El Paso Electric claims the New Mexico Public Regulation Commission is not allowing it to properly recover investments it has made through rates, including not being able to recover the costs of paying employees.
The utility appealed to the PRC’s order in the most recent rate case to the New Mexico Supreme Court, which arguments heard on Wednesday but did not issue a decision.
In that rate case, EPE requested a 4.3 percent increase in utility retail base rates in New Mexico.
The utility argues that the final order in the case “arbitrarily departs from past practice and unreasonably and unlawfully reduces EPE’s retail rates without requiring evidentiary support.” This, EPE says, prohibits it from being able to recover its investments.
“It is a foundational principle of rate proceedings that rates must be designed to allow a utility to recover its…cost of providing service,” Jeff Weschler, an attorney representing EPE, said.
One way that Weschler said the PRC decision harmed EPE is by not adopting the proxy price that would be needed for EPE to continue using power from Palo Verde Generating Station unit three as it has in the past. At the same time, he said, the PRC rejected the cost of service associated with the increased use of other generating resources to make up for not using unit three.
“The result is that EPE is required to use these pre-approved, existing generating resources to provide service, but it’s not getting compensated,” he said.
Weschler further argued that in some instances during the rate case the PRC said that it needed certain information from EPE but did not provide EPE the chance to provide that information.
In one instance, Weschler said supplementary testimony that EPE provided was knitting from the record upon the motion of the City of Las Cruces. Weschler said that the supplementary testimony was stricken on the basis that it should have been provided earlier, which EPE does not contest. But, at the hearing, the witness who had offered the supplemental testimony took the stand and the City of Las Cruces moved to bring part of that knit testimony back in.
Weschler said that the PRC justified the exclusion of some expenses from recovery by saying that nowhere in the direct testimony in the hearing did the expert say anything about the reasonableness or justification of the cost. He said that was in the supplementary testimony but was struck by the record.
Anastasia Stevens, an attorney for the City of Las Cruces, said that the PRC hearing examiner in the case was “extraordinarily proactive” in issuing bench requests to gather information. She said there are pros and cons to that approach.
“Fundamentally, the commission does not have, has never had a requirement that it give the utility a gold-plated invitation to ‘these are the issues that we’re going to raise,'” she said, adding that that is up to the hearing examiner.
PRC General Counsel Russell Fisk spoke largely about return on equity while Stevens addressed cost of service issues and the capital structure.
Fisk said the PRC did apply the same constant growth, discounted cash flow tests that it has applied in the past when considering EPE’s rate increase request.
“The commission’s approach was not a deviation from past practices,” he said.
Stevens said that EPE did not file the rate case voluntarily and that, when it did file, EPE was earning a 10 percent return on equity.
EPE further objected to the PRC separating time of day rates from the rest of the rate case and setting it aside for a separate proceeding.