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BEFORE THE NEW MEXICO PUBLICREGULATION COMM[S_SJON

IN THE MATTER OF THE APPLICATION )


OF PUBLIC SERVICE COMPANY OF NEW )
MEXICO FOR APPROVAL TO ABANDON )
SAN JUAN GENERATING STATION UNITS)
2 AND 3, ISSUANCE OF CERTIFICATES )
OF PUBLIC CONVENIENCE AND
)
NECESSITY FOR REPLACEMENT POWER)
RESOURCES, ISSUANCE OF ACCOUNTING
)
ORDERS AND DETERMINATION OF
)

Case No. 13-00390-UT

RELATED RATEMAKING PRINCIPLES AND)


TREATMENT
)

)
PUBLIC SERVICE COMPANY OF NEW
MEXICO,
Applicant.

)
)
)

)
MOTION AND SUPPORTING BRIEF OF NEW ENERGY ECONOMY FOR
RECUSAL OF PUBLIC REGULATION
COMMISSIONERS MONTOYA AND LYONS
New Energy Economy (NEE) requests tlhat Public Regulation Commissioners Karen Montoya
and Patrick Lyons sitting on the Public Regulation Commission (PRC) recuse themselves from
participating in or deciding the above-captioned matter. The grounds for this Motion are as
follows:
Applicable Standard
1.

New Energy Economy now takes the extraordinary step of moving for the recusal

of two members of the PRC, Patrick Lyons and Karen Montoya, because of the evidence of exparte contacts during the course of this proceeding and immediately preceding PNMs filing that
in some cases directly concern issues in this case and in other cases are likely to have concerned
issues in this case. In addition, with very limited discovery of information, NEE has been able to
show that there are ongoing and regular contacts, both social and professional, between senior

management and lobbyists of PNM and these two commissioners that create the appearance of a
conflict of interest sufficient to disqualify them. In order to further support this motion and to
understand the extent of the ex parte contacts between PNM and PRC Commissioners, NEE
served interrogatories and document requests on PNM to obtain any communications between it
and PRC commissioners but PNM refused to respond, claiming that the requests were not
calculated to lead to the discovery of admissible evidence. See NEEs Seventh Set of
Interrogatories and Requests for Production to PNM and PNMs response of December 22, 2015.
NEE has initiated first steps necessary figr a Motion to Compel, but believes that, out of caution,
it should file this motion promptly and before the hearing begins so that its position is known by
the affected commissioners and PNM.
2.

PRC adjudications are governed by the same due process protections and

formalities as other administrative or court adjudications. The federal Administrative Procedures


Act (APA), 5 U.S.C. 556 & 557, prescribes the same hearing requirements for adjudications
and formal rulemakings and that both shall be "conducted in an impartial manner." See also N.M.
State Racing Commn v. Yoakurn, 113 N.M. 561,564, 829 P.2d 7, 10 (Ct. App. 1991) (citing 2
Am. Jur.2d Administrative Law 350, 162 (1962) for the proposition that "Rules and regulations
of an administrative agency governing proceedings before it, duly adopted and within the
authority of the agency, are as binding as if they were statutes enacted by the legislature.")
3.

Under New Mexico law, PRC Commissioners must meet an objective standard of

impartiality:

A. A commissioner or hearing examiner shall recuse himself in any


adjudicatory proceeding in which he is unable to make a fair and impartial
decision or in which there is reasonable doubt about whether he can make a
fair and impartial decision, including:

(1) when he has a personal bias or prejudice concerning a party or its


representative or has prejudged a disputed evidentiary fact involved in a
proceeding prior to hearing. For the purposes of this paragraph, "personal bias
or prejudice" means a predisposition toward a person based on a previous or
ongoing relationship, including a professional, personal, familial or other
intimate relationship, that renders the commissioner or hearing examiner
unable to exercise his functions impartially
2006 New Mexico Statutes - 8-8-18; Gila Res. Info. Project v. N.M. Water Quality Control
Commn, 2005 NMCA 139, 37 ("concepts of fairness and transparency" apply to "administrative
proceedings"). The standard established by Section 8-8-18 is consistent with the Governmental
Conduct Act, NMSA 1978, Sections 10-16-1 through 10-16-18, the Financial Disclosures Act,
NMSA 1978, Sections 10-16A-1 through 10-16A-8, and 20.1.1.111NMAC~ and "is in essence a
paraphrase of a federal statute governing the disqualification of judicial branch judges, see 28
U.S.C. 455(a) (1994) (A judge shall disqualify himself [or herself] in any proceeding in which
his [or her] impartiality might reasonably be questioned.), as well as New Mexicos Code of
Judicial Conduct dealing with disqualification of state judges, see NMRA 1997, 21-400(A) (A
judge is disqualified and shall recuse himself or herself in a proceeding in which the judges
impartiality might reasonably be questioned ....
)" City of Albuquerque v. Chavez, 1997 NMCA
54, 16. Under this objective standard:

The inquiry is not whether the Board members are actually biased or
prejudiced, but whether, in the natural course of events, there is an
indication of a possible temptation to an average man [or woman] sitting
as a judge to try the case with bias for or against any issue presented to
him [or her].

Id., quoting Reid v. New Mexico Bd. of Exam rs in Optometry, 92 N.M. 414, 416, 589 P.2d 198,

1 20.1.1.111NMAC addressing impartiality: "No board member shall participate in any action in
which his or her impartiality of fairness may reasonably be questioned..."

200 (1979). Presiding board members ":must act like a judicial body bound by ethical standards
comparable to those that govern a court in performing the same function." Id. (emphasis added)
(quoting High Ridge Hinkle Joint Venture, 119 N.M. at 40, 888 P.2d at 486), Los Chavez
CommunityAssn v. Valencia Cty., 277 P.3d 475,482-83 (N.M. Ct. App. 2012). Our Supreme
Court has determined it to be "imperative" that when governmental agencies adjudicate the legal
rights of individuals they "use the procedures which have traditionally been associated with the
judicial process." Reidv. N.M. Bd. of Examrs in Optometry, 92 N.M. 414, 416, 589 P.2d 198,
200 (1979). And, while such procedural matters as the rules of evidence or hearsay need not be
adhered to by administrative agencies to the same degree as in a court of law, the right to an
impartial tribunal is held to the higher standard.

The rigidity of the requirement that a tribunal be impartial and disinterested in the result
applies more strictly to an administrative adjudication where many of the customary safeguards
affiliated with court proceedings have, in the interest of expedition and a supposed administrative
efficiency, been relaxed. Id.; see also Ohio Bell Tel. Co. v. Pub. Utils. Commn, 301 U.S. 292,
304, 57 S.Ct. 724, 81 L.Ed. 1093 (1937) (suggesting that in the adjudicative role of
administrative agencies: "All the more insistent is the need, when power has been bestowed so
freely, that the inexorable safeguard of a fair and open hearing be *483 maintained in its
integrity." (internal quotation marks and citations omitted)). Los Chavez Community Assn v.
Valencia County 277 P.3d 475,482 -483 (N.M.App., 2012) Based on the available evidence and
the objective standard of impartiality, Commissioners Montoya and Lyons should recuse
themselves.
4.

Pursuant to NMAC 1.2.2.38 B (3) "A commissioner may be disqualified for

violation of the code of conduct adopted by the commission." Commissioners, like Board
members, must follow the codes of conduct and rules of procedure of their own administrative
bodies. Atlixco Coalition v. County of Bernalillo, 1999 NMCA 88, 16. According to the PRC
Code of Conduct, a Commissioner is required to:
Obey both the letter and the spirit of all laws and regulations; [...]
a)
While recognizing that some laws may be subject to varying interpretations,
c)
strive nonetheless to implement the spirit and purpose of each law; [...]
f) Treat the office of Commissioner as a public trust by using the powers of the
office solely for the benefit of the public rather than for any personal benefit; [... ]
Both Commissioners Montoya and Lyons took an Oath of Ethical Conduct, which in part states:
"I shall scrupulously avoid any act of impropriety or any act which gives the appearance of
impropriety." See Exhibit A.

Violations of Code of Conduct

5.

Exhibit 1 provides ample evidence of both acts of impropriety and acts that give

the appearance of impropriety. Exhibit 1 reveals frequent phone communications between


Commissioner Patrick Lyons and representatives of Public Service Company of New Mexico
(PNM). Note that these records only include phone conversations between Commissioner Lyons
and PNM representatives2 between December 2013 and July 2014, and only between
Commissioner Lyons PRC-issued cell phone and the numbers of a few identified PNM
representatives. They do not include any phone communications between Commissioner Lyons
2 When asked at his deposition, Ron Darnell (Senior V.P. for Public Policy for PNM) was asked,
"Do you have a personal cell phone number for Karen Montoya?" Mr. Darnell answered: "I have
an office number and I have a cell number." ... "How many times have you called Karen
Montoya on her cell phone?" After an objection, Mr. Darnell answered: "Its rare." "What does
rare mean to you?" Mr. Darnell answere, d: "Less than ten times a year."

and PNM representatives that may have occurred on one of the Commissioners landlines or
personal cell phone. Nor do they include communications with any other staff, consultants,
lobbyists or other representatives of PNM.
Calls to or from Commissioner Lyons PRC-issued cell phone and the numbers of a few
identified PNM representatives:
July 30, 2014 - Call between PRC Commissioner Lyons and Senior Vice
President for Public Policy Ron Darnells cell (505.362.5075)
June 24, 2014 - I_,yons and Ron Darnells cell (2 separate calls); 10:50am
(PNM RCT hearing scheduled from 9am to 1:30pm) and at 5pm same day3
June 11, 2014 - Director Strategic Affairs Mary Collins cell
(505.242.2010)

June 10, 2014 - Ron Darnells cell

May 21, 2014 - Lobbyist Ernest CdeBacas cell (505.379.3946); 2


separate calls

May 20, 2014 - Mary Collins cell

May 16, 2014 - Ernest CdeBacas cell

May 8, 2014 - Ron Darnells cell (2 calls)

April 23, 2014 - Ron Darnells cell

April 17, 2014 - Vice President of Regulatory Affairs Gerard Ortizs


office number (505.241.2561)

April 17, 2014 - Gerard Ortizs cell number (505.450.5008)

April 17, 2014 - Mary Collins cell

3 Note that two calls on June 24, 2014 occurred on exactly the same day as a formal hearing on
PNMs petition to amend the rule on Reasonable Cost Threshold (RCT) of the renewable
portfolio standards. In fact, one call happened in the middle of the hearing itself.

March 10, 2014 --Ron Darnells cell


February 15,201,4 - Ron Darnells cell (2 calls)
February 11,201.4 - Ron Darnells cell
January 30, 2014 - Ron Darnells cell (2 calls)
January 29, 2014 - Ron Darnells cell
January 29, 2014 - Ernest CdeBacas cell
January 28, 2014 - Ernest CdeBacas cell
January 27, 2014 - Ron Darnells cell (2 calls)
December 21, 2014 - Ron Darnell s cell
December 18, 2014 - Ron Darnells cell
December 11, 2014 - Ron Darnells cell (2 calls)

There is simply no reasonable justification for cell phone communications between a


Commissioner and a petitioner/regulated entity that average at least one per week - especially
when such calls occur within the scheduled hours of a hearing involving the regulated entity.
When asked at his deposition "how manly phone calls have you received on your cell phone from
Patrick Lyons in the last year?" Ron Darnell answered: "Again, I dont know. Its rare." Darnell
Deposition of October 7, 2014, pp. 74-75.
6.

The following Exhibits consist of email communications and attachments

between representatives of PNM and Commissioner Patrick Lyons or Commissioner Karen


Montoya or their executive assistants, Dallas Rippy and Robert Lara, respectively. In each case,
the content of the emails goes far beyond necessary communications regarding customer service,

complaints or outages. Together, they clearly demonstrate a close relationship between these
two Commissioners and PNM that clearly violates both the letter and the spirit of the law.
a.

