-UT, the Commission approved PNM's use of a rate rider - Rate Rider No. 36 - to recover the costs of renewable resources approved by the Commission for PNM to meet the RPS. The Rate Rider collects PNM's RPS revenue requirements on a per kWh basis. The Commission required an annual true-up, initiated by PNM's filing of an advice notice annually no later than February 28. A hearing is not required prior to annual adjustments to the Rider so long as a hearing is held in PNM's annual renewable energy portfolio procurement plan case. Case No. 12-00007-UT, Recommended Decision at 53-54, ir H (6-19-12), as corrected by Errata Notice, adopted by Final Order (8-14-12), as corrected by Errata Notice (8-24-12), as clarified by Order on Rehearing (10-9-12). Recommended Decision Case No. 17-00129-UT 38 The current effective version of Rate Rider No. 36 is nth Revised Rate Rider No. 36, under which the Rate Rider rate is $0.0054419/kWh. Pitts Direct at 23. In its Advice Notice No. 541 filed with PNM'.sApplication, PNM proposed a revised Rate Rider rate of $0.0062188/kWh to be effective January 1, 2018. Later, PNM filed an Errata Notice revising the proposed Rate Rider rate to $0.0062267/kWh. Sanders Direct at 3. The Rider would apply to all PNM customers except the two Exempt Customers and the two LCCs that are capped by the 2018 Large Customer dollar cap of $110,804. These two LCCs would be billed a fixed monthly amount equal to one-twelfth of the annual dollar cap. For the other LCCs who are subject to the 2% ofrevenue cap and who are manually billed, PNM will apply a 2% of revenue cap monthly to the Rider 36 rate charges. For the other LCCs who are subject to the 2% ofrevenue cap but are not manually billed, PNM will apply the Rate Rider rate to all kWh consumed by them during the year and, after the end of the year, PNM will reconcile each customer's payments under the Rate Rider against each's 2% statutory cap and refund any excess payments. Vogt Direct at 3-4; Tr. 716-17 (Vogt). Staff recommends that PNM's proposed 12th Revised Rate Rider No. 36 as stated in Advice Notice No. 541 (before it was revised) be rejected and that PNM be ordered to file a compliance advice notice following issuance of a final order. Pitts Direct at 6, 24. The Renewable Energy Rider rate resulting from the Hearing Examiner's recommendations is $0.0060571 per kWh. TI1e current Renewable Rider rate is based upon a 2017 revenue requirement of $42,678,210, derived from a February 2017 reconciliation of 2016 expenditures and collections. Tr. 717-18 (Vogt). For an average PNM residential customer consuming 600 kWh month, the current Rider charge is $3.27. If the Hearing Examiner's recommended Rider rate is approved, this monthly charge would increase by 36¢, to $3.63. Exh. C to Recommended Decision. Recommended Decision Case No. 17-00129-UT 39 E. PNM's 2018 SOLAR REC INCENTIVE PROGRAM (SIP) In Case No. 11-00265-UT, the Commission approved a Capacity Set-Aside step in PNM's Solar REC Incentive Program (SIP). Under the Capacity Set Aside step, PNM reserves capacity in its annual renewable energy portfolio procurement plan for DG facilities sized greater than 100 kW up to and including 1,000 kW, at a price equal to the competitive price established by PNM's most recent Request for Proposal (RFP) process. In Case No. 11-00265-UT, the Commission decided not to approve continuation of any DG programs with tranches that are time-limited rather than capacity-limited because capacity-limited programs allow the Commission to review the reasonableness of procurement costs and any impact on the RCT in a way that time-limited DG programs