Exhibit 2 is an email from Ron Darnell, Senior Vice-President of Public

Policy for PNM, sent July 21, 2014 to Commissioner Karen Montoya, referencing
a phone conversation about Rule 111 (d) [itself a significant issue in this
proceeding], with an attached "white paper on 111 (d)." Exhibit 2 will be
discussed in further detail below.
b.

Exhibits 3, 4 and 5 all involve a standing weekly meeting that

Commissioner Montoya .appears to have requested with Mary Collins, the


Director of Strategic Initiatives for PNM (According to Mr. Darnell, Ms. Collins
has since left that position; Darnell deposition at p. 80). The email exchanges are
between Mr. Lara and Ms. Collins, including a request (Exhibit 3) from Mr. Lara
that the meetings take place at an Albuquerque Starbucks location rather than the
PNM offices. Exhibits 4 and 5 include personal health information that Ms.
Collins freely offers to Mr. Lara and Commissioner Montoya.
c.

In Exhibits 6, 7 and 9, Mr. Lara seeks input and advice from PNMs

Collins to assist Commissioner Montoya in giving panel presentations to an


upcoming conference on regional transmission organizations and distributed
generation. Commissioner Montoya is identified as a member of a panel of
regulators and legislators providing "Regulatory and Legislative Perspectives"
(Exh. 6). Another panel, consisting of industry representatives, was to provide
"Industry Perspectives." Yet Commissioner Montoya turned to PNM to provide
here with the materials for her presentation. Commissioner Montoyas assistant,

Mr. Lara, provides draft :notes and a PowerPoint presentation to Ms. Collins
(Exhibits 8, 10 and 11), and specifically indicates (p. 5 of Exhibit 8): "Your
thoughts on this debate and its impact on this new method of power generation
and transmission I think would dovetail well into this panel." In other words,
Commissioner Montoya, who was to provide a regulatory perspective, turned to
PNM - a member of"the industry" - to assist her on settling on what her
regulatory perspective should be.
d.

Exhibits 12 through 19 involve another presentation Commissioner

Montoya needs PNM, tbxough Ms. Collins, to help prepare, this time for the Law
Seminar International "Energy in the Southwest" Conference.
e.

Exhibit 12 is an email exchange between Commissioner Montoyas

assistant, Mr. Lara, and PNMs Collins where Mr. Lara indicates "the
Commissioner asked that I get with [Ms. Collins] to assemble some background
research on a few topics so she can lead the discussion." These topics include
distributed generation and the diversity portfolio. The initial request further asks
whether it would "be best to get together to go over some of these topics or do
you [Ms. Collins] want to send me [Mr. Lara] stuff." Ms. Collins responds that
she will "pull together so:me information" and then they can "get together to
review." The remainder of the exchange is about scheduling the "study session"
with Commissioner Montoya. PNMs views on the topics discussed are in most
cases adverse to the views of environmental groups and to the views of many
thousands of members of the public. What is of such concern regarding this and

the previous interchanges is the implicit assumption that PNMs views and
Commissioner Montoyas views are essentially the same.
f.

Exhibit 13 is a follow-up email exchange where Mr. Lara inquires about

Ms. Collins progress, and Ms. Collins responds, "I have been working on it." She
also attaches graphics specifically for use in the presentation (Exhibits 14 - 17;
Exhibit 15 is a photo of PNMs solar project).
g.

Weeks before the presentation, Commissioner Montoya sends Ms. Collins

the PowerPoint presentation, presumably for her input. The email and
PowerPoint presentation are attached as Exhibits 18 and 19). The powerpoint
discusses regional haze and the San Juan closure and includes, as part of
Commissioner Montoya s presentation, what are really PNMs views on a number
of topics, including, for example, PNMs supposed need to recover lost revenue
from roof-top solar installations. ["Priority Three: Action Priorities" Exh. 19]. In
other words, it states PNMs perspective including PNMs disdain for solar
distributed generation and the alleged disadvantages of PNM for customer owned
solar. It also highlights PNMs legislative talking points, which were the subject
of other emails.
h.

In December 2013, Ms. Collins emails Commissioner Montoya a link to

the campaign website of Merrie Lee Soules, a candidate for Commissioner of


PRC District 5 (Exhibit 20). Commissioner Montoya responds appreciatively.
i.

During the 2014 legislative session, Commissioners Lyons and Montoya

are each engaged in email exchanges with PNM representatives about a


legislative measure being aggressively advocated by PNM. Exhibits 21 and 22

10

are an email and attachment sent by Ron Darnell to Commissioner Montoya about
legislation that had not yet been introduced. The attachment (Exhibit 22) includes
both PNM talking points and a legislative draft of what would become HB296
when it was introduced approximately one week later. After the bill was
introduced, Mr. Darnell fbrwarded a favorable news article on the bill to
Commissioner Montoya (Exhibit 23) and a link to the legislative website entry for
HB 296 to Commissioner Lyons (Exhibit 24).
j.

In a June 2013 email from Ms. Collins to Commissioner Montoya (Exhibit

25), PNM actually provides the Commissioner with confidential personal


information about one of their customers. Ms. Collins even acknowledges that in
her message, requesting that Commissioner Montoya not share the content of the
email.
k.

In November 2013, Ms. Collins sends Commissioner Montoya a press

release (Exhibit 26) hailing the decision of Arizonas public utility commission to
amend their net metering policies to discourage distributed generation of solar
energy.
1.

On two occasions in 2014, Mr. Rippy, assistant to Commissioner Lyons,

emails Gerard Ortiz, PNM Vice-President of Regulatory Affairs, for his cell
phone number (Exhibits 27 and 28).
m.

Ms. Colllins also appears to be aggressively lobbying Commissioner

Montoya on net metering and PNM concerns with "distributed generation and the
impact on PNM," which is an issue in the case herein and now an issue in front of
the PRC in PNMs current rate case, 14-00332-UT. She sent several emails to

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Commissioner Montoya that contained information hostile to distributed


generation and net metering (Exhibits 29 through 33).
n.

A number of emails from Ms. Collins to Commissioner Montoya (Exhibits

34 through 39) consist of connections to conferences, listserves, and webinars, all


of which appear to align with PNMs regulatory interests. Apparently,
Commissioner Montoya accepted Ms. Collins invitation to the NARUC
Conference. Conference attendance by Commissioner Montoya with PNM,
including dinner together, was admitted to in Ron Darnells sworn deposition
testimony: "Q. Has she gone with Karen Montoya on any type of retreat or
conference or vacation? A. Karen Montoya, Mary Collins, myself, we certainly
have attended NARUC conferences." Darnell Deposition at p. 75 "Q. When you
say that you and Mary Collins and Karen Montoya attended this conference,
where was it and when was it? A. The last conference that I recall Mary and
Commissioner Montoya being at with myself- I believe it was last February in
Washington D.C." Supra,, at p. 76 "Q. And when you were at that conference did
you and Mary Collins and Commissioner Montoya have any meal together? A.
We had dinner once." Supra, at p. 77
o.

Commissioner Lyons has also attended conferences and socialized with

PNM. According to Ron Darnells testimony:


"A. Patrick Lyons has gone to - hes gone to the Dallas NARUC conference in
Denver the summer of- I think the summer of 13. Those are the only NARUC
conferences that I know of that PNM people and Patrick Lyons were at. And then
I was not at - I believe its the - probably not exactly right but like the Western

12

Commissioners Conference held in Seattle in early JuneI....


was not there. Pat
Vincent was on a panel as well as some other CEOs, and I believe Mark Fenton
was at that meeting."
"Q. When youve been at the same conference, a NARUC conference at the same
time with Patrick Lyons,. did you also share any meals together? A. Yes, certainly
we have shared some meals together. Q. And do you know if any PNM people
when they went to the Seattle conference that Patrick Lyons was at, if he shared
meals with PNM employees at that time? A. I believe he did." Darnell deposition,
pp. 78, 79

p.

In Commissioner Montoyas calendar, attached as Exhibit 40,

Commissioner Montoya is scheduled to meet with Mr. Ortiz on June 20, 2013 and
with Mr. Darnell at his office in Albuquerque for two hours on July 25, 2013 and
again on August 30, 20134.
q.

Commissioner Montoya has repeatedly attended sporting events with Ms.

Collins: "You know, I think Mary [Collins] might have gone to a baseball game
with Karen to help her out when she was on crutches." "I believe Mary Collins
has golfed in a foursome with Karen Montoya."Darnell Deposition, at pp. 79,
80.
ro

Commissioner Lyons also attended sporting events with PNMs senior

management: "Patrick and I went to a baseball game in Arlington stadium at the

4 Before PNM filed its Application, on October 29, 2013, Mariel Nanasi and David Van Winkle,
of New Energy Economy met with Cormnissioner Montoya, and discussed general opposition to
further reliance on coal and nuclear and a preference for solar and wind. Unknown to Nanasi and
Van Winkle were the contents of PNMs filing, other than what was disclosed at public IRP
meetings, and New Energy Economy had not yet determined to intervene in the case herein.
13

Q. Can you tell us about the baseball


summer conference this last summer ....
game that you and Patrick Lyons went to in Arlington, Texas? A. Sure. It was - a
friend of mine is a former Colorado commissioner. Ray Gifford knows Tony
Clark very well. Tony Clark is a FERC commissioner, and Ray thought it would
be a good idea for Tony to meet Pat so we went to the game. It was hot and
miserable and Patrick and Commissioner Clark hit it off." Damell Deposition, at
pp. 81, 82.
Prohibited Acts
6.

As quasi-judicial officials, Commissioners are held to a higher standard than most

other elected officials. Section 8-8-19 NMSA 1978 addresses acts prohibited of Commissioners
and Commission candidates.
C. A candidate for election to the public regulation commission shall not
solicit or accept:
(1) anything of value, either directly or indirectly, from a person
whose charges for services to the public are regulated by the commission. For the
purposes of this paragraph, "anything of value" includes money, in-kind
contributions and volunteer services to the candidate ...
D. A commissioner or employee of the commission shall not:
(1) accept anything of value from a regulated entity, affiliated
interest or intervenor. For the purposes of this paragraph, a commissioner may
accept allowable campaign contributions when campaigning for reelection. For
the purposes of this paragraph, "anything of value" does not include:
(a) the c, ost of refreshments totaling no more than five dollars
($5.00) a day or refreshments at a public reception or other public social function
that are available to all guests equally;

7.

Without discovery from PNM, it is not possible to know the extent to which these

provisions have been violated. However, all of the materials, resources and guidance Ms.
Collins provided to Commissioner Montoya constitute "value," especially since "anything of
value" in the previous paragraph is defined as in-kind and volunteer services. Given the specific
14

definition in subsection 8-8-19(D)( 1 ), Commissioner Montoya solicited, and PNM


provided,research, editing, and other presentation assistance through Ms. Collins Ms. Collins, all
which has value. The precise value is unknown but one could determine the figure quite easily
by simply multiplying Ms. Collins average hourly compensation by the number of hours she
spent assisting Commissioner Montoya. Similarly, the cost could be calculated on the basis of
what an outside consultant would have charged Commissioner Montoya for the same assistance.
8.

Exhibit 41 is a September 25, 2014 email from Cindy Edwards, Assistant to Mr.

Darnell, to Mr. Rippy, Assistant to Commissioner Lyons. The email references a dinner Mr.
Darnell had the previous month with the Commissioner and the Commissioners sister and
brother-in-law and requests the names of the Commissioners relatives.
Ex Parte Communications
9.

The Fourteenth Amendment of the United States Constitution protects citizens

from state action that leads to "deprivations of liberty and property without due process of law."
Mills v. State Bd. of Psychologist Examrs, 1997-NMSC-028, 14, 123 N.M. 421,941 P.2d 502.
The New Mexico Constitutions Due Process Clause echoes the federal one: "No person shall be
deprived of life, liberty or property without due process of law[.]" N.M. Const. art. II, 18.
"Procedural due process requires a fair and impartial hearing before a trier of fact who is
disinterested and free from any form of bias or predisposition regarding the outcome of the
case." New Mexico Brd. of Veterinary Med. v. Riegger, 2007-NMSC-044, 27, 142 N.M. 248,
164 P.3d 947 (internal quotation marks and citation omitted). These principles of fairness are
basic to our justice system. Los Chavez Community Assn v. Valencia County 277 P.3d 475,482 483 (N.M.App., 2012)
10. According to 1.2.3.7 NMAC F and 1.2.3.8 A. NMAC ex parte communications
between Commissioners and a party during a pending adjudication is prohibited:
15

F. pending adjudication means any matter docketed, or, in the case of a party
represented by counsel, any matter that an attorney representing such party reasonably believes
will be docketed, before the commission, including, but not limited to, formal complaint
proceedings, show cause proceedings, investigations, notices of inquiry other than nonadjudicatory notices of inquiry, application proceedings, petitions, and any matter other than a
rulemaking or a non-adjudicatory notice of inquiry requiring decision or action by the
commission.[ 1.2.3.7 NMAC - N, 7-15-04; A, 9-1-08]

EX PARTE COMMUNICATIONS PROHIBITED:


A. A commissioner shall not initiate, permit, or consider a communication directly
or indirectly with a party or his or her representative, outside the presence of other parties,
concerning a pending rulemaking after the record has been closed or a pending adjudication.

11. Exhibit 2 is an email from Mr. Damell, sent July 21, 2014 to Commissioner Montoya, that
references a phone conversation about Rule 111 (d) and attaches a white paper on 111 (d), the
federal greenhouse gas rule that is a critical issue of debate in PNMs case at the PRC on its
proposed replacement power plan. In the email and attachment, Mr. Darnell is clearly trying to
improperly influence Commissioner Montoya about PNMs point of view about the rule, which
is included here as Exhibit 42. There is no doubt that the Clean Power Plan, aka Rule 111 (d), is
an issue in the case herein. Numerous witnesses have referred to this issue, with PNMs
witnesses arguing that the company is "well-positioned" to address it because the company is
shutting down two of the four coal units at San Juan, while New Energy Economy has
vociferously argued that it is risky for PNM to acquire any more coal, a source of energy subject
to progressively tighter regulatory standards and provided at unacceptably high costs to
ratepayers in terms electricity costs and cost to health and the environment.5

s A few examples to references in PNMs testimony: "Edward Cichanowicz, an independent


consultant providing engineering and analytical services to the electric and energy industries,
addresses the Clean Power Plan Rule and the Coal Combustion Residuals Rule currently under
consideration by the U.S. Environmental Protection Agency ("EPA) and the implications of
these proposed rules for San Juan." Rebttttal Testimony in Support of Stipulation and Response
Testimony on Reserved Issue, Ortiz, p. 5; "As discussed in more detail by Mr. Cichanowicz in
his rebuttal testimony, based on the proposed Clean Power Plan, which I note is focused on state
16

12. Exhibit 43 contains an email from Ms. Collins to Commissioner Lyons assistant,
Mr. Rippy in June 2013 requesting to set up a meeting between Commissioner Lyons and Mr.
Darnell "to discuss San Juan." Exhibit 44 is an email about two meetings between PNM and
Commissioner Montoya taking place during exactly the same time frame; it is reasonable to infer
that those meetings were also about San Juan.

13. The Public Regulation Commission has broad powers that affect the daily lives of
all New Mexicans. It is absolutely crucial that the Commission be held to the highest standards
of integrity, and that New Mexicans have faith that their interests are being faithfully represented
by their elected officials.
14. In California, coziness between regulators and regulated entities has led to both
federal and state civil investigations.6 It seems clear from the above-referenced communications

compliance rather than individual utility compliance-a fact that is confused in Mr. Dirmeiers
analysis when he discusses PNMs compliance with the proposed rule-New Mexico is in good
shape to meet the targets established for it, given compliance with the Revised SIP." Rebuttal
Testimony in Support of Stipulation and Response Testimony on Reserved Issue, Ortiz, p. 30,
31. "It is simply not reasonable to assume that there will not be additional costs associated with
greenhouse gas emissions during the twenty-year planning period." (Direct Testimony of Patrick
OConnell, December 20, 2013, p. 18) And, New Energy Economys David Van Winkle testifies
in his Direct Testimony in Opposition to the Stipulation:
PNM claims that it will be "well-positioned to meet anticipated environmental regulations,"
but fails to definitively state that they will meet the requirements of EPAs Clean Power
Plan. (Olson, supra, at p. 60) In fact, PNMs Executive Director of Environmental Services,
Maureen Gannon testifies in her deposition that "in the context of what EPA has proposed
for its state standards under the Clean Power Plan, [PNMs emissions] gets the State very
close to the proposed standard." ... "New Mexico will get within 10% of the Clean Power
Plan." Gannon Deposition of August 22, 2014, pp. 75-76). In other words, they dont make
it with the current proposed replacement plan. Van Winkle, at p. 16

6 http://www.utilit~/dive.c~m/news/federal-pr~secut~rs-t~-investigate-pges-re~ati~nship-withcpuc/317855/
17

that members of New Mexicos PRC are similarly cozy with PNM - to the potential detriment of
the states consumers, whom the Public Regulation Commission is charged with protecting.
15. The substance of Article VI, Section 18 has been part of the New Mexico
Constitution since statehood. "[T]he disqualification of judges for certain causes, raising a
presumption of partiality, has been ever present in our Constitution"State
.... ex rel. Hannah v.
Armijo, 38 N.M. 73, 83, 28 P.2d 511,516 (1933). The purpose of this provision is based on due
process considerations--"to secure to litigants a fair and impartial trial by an impartial and
unbiased tribunal." State ex rel. Bardacke v. Welsh, 102 N.M. 592, 603,698 P.2d 462, 473
(Ct.App. 1985) (internal quotation marks and citation omitted). The recusal grounds listed in
Article VI, Section 18 of the New Mexico Constitution are "recognized dangerous sources of
partiality" and were included in the Constitution so as to prevent "the possibility of legislative
detraction in any legislative scheme of disqualification of judges on account of partiality."
Hannah, 38 N.M. at 82, 28 P.2d at 515-16. New Mexico law binds quasi-judicial
decisionmakers to "ethical standards comparable to those that govern a court in performing the
same function." ACP, 2008-NMSC-025, 33, 144 N.M. 99, 184 P.3d 411 (internal quotation
marks and citation omitted). As recently explained by the appeals court, ".... [B]asic safeguards
established by standards set out in the federal and state constitutions, as well as in New Mexico
statutes and rules, all have one goal--to ensure that the decision-maker is not biased. There is no
principled reason to apply the prohibitions in Article VI, Section 18 of the New Mexico
Constitution to judges but not to board members who are acting in an adjudicatory capacity." Los
Chavez Community Assn v. Valencia County 277 P.3d 475, 482 -483 (N.M.App., 2012)

16.

The PRC and Commissioners Montoya and Lyons have the responsibility,

delegated by the People of New Mexico, to decide what is undoubtedly one of the most
18

important energy decisions to face New Mexico, a decision that will have far-reaching
consequences for energy generation over the next 20 to 30 years. NEE has produced evidence
that rises, at the very least, to "an appearance of impropriety" if not evidencing improper conduct
and bias by Commissioners Lyons and Montoya toward PNM, a party in a pending matter before
the PRC Commission. Because of ongoing relationships between these Commissioners and
certain PNM officials and start; evidenced by email and telephonic communications, the sharing
of meals, familiarity with family members and personal health matters, invitations to attend and
joint attendance at entertainment and sporting events, and PNMs assistance in preparing reports
and presentations for Commissioner Montoya, to say nothing of ex parte contacts relating to
matters at issue in this case, both in anticipation of this case and during this case, there is
reasonable doubt that Commissioners Montoya and Lyons will be able to make a fair and
impartial decision regarding approval of PNMs Stipulation. Having deliberately crossed a timehonored, bright-line boundary that exists between the PRC and a regulated entity with business
before the PRC, there is reason to suspect that these Commissioners at least give the appearance
of bias. This is sufficient ground to require their recusal. The law requires no less.

17. PNMs refusal to provide documents evidencing ex parte communications with


commissioners makes this motion more compelling and, at a minimum, requires that complete
discovery be conducted to establish the nature and extent of ex parte communications between
PNM and Commissioners Lyons and Montoya:

An ex parte communication occurs when a board member communicates, directly or


indirectly, in connection with a matter before the board, with any person or party, except
upon notice and opportunity for all parties to participate. See Iowa Code 17A. 17(1).
Thus, ex parte communications, by their very nature, happen outside the record. The
record before the Board is insufficient to address the issue of whether the Boards
decision was illegally tainted by ex parte communications.
19

*4 We determine the district court abused its discretion by ruling that further discovery
was not necessary in this case. It is clear that in order for LDMG to have an opportunity
to establish its claim of ex parte communications, LDMG needed to present evidence
beyond that brought before the Board. We conclude the case should be reversed and
remanded to the district court to allow LDMG the opportunity to gather evidence to
support its claim of ex parte communications.
LDMG Corp. v. Webster County Bd. Of Adjustment L 22697730, 2 -4 (Iowa

App.,2003). See, e.g., Portland Audobon Soc. V. Endangered Species Committee, 984 F.2d
1534, 1549 (9th Cir. 1993) ("In the absence of declarations [of the involved parties] denying that
alleged violations of the APAs ex parte communications prohibition occurred, the declaration of

the environmental groups counsel...and the newspaper reports.., are sufficient to warrant a
remand [to conduct discovery.. [therefore we] remand for a vigorous and thorough adversarial,

evidentiary hearing" on the ex parte contacts]7


Here, NEE believes there is more than enough evidence under the foregoing standards to
disqualify Commissioners Lyons and Montoya. At a minimum, NEE is entitled to obtain all
relevant documents in the hands of PNM that related to ex parte communications with these two
(or any other) PRC commissioners. PNM has tellingly failed to indicate that there are no such
documents but, instead, has refused to provide any such documents and has merely lodged a
boiler-plate objection that the request is not calculated to lead to admissible evidence. That
standard, for merits discovery, is inapplicable here, where the issue is not whether PNMs plans
are in the best interests of the ratepayers but, rather, whether NEE and the other objectors are
entitled to the due process protection implicit in having that issue decided by Commissioners
who are free from any appearance of impropriety in their relationships with PNM.
7 Here, it would be Commissioners Lyons and Montoya, and Collins, Darnell, CdeBaca, Gerard
Ortiz, Sayuri Yamada, and perhaps others from PNM who should submit affidavits, including
PNMs lawyers who would likely know of them.
2O

18.

The parties positions in the case are as follows:

Southwest Generation Operating Co., LLC takes no position.

No other parties provided their position before this Motion was filed.
WHEREFORE, pursuant to basic principles of justice and fairness, New Energy
Economy respectfully requests that the PRC require Commissioners Montoya and Lyons to
recuse themselves from deciding the case herein.

Respectfully Submitted,

New Em

~omy

/S/John W.

Bovd

FREEDMAN BOYD HOLLANDER


GOLDBERG URIAS & WARD, P.A.
20 First Plaza, Suite 700
Albuquerque, NM 87102
(505) 842-9960

Esq.

t43 East Alameda St.


Santa Fe, NM 87501-2229
(505) 469-4060
mariel@seedsbeneaththesnow.com

21

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF THE APPLICATION OF


)
PUBLIC SERVICE COMPANY OF NEW MEXICO )
FOR APPROVAL TO ABANDON SAN JUAN
)
GENERATING STATION UNITS 2 ,AND 3,
)
ISSUANCE OF CERTIFICATES OF PUBLIC
)
CONVENIENCE AND NECESSITY FOR
)
REPLACEMENT POWER RESOURCES,
)
ISSUANCE OF ACCOUNTING ORDERS AND
)
DETERMINATION OF RELATED RATE-MAKING)
PRINCIPLES AND TREATMENT.
)

Case No. 13-00390-UT

)
PUBLIC SERVICE COMPANY OF NEW MEXICO, )
Applicant.
)

AFFIDAVIT OF MARIEL NANASI


STATE OF NEW MEXICO
COUNTY OF BERNALILLO

)
) ss
)

1.

My name is Mariel Nanasi.

2.

New Energy Economy received the documents attached to the Motion and

Supporting Brief of New Energy Economy for Recusal of Public Regulation Commissioners
Montoya and Lyons from the Rio Grande Sun pursuant to an Inspection of Public Records
request to the Public Regulation Commi:ssion (PRC).
3.

Upon being duly sworn according to law, under oath, deposes and states: That I

have read Motion and Supporting Brief of New Energy Economy for Recusal of Public
Regulation Commissioners Montoya and Lyons and believe the contents therein to be true and
correct and to the best of my knowledge and belief.

Subscribed and sworn to before me by Mariel Nanasi on this the _ ~, ~


2014.

Notary Public
My Commission Expires:

My Comm. Expires/~/~ ~/I ~

NEW MEXICO PUBLIC REGULATION COMMISSION


R~solution No. 01-03-13
2013 Commission Code of Conduct
WHEREAS, this duly elected body, on this 3rd day of January, 2013, does
hereby recognize the fundamental principle that a public office is a public trust.
This Commission Code of Conduct sets out standards of ethical conduct intended
to foster public trust and proraote confidence in the integrity of government by
avoiding even the appearance c,f self-interest, personal gain or benefit; and
WHEREAS, ethical leaciership sets a good example whereby all citizens are
treated with respect;
THEREFORE, BE IT RESOL VED,
That the Commission shall adopt this Commission Code of Conduct, and
that each Commissioner shall:
Obey both the letter and the spirit of all laws and regulations;
a)
b)
Abide by the law in their personal lives, as well as in their
professional duties, and thus set a good example for all New Mexico citizens;
c) While recognizing that some laws may be subject to varying
interpretations, strive nonetheless to implement the spirit and purpose of each law;
d) Facilitate open discussion within the Commission to the maximum
extent permitted by law;
c) Comply with the rules governing the conduct of Commission
meetings;
Treat the office of Commissioner as a public trust by using the powers
f)
of the office solely for the benefit of the public rather than for any personal benefit;
and
BE ! T FUR THER RESOLVED,
That Commission employees should be encouraged to develop detailed
ethical standards, including procedures for training and compliance; and

BE IT FURTHER RESOLVED,
That Commissioners and employees should collaborate and work together to
foster teamwork, mutual support and collective ethical awareness; and
BE IT FUR THER RESOLVED,
That this Commission Code of Conduct shall be applicable to each
Commissioner and to all Commission employees; and
BE IT FUR THER RESOLVED,
That this Commission Code of Conduct shall be reviewed periodically by
the Commission.

ISSUED under the Seal of the Commission at Santa Fe, New Mexico this 3rd day of
January, 2013.

NEW MEXICO PUBLIC REGULATION COMMISSION

THERESA BECENTI-AGUILAR, V!~E CHAIR

).~,r~-i-... i"1

BEN L. HALL, COMMISSIONER

VALEI~IE ESPIN~3E,~ COM M~SIONER

KARES L, MO~IOIA, OOMMIIIIOSE~


/

STATE OF NEW MEXICO


PUBLIC REGULATION COMMISSION
January 3, 2013

OATIt OF ETHICAL CONDUCT


I, Karen L. Montoya, duly elected member of the New Mexico Public Regulation
Commission from District 1, do lhereby recognize the irrefutable principle that a public
office is a public trust and do solemnly swear that:
!. 1 shall faithfully support lhc United States Constitution and the Constitution of
the State of New Mexico.
2. I shall ethically and with integrity discharge the high responsibilities placed
upon me by the Conslit~Jtion of the State of New Mexico and the voters of my
district.
3. ! shall abide by the spirit as well as the letter of this Oath taken on January 3,
2013.

4. ! shall not use my office for personal gain, and I shall scrupulously avoid any act
of impropriety or any a.~t which gives the appearance of impropriety.

KAREN L.
~YA
COMMISSIONER DISTRICT 1

ST.ATE OF NEW MEXICO


PUBLIC REGULATION COMMISSION
January 3, 2013

OATlt OF ETHICAL CONDUCT

!, Patrick H. Lyons, duly elected member of the New Mexico Public Regulation
Commission from District 2, do I~ereby recognize the irrefutable principle that a public
office is a public trust and do solemnly swear that:
5. I shall faithfully support the United States Constitution and the Constitution of
the State of New Mexico.
6. ! shall ethically and witl~ integrity discharge the high responsibilities placed
upon me by the Constit~ation of the State of New Mexico and the voters of my
district.
7. 1 shall abide by the spirit as well as the letter of this Oath taken on .January 3,
2013.

8o

1 shall not use my office for personal gain, and ! shall scrupulously avoid any act
of impropriety or any a.~t which gives the appearance of impropriety.

~PATRICK il. LYONS~"


COMMISSIONER DISTRICT 2

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)~ O~ O~ O~ OI ~ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ~ 0 0 0, 0, 0 0 0 0 0 0 0 0 00~ O~ O~ O~ 0, O~ O~ 0

)~ O~ O! O! O~ 0

12/23/14 3:57 PM

Exhibit 2

From: Darnell, Ron


Subject: 111 (d) white paper
Date: July 21,2014 10:25:30 AM MDT
To: KarenL.Montoya@state.nm.us <KarenL.Montoya@state.nm.us

Karen,
Per our phone conversation Ive attached a white paper on 121(d). The
paper was not prepared at PN Ms request rather it is prepared and
disseminated to all the authors clients who have an interest in 111(d).
Regards,
Ron Darnell, Senior Vice President Public Policy
Public Service Company of New Mexico
Main Offices
Albuquerque, NM 87158-1215
O: 505-241-4722
C: 505-362-5075

Page 1 of 1

12/23/14 3:57 PM

Exhibit 3

From: Lara, Robert, PRC


Subject: RE: Standing Thursday meeting with Commissioner
Date: October 16, 2013 1:42:02 PM MDT
To: Collins, Mary <Mary.Collins@pnmresources.com

Ok ill get it on her schedule


r

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1
New Mexico Public Regulation Comission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015
From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]
Sent: Wednesday, October 16, 2013 1:32 PM
To: Lara, Robert, PRC
Subject: Re: Standing Thursday meeting with Commissioner

Sure
Sent from my iPhone
On Oct 16, 2013, at 1:23 PM, "Lara, Robert, PRC"
<Robert.Lara.@state.nm.us> wrote:
Mary can we set up this standing meeting at 8 am with the commissioner
at a alternate location other than PNM. I was thinking the Starbucks at
i-25 and Montano, its 1450 Montano NE ABO, NM 87107
Please let me know if we can do this
r

Page 1 of 2

Exhibit 3

12/23/14 3:57 PM

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1
New Mexico Public Regulation Comission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015

Page 2 of 2

12/23/14 3:57 PM

Exhibit 4

From: Collins, Mary


Subject: Re: Tomorrows meeting
Date: October 23, 2013 2:16:13 PM MDT
To: Lara, Robert, PRC </O=STATE OF NEW MEXlCO/OU=EXCHANGE
ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/CN=RECIPIENTS/
CN=Robert.Lara142
Thanks-got into doctor and have medicine-will be fine by next Thursday

Sent from my iPhone

On Oct 23, 2013, at 12:50 PM, "Lara, Robert, PRC" <Robert.Lara@state.nm.us>


wrote:

She will see you hopefully on the 31

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1
New Mexico Public Regulation Comission
1120 Paseo de Peralta
Santa re, NM 87501
robert.lara@state.nm.us
505.827.8015

Page 1 of 2

12/23/14 3:57 PM

Exhibit 4

.....Original Message .....


From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]
Sent: Wednesday, October 23, 2013 11:27 AM
To: Lara, Robert, PRC
Subject: Tomorrows meeting

Need to cancel/home sick with cold

Sent from my iPhone

Page 2 of 2

12/23/14 3:58 PM

Exhibit 5

From: Collins, Mary


Subject: Thursday
Date: October 30, 2013 11:51:01 AM MDT
To: Lara, Robert, PRC </O=STATE OF NEW MEXlCO/OU=EXCHANGE
ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/CN=RECIPIENTS/
CN=Robert.Lara142>,Montoya, Karen L, PRC </O=STATE OF NEW MEXICO/
OU=EXCHANGE ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/
CN=RECIPIENTS/CN=KarenL.Montoyabl a

I am now scheduled to have a colonoscopy/endoscopy performed


tomorrow afternoon. I am still going to be drinking the dreaded liquid in
the morning, so am not sure how far out I should venture. So, I can either
talk to Karen on the phone in the morning, or we could meet sometime
Friday away from my office. I have a 7 a.m. meeting, noon meeting and 2
p.m. meeting on Friday but otherwise free.

Please let me know what would work.


Sorry about having to reschedule.

Mary
Mary Collins
Director, Strategic Initiatives
Marketing and Communications
PNM
414 Silver Avenue SW, MS-0605
Albuquerque, NM 87158
Work: 505.241.2214
Cell: 505.242.2010

Page 1 of 1

12/23/14 3:58 PM

Exhibit 6

From: Lara, Robert, PRC


Subject: Re: Panels for Commissioner Montoya
Date: October 10, 2013 1:16:06 PM MDT
To: Collins, Mary <Mary.Collins@pnmresources.com
I do not
Sent from my Verizon Wireless 4G L TE DROID

"Collins, Mary" <Mary.Collins@pnmresources.com> wrote:


Thank you-do you know if Chairrnan Hall is also participating?
From: Lara, Robert
Sent: 10/10/13, 1:05 PM
To: Mary.Collins@pnmresources.com
Subject: Re: Panels for Commissioner Montoya
First ones Saturday second one Tuesday
Sent from my Verizon Wireless 4G L TE DROID
"Collins, Mary" <Marry.Collins@ .pnmresources.com> wrote:
Thanks, when is the forum?

Sent from my iPhone


On Oct 10, 2013, at 9:57 AM, "Lara, Robert, PRC" <Robert. Lara@state.nm.us>
wrote:
Mary,
Commissioner Montoya asked me to send you the information on the panels she
is on for the forum. Please see the descriptions below.
Thanks
Robert
Panel 1
Discussion Session II: Distributed Generation
There is a growing focus on distributed generation and the implications for all
electric consumers - whether they invest in these technologies directly or not. The
Critical Consumer Issues Forum (CCIF) released a consensus framework containing
21 principles to assist policymakers and others in evaluating issues related to the
opportunities and challenges of distributed generation in providing safe, reliable,

Page 1 of 3

12/23/14 3:58 PM

Exhibit 6

affordable, cost-effective, and environmentally sound energy supply. Using the


CCIF report as a foundation, this panel will further explore the implications of the
growth of distributed generation on the electric industry, consumers and public
policy.
Moderator:
Thomas Linquist, Executive Director, Russell Reynolds Associates
Discussion Leader:
Katrina McMurrian, Executive Director, Critical Consumer Issues Forum (CCIF)
Industry Perspective:
Kimberly Greene, President & CE, O, Southern Company Services
Kendal Bowman, Vice President Regulatory Affairs and Policy-NC, Duke Energy
Kimberly H. Despeaux, Senior Vice President, Federal Policy, Regulatory &
Governmental Affairs, Entergy
Gloria Godson, Vice President, Federal Regulatory Policy, Pepco Holdings, Inc.
Regulatory & Legislative Perspectives:
Chairwoman Elizabeth Jacobs, Iowa
Vice-Chairwoman Nikki M. Hall, South Carolina
Commissioner Karen L. Montoya, New Mexico
Commissioner Ellen Nowak, Wisconsin
NBCSL President-Elect Senator Catherine Pugh, Maryland
Panel 2
Discussion Session VIII: An In-Depth Look at Regional Transmission
Organizations and Independent System Operators Plaza III & IV
This panel will explore the current status as well as the future of RTOs and ISOs.
The panel will explore issues such as: How are RTO/ISO markets operating? Is the
current RTO/ISO planning process working? How are the RTOs and ISOs working
together in the context of Order 1000? Is there room for partnerships with regions
that arent in RTOs/ISOs? The panel will also explore incentives that the state and
federal regulatory bodies can offer to create additional efficiencies.
Moderator:
Charles Davidson, Director, Advanced Communications Law & Policy Institute
(ACLP), New York Law School
Industry Perspective:
Anne M. Vogel, Director Transmission Strategy and Federal Policy, American
Electric Power Service Corp. Richard Doying, Executive Vice President of
Operations & Corporate Services, Midcontinent ISO
Linda H. Blair, Executive Vice President, Chief Business Officer, ITC Holdings
Corp.
Roundtable Discussion:
NARUC Utility Marketplace Access Sub Committee Vice Chair Nikki Hall, South
Carolina

Page 2 of 3

Exhibit 6

12/23/14 3:58 PM

Chairman Phil Montgomery, Wisconsin


Commissioner Bob Anthony, Oklahoma
Chairwoman Donna Nelson, Texas
Commissioner Karen L. Montoya, New Mexico
Commissioner William Kenney, Missouri

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1
New Mexico Public Regulation Comission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015

Page 3 of 3

12/23/14 3:58 PM

Exhibit 7

From: Lara, Robert, PRC


Subject: RE: Distributed Energy Resources notesDate: October 11,2013 1:13:05 PM MDT
To: Collins, Mary <Mary.Collins@pnmresources.com
Its just background for her

I figured she would be able to use this info along with her own insights for
whatever comments she was going to make

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1
New Mexico Public Regulation Comission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015

From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]


Sent; Friday, October 11, 2013 12:41 PM
To-" Lara, Robert, PRC

Subject: RE: Distributed Energy Resources notesIs this just background information or is she planning on providing it as her
remarks?

From: Lara, Robert, PRC [mailto: Robert. Lara@state.nm.us]


Sent." Friday, October 11, 2013 10:58 AM
To: Collins, Mary
Subject: Fwd: Distributed Energy Resources notes-

Mary
The commissioner wanted me to fwd these notes to you for your
comments

Page 1 of 2

12/23/14 3:58 PM

Exhibit 7

Robert
Sent from my Verizon Wireless 4G LTE DROID

Original Message .........


Subject: Distributed Energy Resources notesFrom: "Lara, Robert, PRC" <Robert.Lara@state.nm.us>
To: "Montoya, Karen L, PRC" <KarenL.Montoya_.@.state.nm.us>
CC:

Page 2 of 2

Distributed energy Notes


Background

In the U.S. energy infrastructure power is produced from resources inland, but most of the
consumption is in the major population centers along the east and west coasts. Thus, there is a
web of transmission and distribution (T&D) systems to get power from where its generated to
where its consumed. As those load centers increasingly demand more energy, significant
investments in transmission infrastructure are needed - but building out addition transmission
creates congestion at the load centers, according to experts.
Creating enough T&D to satisfy peak demand and avoid congestion would be like building a 32lane highway to combat rush-hour traffic: for two hours a day it would be well used but the other
22 hours it would be overkill and utilitie, s dislike underutilized investments.
Utilities are not equipped to meet the sudden increase in power demand associated with charging
electric vehicles, nor do utilities have a way to address the effects of distributed resources, such
as unpredictable increases in electric demand if the output of these resources suddenly drop.
Distributed energy (DE) technologies are playing an increasingly important role in the nations
energy portfolio. They can be used to meet base load power, peaking power, backup power,
remote power, power quality, as well as cooling and heating needs.
Distributed energy refers to a variety of small, modular power-generating technologies that can
be combined with load management and energy storage systems to improve the quality and/or
reliability of the electricity supply. They are "distributed" because they are placed at or near the
point of energy consumption, unlike traditional "centralized" systems, where electricity is
generated at a remotely located, large-sc, ale power plant and then transmitted down power lines
to the consumer.
Types of distributed energy resources
Distributed energy resource systems are small-scale power generation technologies (typically in
the range of 3 kW to 10,000 kW) used to provide an alternative to or an enhancement of the
traditional electric power system. The usual problem with distributed generators are their high
costs.
One popular source is solar panels on the roofs of buildings. The production cost is $0.99 to
2.00/W (2007) plus installation and supporting equipment unless the installation is Do it yourself
(DIY) bringing the cost to $0.525 to 0.750/W (2010). This is comparable to coal power plant
costs of $0.582 to 0.906/W (1979), adjusting for inflation.

Nuclear power is higher at $2.20 to $6.00/W (2007). Some "thin-film" solar cells have wastedisposal issues when they are made with heavy metals such as Cadmium telluride (CdTe) and
Copper indium gallium selenide (CuInGaSe), and must be recycled, as opposed to silicon solar

cells, which are mostly non-metallic. Unlike coal and nuclear, there are no fuel costs, operating
pollution, mining-safety or operating-safety issues. Solar power has a low capacity factor,
producing peak power at local noon each day. Average capacity factor is typically 20%.
Another source is small wind turbines. These have low maintenance, and low pollution.
Construction costs are higher ($0.80/W, 2007) per watt than large power plants, except in very
windy areas. Wind towers and generators have substantial insurable liabilities caused by high
winds, but good operating safety. In some areas of the US there may also be Property Tax costs
involved with wind turbines that are not offset by incentives or accelerated depreciation. Wind
also tends to complement solar. Days without sun there tend to be windy, and vice versa. Many
distributed generation sites combine wind power and solar power.

Distributed cogeneration sources use natural gas-fired microturbines or reciprocating engines to


turn generators. The hot exhaust is then used for space or water heating, or to drive an absorptive
chiller for air-conditioning. The clean fuel has only low pollution. Designs currently have uneven
reliability, with some makes having excellent maintenance costs, and others being unacceptable.
Integration with the grid

Grid-connected distributed energy resources also support the central-station model of electricity
generation, transmission, and distribution. While the central generating plant continues to
provide most of the power to the grid, the distributed resources can be used to meet the peak
demands of local distribution feeder lines or major customers. Computerized control systems-using phone lines or wireless technologies--make it possible to operate the distributed
generators as dispatchable resources, generating electricity as needed. In addition, emerging
smart grid technologies are making it easier for utilities to operate distributed generators as
dispatchable resources.
The growing popularity of distributed energy is analogous to the historical evolution of computer
systems. Whereas we once relied solely on mainframe computers with outlying workstations that
had no processing power of their own, we now rely primarily on a small number of powerful
servers networked with a larger number of desktop personal computers, all of which help to meet
the information processing demands of the end users.
Distributed generation plants are mass-produced, small, and less site-specific. Their development
arose out of:
1. concerns over perceived externalized costs of central plant generation, particularly
environmental concems,
2. the increasing age, deterioration, and capacity constraints upon T&D for bulk power,
3. the increasing relative economy of mass production of smaller appliances over heavy
manufacturing of larger units and on-site construction, and
4. Along with higher relative prices for energy, higher overall complexity and total costs for
regulatory oversight, tariff administration, and metering and billing.

Cost and Reliability


While the generation cost of distributed generation (DG) is more expensive than conventional
sources on a kWh basis, this does not consider negative aspects of conventional fuels. The
additional premium for DG is rapidly declining as demand increases and technology progresses,
and sufficient and reliable demand may bring economies of scale, innovation, competition, and
more flexible financing, that could make DG clean energy part of a more diversified future.

Distributed generation reduces the amount of energy lost in transmitting electricity because the
electricity is generated very near where it is used, perhaps even in the same building. This also
reduces the size and number of power lines that must be constructed.
For reasons of reliability, distributed generation resources would be interconnected to the same
transmission grid as central stations. Various technical and economic issues occur in the
integration of these resources into a grid. Technical problems arise in the areas of power quality,
voltage stability, harmonics, reliability, protection, and control. Behavior of protective devices
on the grid must be examined for all combinations of distributed and central station generation.
A large scale deployment of distributed generation may affect grid-wide functions such as
frequency control and allocation of reserves.

To date, 37 states representing over 80% of the US population have enacted renewable portfolio
standards or goals that require 10% to 313% of energy delivered to customers by 2020. These
mostly variable resources present an operating challenge since the amount of power over the next
month, hour or even the next minute is generally harder to predict than power available from
hydro, gas, coal or nuclear plants. While many of these renewable plants were originally
interconnected to transmission systems, more recently large amounts of rooftop solar have begun
to create operating and economic issues for distribution systems.
According to the Federal Energy Regulatory Commission, 37 states plus the
District of Columbia have implemented renewable portfolio standards (RPS) or
goals (RPG) calling for an average of about 20% energy delivered to be sourced
from renewable resources by 2020. (4) These states represent about 80% of the US population.

Benefits of Distributed Power


This new configuration of micropowers and microgrids has many benefits over the old
configuration (a big power plant feeding superhighway transmission lines). It reduces toxic and
greenhouse gas emissions. It saves land, protects property rights, and reduces controversies over
rights of way and eminent domain. It is more efficient, eliminating line-loss inefficiencies and
the water required for cooling large power plants. It can resolve peaking power problems and
postpone the need for new power plants and transmission lines. It avoids financing problems for
large power plants and high-voltage lines -- the capital, taxes or bonds otherwise required. It is
frugal. Distributed micropower is delivered power.

Effects on Marketplace and suggestions to improve the system


Power companies will have to adapt and innovate to offer consumers the products and services
they desire, lest they face the same type of creative destruction that has revolutionized countless
industries in the U.S.
Energy consumers will need need a simple, certain and transparent method for pricing the power
that they supply to the grid. Net metering has served this purpose well and should be continued
so that the customers and suppliers of distributed generation systems know that this foundational
policy will be available in the long run. Decision-makers can address cost-shifting concerns over
net metering through the same type of cost-effectiveness analyses that have been used for many
years to assess other demand-side resources such as energy efficiency and demand response.

Many energy customers do not have a rooftop suitable for the installation of solar panels or a
yard large enough to site a wind turbine.. Shared renewables programs can address this problem
through the development of larger, but still distributed renewable generation projects connected
to the distribution system at the wholesale level, with the power output distributed to subscribers
or community members. Shared renewables programs should be developed so that all energy
consumers are able to participate in clean energy markets.
Distributed generation does not have to be on the customers side of the meter, nor does the
output need to serve specific customers. It can also be deployed as small power plants, providing
wholesale power to utilities. Wholesale DG can help utilities to meet their states renewable
portfolio standard goals, to hedge against the risks of developing large-scale generation and
transmission projects, and to respond quickly to load growth. A variety of administrative or
market-based pricing mechanisms can be used to support wholesale DG, with long-term
contracts essential in order to allow these capital-intensive projects to be financed.
Too much regulation can present a major barrier to distributed generation, raising "soft costs"
like permitting and customer acquisition.. Regulators and local agencies should adopt bestpractice interconnection standards and improvements in the permitting process for DG as ways
to remove these barriers to DG deployment while still ensuring safe and reliable installations.
DG can reduce transmission and distribution costs, but only if utilities integrate DG into their
planning for delivery networks. IDP is a coordinated, forward-looking approach under which
utilities plan in advance to upgrade or reconfigure certain circuits that are expected to have DG
added in the near future, and make the associated costs known to the market with far more
transparency than is common today
New Mexico Specific Projects
Kit Carson July 2013

Kit Carson Electric Cooperative (KCEC) of Taos, NM and the Clean Energy Collective (CEC)
of Carbondale, CO, have entered into a 1.2 megawatt agreement to launch New Mexicos first
community solar gardens. The community solar projects will allow utility customers to purchase
solar panels located in community arrays, with the first phase being constructed at the Taos
Charter School.
Clean Energy Collective pioneered the community solar model for clean energy production,
which allows community members to purchase solar panels located in solar gardens to offset
their electricity use. CEC constructs and maintains the solar gardens, and the local utility
company agrees to acquire the power from the community arrays. Consumers receive the same
tax credits and electricity discounts as they would if the panels were installed on their roofs. CEC
warranties the panels for 50 years, so consumers dont have to worry about construction,
maintenance or repair.
The community solar concept allows all consumers to utilize clean renewable energy, including
renters, those with poorly sighted properties and individuals of all income levels, without having
to build a costly system of their own. Owners of community solar panels reap the benefits
directly on their monthly electric bills through KCEC.

The community solar arrays will be constructed on solar carports, mounting 420 solar panels on
top of a sturdy canopy structure. Solar carports are easy to maintain and also serve to protect
automobiles from the weather as well as. provide a convenient place to charge electric vehicles.
The first community solar arrays will produce approximately 160,000 kWh of clean energy per
year.
NMPRC and Reasonable Cost Threshold

Your thoughts on this debate and its impact on this new method of power generation and
transmission I think would dovetail well into this panel.

12/23/14 3:59 PM

Exhibit 9

From: Collins, Mary


Subject: RE: Regional transmission organizations review
Date: October 11,2013 1:33:31 PM MDT
To: Lara, Robert, PRC </O=STATE OF NEW MEXlCO/OU=EXCHANGE
ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/CN=RECIPIENTS/
CN=Robert.Lara142

Thanks[
From: Lara, Robert, PRC [mailto:Robert.Lara@state.nm.us]
Sent: Friday, October 11, 2013 1:33 PM
To: Collins, Mary
Subject: RE: Regional transmission organizations review
Ive added it and fwd your corr~ment to her

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1
New Mexico Public Regulation Comission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015

From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]


Sent: Friday, October 11, 2013 1:21 PM
To: Lara, Robert, PRC
Subject: RE: Regional transmission organizations review

On the first page you should rnention that the part of New Mexico that is
not part of SPP participates in WestConnect, which is one of the planning
areas within the WECC. WestConnect could be considered to be a virtual
RTO since the member utilities work closely together for planning
purposes.

Page 1 of 2

Exhibit 9

12/23/14 3:59 PM

From: Lara, Robert, PRC [mailto:Robert.Lara@state.nm.us]


Sent: Friday, October 11, 2013 11:00 AM
To: Collins, Mary
Subject: Fwd: Regional transmission organizations review

Second set of notes


Sent from my Verizon Wirehzss 4G LTE DROID
Original Message .........
Subject: Regional transmission organizations review
From: "Lara, Robert, PRC" <Robert.Lara@state.nm.us>
To: "Montoya, Karen L, PRC" <KarenL.Montoya__@state.nm.us>
CC:
Please review the ms word doc first, its a general background for you
Then the PowerPoint highlights the developments in N M, but I need to
add your personal comments to them to finish it
r

Page 2 of 2

Regional transmission organization (RTO) and Individual System Operators (ISP) Notes:

What is it?
A Regional Transmission Organization (RTO) and a Individual System Operators (ISO) is an
independent system operator. Both types of entities are functionally the same: they operate and
manage the interstate electricity grid over a large region, dispatch the system by means of
auction-based energy markets, and provide market monitoring oversight. A key characteristic of
both ISOs and RTOs is that, in contrast with grid operators in utility operated systems, they are
not affiliated with any market participant and thus provide the fair access to grid services needed
for a level playing field. Both RTOs and ISOs dispatch the system by means of competitive
auction-based energy markets, in contrast to the purely bilateral markets in single utility operated
systems. The grid operators in New York and California are ISOs, not RTOs, because of their
single-state geographic scope. The important point of both ISOs and RTOs is that they are not
affiliated with any market participants and thus provide the fair access to grid services needed for
a level playing field. RTOs and ISOs serve about two-thirds of electricity consumers in the U.S.
RTO membership is voluntary under FERC rules and regulations, but once a utility is in, its
pretty difficult to get out. RTOs dont physically own or operate any physical transmission or
generation facilities, but they do arrange for and coordinate the traffic over the transmission
system (eg, manage the tariffs, plan for congestion elimination, etc) and in some cases, arrange
for the generation - wholesale markets -- and delivery of the power over the system ( eg, market
imbalances, load following, etc). Individual utilities still have the responsibility to operate their
system and control areas within the constraints as dictated by the RTOs. RTOs charge a fee for
their services; they dont actually get a transmission fee themselves or buy and sell power.
RTOs basically bring a buyer and seller together. The relationship between the utility and the
RTO is contractual, so its enforceable under FERC. Entities not jurisdictional to FERC like
TriState, generally do not like RTOs, because participation brings them one step closer to FERC
oversight.
Where are they?
There are currently six operational Regional Transmission Organizations/Independent System
Operators (RTOs/ISOs) under the jurisdiction of the Federal Energy Regulatory Commission
(FERC): ISO New England (ISO NE); the New York ISO (NY ISO); the PJM Interconnection
(PJM); the Midwest ISO (MISO); the California ISO (CAISO); and the Southwest Power Pool
(SPP). The ERCOT ISO in Texas is entirely encompassed within the state which has its own
intrastate transmission grid and is therefi~re subject only to state authority.

How do they work?


In regions with operating RTOs, market participants buy and sell a variety of electricity products
and services in RTO-run markets. Typically, these products and services are not actually
furnished by the RTO itself; instead they are sold by market participants through market
structures that the RTO administers. For example, in RTO regions with centralized markets for
electric energy (PJM, NYISO, ISO-NE, MISO and CAISO), the RTO operates the day-ahead
and real-time markets through which market participants buy and sell wholesale electric power.
The RTO does not own the power plants that generate the power bought and sold in the market.
However, the RTO develops the rules it uses to administer the markets, decides which generators
will run and at what levels, grants (ordenies) the transmission services needed for transactions to
occur, and runs the billing systems for payments for power.
RTOs also operate day-ahead and real-time spot power markets. The prices for power in these
markets are set every hour based on the bids that sellers submit to the RTO. The RTO takes all
bids in ascending order, and stops with the last incremental bid needed to supply power to buyers
in that time interval. The price all sellers in that time interval receive, however, is based on the
last bid the RTO accepted -- this is known as a "single clearing price" market. RTO markets
with these features are called "Day 2" markets. These offers need not reflect the sellers actual
costs of generating power, as FERC would have required under a traditional cost-of-service
ratemaking regime prior to formation of RTO markets. Rather, the sellers set their own price
offers, regardless of their actual costs.
As is mentioned above, the single price auction and absence of price regulation in the wholesale
electric power markets have led to these "restructured" markets producing both higher prices and
higher profits than one would expect in a competitive market and than are seen in the non-RTO
regions that have not restructured. The mechanism that most RTOs use to manage congestion on
their transmission systems (where demand for transmission service in a specific direction
exceeds the capacity of the needed lines) is to charge a premium, known as a "congestion
charge" to transmission customers using those lines. When congestion prevents generation from
being delivered to customers in a "constrained zone," more expensive generation located within
the zone may be provided to meet those customers demand. The customers price reflects the
offer submitted by this higher cost generator, even if there are generators offering lower prices in
the RTO, but that cannot deliver their power because of the constraints.
The difference between the lowest price in the RTO and that charged in the constrained zone is
referred to as the "congestion charge." This congestion pricing system is known as "locational
marginal pricing" (LMP). The conceptual basis for LMP is that if market participants must pay
higher congestion costs to support their power supply transactions, they will have an incentive to
support construction of new generation or additional transmission facilities, or to reduce their
usage through conservation or shifting of the times when energy is consumed. Yet, there is no
evidence that this theory has worked in practice - generation and transmission development has
in fact lagged in RTO regions versus non-RTO regions.

Controversy
Much of the controversy over RTOs centers on the use of markets to manage transmission line
congestion and balance generation output against customer load (demand). When these markets
were established, proponents argued that competition would increase in each region, and
therefore prices would drop. In fact, the opposite has occurred because the markets are not
competitive. Instead, complicated mech,misms have been put in place to encourage certain
market behaviors, but these mechanisms have not achieved the desired results.

RTO individual characteristics:


CAISO: Operates only in California, but it is fully FERC-jurisdictional as the states
transmission grid is interconnected with the rest of the West. Some public power systems in the
state have chosen not to turn over operational control of their transmission facilities to the
CAISO, but all public power systems are impacted by the CAISOs spot market prices and
provision of transmission service, due to the web of business relationships among market
participants in the state.
ISO NE: Operates in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and
Connecticut. ISO NE proposed to add a new locational generation capacity market (called
Locational Installed Capacity or LICAP), which engendered great controversy in the region.
However, most parties have now agreed to a settlement which replaces the LICAP proposal with
a Forward Capacity Market (FCM). The Commission has approved the FCM settlement, but
some parties, including the state of Maine, continue to oppose it.
MISO: Operates in all or parts of Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan,
Minnesota, Missouri, Montana, Nebraska, North Dakota, Pennsylvania, South Dakota, Virginia,
Wisconsin and Manitoba, Canada. There have been complaints about MISOs high rates, and the
investor-owned utilities in Kentucky have requested and obtained FERC permission to withdraw
their transmission facilities from MISOs control.
NY IS0: Operates only in New York, but is fully FERC-jurisdictional as the states transmission
grid is interconnected with the rest of the region. New York City is a very transmissionconstrained area within the NY ISO, which requires substantial mitigation of the NY ISO power
markets.
PJM: Operates in all or parts of Delaware, Illinois, Kentucky, Maryland, Michigan, New Jersey,
North Carolina, Ohio, Pennsylvania, Telmessee, Virginia, West Virginia and the District of
Columbia. PJM has a very large footprint, but faces substantial transmission constraints between
its eastern and western regions. American Electric Power and Allegheny Power have both
proposed to build substantial high voltage transmission projects from Western to Eastern PJM
that they assert will help to ease transmission congestion in the region.

SPP: Operates in all or parts of Arkansas, Kansas, Louisiana, Mississippi, Missouri, New
Mexico, Oklahoma and Texas. SPP has approached RTO formation and market development on
a slower and more conservative track than many other RTOs.
For the most part, these interconnections operate separately. New Mexico happens to "straddle"
both the Eastern and Western interconnects affording it the opportunity to export power both
eastward and westward. The state is also adjacent to ERCOT. Thus far, the majority of the focus
on exporting New Mexicos renewable energy out-of-state has been on western markets like
Phoenix, San Diego and Los Angeles. However, there are significant opportunities to export
power to eastern markets particularly as more and more states adopt renewable portfolio
standards, see the Tres Amigas project discussed below.

In NM we have a voluntary RTO the Western Electricity Coordinating Counsel. Membership in


WECC is open to any entity engaged or interested in electric system reliability or access,
including large end-users, regulatory agencies, public interest groups, generators, transmission
providers, transmission users, power marketers, consultants and sitting agencies.
For the Western U.S., it is important to note that unlike the Northeastern US, where load vs
capacity is a major issue requiring that RTOs and ISOs are used to ensure organized
transmission and power generation is had to maintain load capacity. In the West, we do not have
the load vs capacity issues yet, therefore RTOs are not as prevalent.
Why do RTOs and ISO matter?
RTOs and ISOs have become more prevalent in the industry due to the issuance of the FERC
1000 order.
Order 1000 at its heart it deals with the issue of whether states can be forced to coordinate on
transmission planning and meeting cost obligations for new electricity transmission capacity.
The order says that states can be compelled.
Order 1000 aims to increase competition in the electric transmission industry. The three key
areas of focus include cost allocation, transmission planning and the removal of the federal right
of first refusal (ROFR).

Cost allocation -- Who pays?


Part of Order 1000 mandates coordination and collaboration on allocation of costs
between regions on large-scale, interregional transmission projects.
Planning process
Order 1000 requires all transmis,~;ion providers to participate in a regional transmission
planning process. In addition, it requires all regional planning processes to accommodate
an interregional planning process when addressing large, multiregional transmission
projects.
Removal of ROFR
Order 1000 removes the federal Right of First Refusal for transmission projects that are
4

identified in a regional plan for the purposes of cost allocation. As a result, many
transmission projects that have traditionally been assigned based upon geographic
location and service territory may now be open to competition. Incumbent utilities will no
longer maintain the federal right of first refusal to build, own and operate large-scale
transmission projects that are located within their service territory. The ROFR removal
has the potential to significantly change the way large transmission projects are identified
and awarded.

Key dates in FERC 1000 include


FERC Issues Order No. 1000: July 21,2011
Posted in Federal Register: August 1 l, 2011
Rehearing Date: August 22, 2011
Intraregional Compliance Filings Due: October 11, 2012
Interregional Compliance Filings Due: April 11, 2013
Order No. 1000 requirements apply to "new transmission facilities," which are those subject to
evaluation or reevaluation within local or regional transmission planning processes after the
effective date of compliance filings (assumed 60 days after filing so Dec. 10, 2012 at the
earliest).

FERC 1000 is important because it has a keystone in the creation in developing new
transmission lines. This impacts renewable energy resources because the areas optimal for
developing renewable resources sometimes do not match with population centers, and that a
much wider dispersal of renewables is needed to ensure reliability. So transmission lines are
necessary to meet the energy where its at, carry it to where it is needed, and link it into the
larger grid.
Tres Amigas Project
Tres Amigas is a proposed project located near Clovis, New Mexico, that would physically
connect all three interconnections to enhance interstate conveyance of electricity into and out of
New Mexico.

On April 9 2013 FERC signed offon an agreement among Tres Amigas LLC, the Southwestern
Public Service Co. and the Southwest Power Pool Inc. that will enable the Tres Amigas
"superstation" to interconnect with Southwesterns transmission system.
The FERCs acceptance of the interconnection agreement is the latest milestone reached by Tres
Amigas in its effort to develop a new facility that will connect the Western Interconnection, the
Eastern Interconnection and the transmission system controlled by the Electric Reliability
Council of Texas Inc.

The companys website maintains that the focus of the project is "to help the country achieve its
renewable energy goals and facilitate the smooth, reliable and efficient transfer of green power
from region to region."

Noting that the nations three interconnections largely "operate as islands" and that renewable
energy developers "are facing increasing difficulties in getting sufficient access to the
transmission assets required to take their power to market," Tres Amigas said its goal is to "break
these bottlenecks" by offering "gigawatts of power transmission capability."
David Stidham, senior vice president and CO0 for Tres Amigas, told SNL Energy that the
company is in the process of completing its contract preparations with construction firms for the
erection of the buildings, voltage source converters and transmission lines associated with the
project. Once those contracts are in place, he said, Tres Amigas will "finalize design and order
the equipment," and expects to begin construction "sometime this summer."

"Our big remaining obstacle is obtaining the rights of way for the transmission line," Stidham
said, noting that Tres Amigas has secured approximately 40% of the rights it needs.
Stidham explained that because the company will not be publicly traded and will not have
ratepayers, the project will not be regulated by the Public Utility Commission of Texas and
therefore does not need that agencys approval. He also said the company is negotiating with
several customers interested in taking on an "anchor tenant" role, but stressed that entering into
such an arrangement "is not necessary fi~r financing" and that the company intends to wait until
the facilitys go-live date is closer before completing any such agreements. Operation of the
facility is expected to begin sometime in the summer of 2016, Stidham added.
Four Corners Project
In addition to the Clovis project, Tres Amigas is working on the New Mexico Express
transmission line. This is a transmission line underground that could connect power generation
stations in the Four Corners to the separate Texas power grid and to southern New Mexico, and
allow New Mexico to sell power across the grid.
Tres Amigas is planning to unite, in New Mexico, the Western Grid, Eastern Grid and Texas
Grid, the three power grids in the nation, with a buried High Voltage Direct Current (HVDC)
transmission line.
The project would make the wholesale market more efficient by allowing low-priced power be
delivered to high-priced areas, Phillip Harris, Tres Amigas CEO, told the New Mexico Finance
Authority at Aug. 2013 meeting. It would also provide opportunities for new and existing
renewable and natural gas-fired generation reach key markets, he said.
The company, Smith said, is nearing the start of its $500 million fundraising for the project. The
company has already received approval for industrial revenue bonds from Bernalillo County and
from Clovis, where the main station will be.

The project would be built in phases by a public-private partnership, Harris said. The first phase
would run about 400 miles between the Four Comers hub in northwestern New Mexico and the
planned Tres Amigas superstation in the eastern part of the state. Once built, the superstation will
link the Western and Eastern interconnects and the Texas grid system. A second phase would
loop through southern New Mexico, which has significant solar and wind potential.

Sun Zia
The SunZia Project consists of two bi-directional extra-high voltage electric transmission lines
and substations that will transport energy from Arizona and New Mexico to customers and
markets across the Desert Southwest. SunZias total transmission capacity has an approved
rating from the Western Electricity Coordinating Council of 3,000 megawatts across its entire
length for two single-circuit 500 kV AC lines. SunZia is solely an electric transmission project,
and is not a power generation facility.

The Bureau of Land Management (BLM), along with several cooperating agencies, is leading the
effort to comply with the National Environmental Policy Act (NEPA).
On June 14, 2013 the BLM released the SunZia Final Environmental Impact Statement and
Proposed Resource Management Plan Amendments.
SunZia is anticipated to be in-service by 2017.
Benefits of the SunZia Southwest Transmission Project:
Provides an option to develop power generation resources, including renewable resources,
located in Arizona and New Mexico that currently do not have nearby access to transmission
service; and
Delivers these generation resources to customers along SunZias alignment and western markets;
and

Increases reliability of the existing extra-high voltage transmission system in southern Arizona
and southern New Mexico; and
Greatly improves power transfer across the Desert Southwest electricity grid; and

Generates jobs and wage income in addition to revenues for state and local governments through
property, state and local taxes paid by the SunZia Project and generation projects that may utilize
SunZias new transmission capacity.
Summary of Economic Impacts to New Mexico if Sun Zia is successful

Over $275 million in estimated wages and salaries (including benefits) during construction of
SunZia
Over $65 million in state and local taxes during construction of SunZia
Over $2 million per year in wages and salaries during operation
Sun Zia Controversy

A fight over a power line planned to run through New Mexico pits proponents against the Army
with both sides saying jobs and billions of dollars are at stake. The latest proposed route closely
skirts the northern edge of the White Sands Missile Range, a route the Army says could hurt the
range and its thousands of jobs.
Supporters of the power line claim more delays could cost thousands of jobs and hurt the power
grid.
The proposed SunZia power line route about 50 miles southeast of Albuquerque is a mix of
public and private. New wind and solar plants planned for eastern New Mexico would send
power to Arizona all creating thousands of construction and maintenance jobs, according to its
proponents.
For four years the federal Bureau of Land Management has led environmental studies to find a
route... The issue isnt on the ground it is about the airspace the line would occupy. The proposed
power line route it was right at the edge of airspace White Sands Missile Range uses for flight
training and for testing weapons.
The Department of Defense says both the height of the lines and their electronic emissions would
hamper some new weapons tests. Simulated enemy missiles would zip across this area at near
treetop level trying to avoid new anti-missile systems. The Army says if enemy missiles have to
pop up over power lines they lose their stealth, and emissions from the lines confuse anti-missile
sensors. The Army wants the power lines either buried or looped farther north to near Belen.
White Sands says the range "offers a unique testing environment which cannot be replicated
elsewhere. If testing cannot be done here jobs and revenue associated with this testing will also
be lost."
The power line route has already been moved for the Army several times. Four years ago and at
the Armys suggestion it was shifted from near U.S. 380 for more distance from electronics sites.
Later another change of mind and the Army said it really needed to be moved to the edge of the
extra airspace. BLM expanded studies, and the route was placed where the Army suggested.
Now, with environmental studies complete, the Army wants the line moved again much farther
north or buried.

SunZia says burying the massive power lines is not an option and that they might just walk away
if delays and costs keep piling up. Both the military and the BLM say they believe a compromise
can still be found. A final decision is expected by October.
SunZia says if a final route is approved it hopes to have the new power lines up in less than three
years at a cost of $1.5 billion. It is worth noting that, SunZias set up has been critizied by some
in the industry as not being an effective method of transmission of renewable as it is classified as
a long haul system.
Southwest Power Pool (RTO in NM)

The New Mexico service territory of the Southwestern Public Service Company is
also interconnected with the Texas service territory of Southwestern Public Service
Company by one 345 kV line and four 230 kV lines. All of these lines, with the
exception of one, normally flow in the East to West direction.
Recently the NM PRC allowed (you voted no) for the Southwestern Public Service Company to
become a member of the Southwest Power Pool. However, the Commission retained jurisdiction
over SPS as it relates to any effects of the integration of SPS with SPP.
The SPP is a FERC-approved RTO. It is an Arkansas non-profit corporation with
its principle place of business in Little Rock, Arkansas. SPP has 66 members,
consisting of 14 investor-owned utilities, 11 municipal systems, 1:2 generation and
transmission cooperatives, 4 state authorities, 8 independent power producers, 10
power marketers, and 7 independent transmission companies.
SPS sells electricity to approximately 100,000 retail customers in and around the
communities of Artesia, Carlsbad, Clovis, Dexter, Eunice, Hagerman, Hobbs, Jal,
Lake Arthur, Loving, Malaga, Monument, Otis, Portales, Roswell, Texico,
Tucumcari, and White City under rates subject to the Commissions jurisdiction.
The New Mexico service territory thus comprises approximately 31 percent of all
SPS retail customers and approximately 17 percent of total 2012 electric sales.
WestConnect (RTO in NM)
WestConnect is composed of utility companies providing transmission of electricity in the
United States, specifically California, Nevada, Arizona, New Mexico, Colorado, and Wyoming.
The members work collaboratively to assess stakeholder and market needs and to develop cost\
effective enhancements to the western wholesale electricity market. Transmission
permitting/siting is the largest barrier to development in the west as much of the land is federally
owned and controlled. In additional tribal lands require that commercial terms for right of way

must be mutually agreed upon. WestConnect is a way for its member organizations to organize
to overcome these types of obsitcals .WestConnect is committed to coordinating its work with
other regional industry efforts to achieve as much consistency as possible in the Western
Interconnection. The SWAT New Mexico Transmission Subcommittee has been formed to study
the New Mexico and Southwest Texas region.
This regional analysis include the participation of:
Public Service Company of New Mexico
E1 Paso Electric
Tri-State GT

10

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0

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0
0

12/23/14 4:01 PM

Exhibit 12

From: Collins, Mary


Subject: RE: [External] Research request
Date: April 15, 2014 11:43:32 AM MDT
To: Lara, Robert, PRC </O=STATE OF NEW MEXlCO/OU=EXCHANGE
ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/CN=RECIPIENTS/
CN=Robert.Lara142
Lets sit and chat because I probably wont get there until 1-1:30

...... Original Message .....


From: Lara, Robert, PRC [mailto:Robert.Lara@state.nm.us]
Sent: Tuesday, April 15, 2014 10:46 AM
To: Collins, Mary
Subject: RE: [External] Research request

Sure did you want to do a working lunch or just sit and chat with the commissioner?
r

Robert Lara, Esq.


Executive Assistant to Commissioner Karen L. Montoya District 1 New Mexico
Public Regulation Commission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015

Page 1 of 5

Exhibit 12

12/23/14 4:01 PM

..... Original Message .....


From: Collins, Mary [mailto :Mary.Collins@ pnm.com]
Sent: Tuesday, April 15, 2014 10:45 AM
To: Lara, Robert, PRC
Subject: RE: [External] Research request

I was hoping to come up Wednesday afternoon--will that work for you?

..... Original Message .....


From: Lara, Robert, PRC [mailto:Robert.Lara@state.nm.us]
Sent: Tuesday, April 15, 2014 10:44 AM
To: Collins, Mary
Subject: RE: [External] Research request

Hi Mary, will you be at the meeting Wednesday? Do you want to do our study
session then?

Robert Lara, Esq.


Executive Assistant to Commissioner Karen L. Montoya District 1 New Mexico
Public Regulation Commission
1120 Paseo de Peralta
Santa Fe, NM 87501

Page 2 of 5

Exhibit 12

12/23/14 4:01 PM

robert.lara@ state.nm.us
505.827.8015

...... Original Message .....


From: Collins, Mary [mailto:Mary.Collins@pnm.com]
Sent: Friday, April 11,2014 10:41 AM
To: Lara, Robert, PRC
Subject: RE: [External] Research request

Let me pull together some information first and then we can meet and go through it.
Let me shoot to get something together for next week. Then lets get together to
review.

Mary

From: Lara, Robert, PRC [Robert.Lara@state.nm.us]


Sent: Friday, April 11,2014 10:33 AM
To: Collins, Mary
Subject: [External] Research request

Hi Mary,

I hope this email finds you well.

Page 3 of 5

12/23/14 4:01 PM

Exhibit 12

The Commissioner is speaking at the July 22 Law Seminar International "Energy in


the Southwest" conference. She is being asked to participate in the "Special State
Commissioners Panel on Policy Priorities for Energy Development in the
Southwest."

So far on the panel they have the Nevada PUC Chair and the Colorado PUC Chair
in addition to the Commissioner.

Just wanted to give you some background here.

So the Commissioner asked that I get with you to assemble some background
research on a few topics so she can lead the discussion. Specifically she wanted to
get information on

1.
Facts on Distributed Generation in NM so far, "trends in NM and what the
futurewould look like".

2.

Facts on the Prosperity Project.

3.

Facts on the Diversity Portfolio, how important is it and why?

Would it be best to get together and go over some of these topics or do you want to
send me stuff to add to the things I am able to find for her in my research.

Thanks
Robert

Page 4 of 5

12/23/14 4:01 PM

Exhibit 12

Robert Lara, Esq.


Executive Assistant to Commissioner Karen L. Montoya District 1 New Mexico
Public Regulation Commission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015

Page 5 of 5

12/23/14 4:01 PM

Exhibit 13

From: Collins, Mary


Subject: RE: [External] Meeting
Date: June 10, 2014 7:52:29 AM MDT
To: Lara, Robert, PRC </O=STATE OF NEW MEXlCO/OU=EXCHANGE
ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/CN=RECIPIENTS/
CN=Robert.Lara142

Will you be around about 11:30 this morning?


I am attaching some graphics that you may want to use in the
presentation.

From: Lara, Robert, PRC [mailto: Robert.Lara@state.nm.us]


Sent: Monday, June 09, 2014 8:25 AM
To." Collins, Mary
Subject-" RE: [External] Meeting
Both are good, whenever its better for you is fine with me.
r

Robert Lara, Esq.


Executive Assistant to Commissioner Karen L. Montoya
District 1
New Mexico Public Regulation Commission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015

From: Collins, Mary [mailto:Marv.Collins@pnm.com]


Sent: Monday, June 09, 2014 8:24 AM
To-" Lara, Robert, PRC
Subject. RE: [External] Meeting
I have been working on it in anticipation of stopping by sometime this

Page 1 of 2

12/23/14 4:01 PM

Exhibit 13

week. I can either stop by tomorrow or Wednesday afternoon--do either


work for you?

From: Lara, Robert, PRC [mailto: Robert. Lara@state.nm. us]


Sent; Monday, June 09, 2014 8:22 AM
To; Collins, Mary
Subject: [External] Meeting
Hi Mary,
Just wanted to see when you might be able to come back and discuss that
presentation she is giving. Hope things are going well for you.
Robert

Robert Lara, Esq.


Executive Assistant to Commissioner Karen L. Montoya
District 1
New Mexico Public iRegulation Commission
1120 Paseo de Peralta
Santa Fe, NM 875011
robert.lara@state.nm.us
505.827.8015

Page 2 of 2

Photovoltaic Solar Resource


~ United States

::NREL

12/23/14 4:03 PM

Exhibit 18

From: Montoya
Subject: Fwd: powerpoint
Date: July 7, 2014 10:48:56 AM MDT
To: Mary Collins <Mary Collins

Sent from my iPad


Begin forwarded message:
From: Robert Lara <robunm@gmail.com>
Date: July 7, 2014 at 2:22:13 AM MDT
To: "Montoya, Karen L, PRC" <KarenL.Montoya@state.nm.us>
Subject: powerpoint

Robert Lara Esq.


PO Box 27511
Albuquerque, NM 87125
505.610.1374- Cell

*** The unauthorized disclosure or interception of e-mail is a federal crime. See 18


U.S.C. 2517(4). Unless otherwise stated, any views or opinions expressed in this
e-mail (and any attachments) are solely those of the author. The information
contained in this electronic message and any attachments to this message are
intended for the exclusive use of the addressee(s) and may contain confidential or
privileged information. If you are not the intended recipient, please notify the
sender immediately at (505) 610-1374. If you are not the intended recipient, you
are not authorized to read, print, retain, copy or disseminate this message or any
part of it. Please destroy all copies of this message and any attachments.***

Page 1 of 1

12/23/14 4:06 PM

Exhibit 20

From: Montoya, Karen L, PRC


Subject: RE: Link to Merrie Lee Soules website
Date: December 18, 2013 4:07:05 PM MST
To: Collins, Mary <Mary.Collins@pnmresources.com
Thanks. Have a Merry Christmas!

From: Collins, Mary [mailto: Mary.Collins@pnmresources.com]


Sent; Friday, December 13, 2013 10:41 AM
To; Montoya, Karen L, PRC
Subject-" Link to Merrie Lee Soules website
htt p._~/Jsou les4p rc.com/M errie Lee Sou les/Welcome, html
Mary Collins
Director, Strategic Initiatives
Marketing and Communications
PNM
414 Silver Avenue SW, MS-0605
Albuquerque, NM 87158
Work: 505.241.2214
Cell: 505.242.2010

Page 1 of 1

12/23/14 4:06 PM

Exhibit 21

From: Edwards, Cindy


Subject: from Ron Darnell
Date: January 23, 2014 1:26:36 PM MST
To: KarenL.Montoya@state.nm.us <KarenL.Montoya@state.nm.us
Cc: Darnell, Ron <Ron.Darnell@pnmresources.com

Hello Commissioner Montoya,


Pursuant to your conversation with Ron Darnell, here is a summary of the
legislation he was talkinl~ about.
Thankyou,
Cindy Edwards

Page 1 of 1

Economic Development Rates Lel~islation

Designed to provide more flexibility to allow economic development rates to assist in job creation and
additional investment in New Mexico
Eliminates requirement for excess capacity as pre-condition for economic development rates
Provides expeditious process for approval of economic development rates
Establishes cost floor for economic development rates to help protect against unfair imposition of
costs on other customers
Relies on utility to negotiate contract economic development rates within cost floor specified in statute
Requires a customer to obtain certificate of eligibility from Economic Development Department that
customer meets eligibility criteria, including size of load, job creation, amount of investment and
intention for continued operations; similar to certification requirements used in many states
Criteria to obtain certificate of eligibility is modeled after West Virginia statute, supplemented with
criteria regarding minimum wages applicable to job creation from the New Mexico High Wage Jobs Tax
Credit
Requires economic development department to establish terms and conditions in certificate designed
to assure fulfillment of purposes of act, includinl~ establishing milestones
Allows Public Regulation Commission to determine if economic development rates negotiated in the
contract meets the cost floor requirements of the statute
Commission must allow economic development rate to become effective without hearing thirty days
after filinl~ if cost floor requirements are me
If Commission has probable cause to believe that economic development rate in contract is below cost
floor, it may hold a hearing to determine if cost floor requirements are met, but must decide within
ninety days after filing of the contract or the contract becomes effective
Provides that utility and Economic Development Department may require reasonable assurances to
guarantee that the customer will pay the difference between the economic development rate and the
rate that would otherwise be applicable if the customer does not in fact fulfill the commitments made
to obtain the certificate of eligibility

AN ACT
RELATING TO PUBLIC UTILITIES; AMENDING THE PUBLIC UTILITY ACT TO
PROVIDE FOR ECONOMIC DEVELOPMENT RATES TO ASSIST IN JOB
CREATION AND ADDITIONAL INVESTMENT IN THE STATE; DECLARING AN
EMERGENCY.

BE 1T ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:


SECTION 1. Section 62-6-26 NMSA 1978 (being Laws 1989, Chapter 5, Section
1, as amended by Laws 1993, Chapter 282, Section 31) is amended to read:
"62-6-26. ECONOMIC DEVELOPMENT RATES FOR GAS AND ELECTRIC
UTILITIES; AUTHORIZATION.-A. The commission may approve or otherwise allow to become effective, as
provided in Subsection B of this section, applications from utilities or persons subject to
regulation pursuant to Subsection B of Section 62-6-4 NMSA 1978 or filings by
cooperative utilities pursuant to Subsection F of Section 62-8-7 NMSA 1978, as
appropriate, for special rates or tariffs in order to prevent the loss of customers, to
encourage customers to expand present facilities and operations in New Mexico and to
attract new customers where necessary or appropriate to promote economic development
in New Mexico; provided however, that the commission shall have no authority to
disallow an economic development rate pursuant to a contract that meets the
requirements of Subsection C of this Section. zy ......
v .............................

12/23/14 4:07 PM

Exhibit 23

From: Montoya, Karen L, PRC


Subject: Re: Business First Article on EDR
Date: January 30, 2014 9:55:38 PM MST
To: Darnel I, Ron <Ron.Darnell@pnmresources.com
Thank you, Ron
Sent from my iPad

On Jan 30, 2014, at 2:02 PM, "Darnell, Ron" <Ron.Darnell@pnmresources.com>


wrote:

Sent from my BlackBerry 10 smartphone on the Verizon Wireless 4G LTE network.

I=rom- Shipley, Pahl


Sent; Thursday, January 30, 2014 12:39 PM

To-" Darnell, Ron; CDebaca, Ernest; Smith, Valerie


Subject." Business First Article on EDR

Moe Maestas: PNMs work shows industry


can shape bills, not just kill them
Dan Mayfield
Reporter- Albuquerque Business First
Rep. Antonio "Moe" Maestas hopes its the start of a trend.
A bill that would allow for lower electricity rates as a tool in recruiting
and retaining companies is set to be introduced Thursday by Maestas,
D-Albuquerque.
He said he hopes it shows business leaders they can come to legislators
with ideas.
"What Im proud of, industry has all these high-powered lobbyists, and
all they do is kill bills. But they never come with any ideas," Maestas
said. "I love this. Anytime I get in front of business leaders, I ask them
to come to me with good ideas. Im glad PNM had this policy
recommendation."
The bill will allow PNM, or other utilities, to offer economic
development rates to businesses that the state is trying to recruit, or that
could leave.
"What they want is permission to use that extra electricity and sell it at
a reduced rate to incentivize new jobs and company relocations,"

Page 1 of 2

12/23/14 4:07 PM

Exhibit 23

Maestas told Business First. "Its energy thats not being used, and the
larger the economy grows, the larger the tax base gets."
Utilities cannot, under current state law, offer reduced rates to any one
customer.
His bill, he said, will bring New Mexico to parity with neighboring
states that offer similar incentives.
Pahl Shipley
<imageOOl.gif>
Corporate Communications
(505) 241-2782 direct
(505) 259-8063 mobile

Page 2 of 2

12/23/14 4:07 PM

Exhibit 24

From: Darnell, Ron


Subject: Fw: HB0296 Economic Development Utility Rate legislation
Date: February 1,2014 11:39:38 AM MST
To: Lyons, Patrick, PRC </O=STATE OF NEW MEXICO/OU=EXCHANGE
ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/CN=RECIPIENTS/
CN=Patrick.Lyons
FYI
Sent from my BlackBerry 1.0 smartphone on the Verizon Wireless 4G LTE network.

l=rom"- Yamada, Sayuri


Sent-" Saturday, February 1, 2014 11:38 AM
To-" Mary .lane Parks; Darnell, Ron
1::-" Edwards, Cindy; CDebaca, Ernest; Alvarez, Bridgett $
Subject-" HB0296 Economic Development Utility Rate legislation
Hi Mary Jane,
Per your request, I have attached the House Bill 296 that was introduced
yesterday by Rep Moe Maestas. Monday we plan to introduce the Senate
companion bill sponsored by Sen. Stuart Ingle.

http://www.nmlegis.gov/Sessions/14%20 Rec~ular/bills/house/H B0296..pdf

Page 1 of 1

12/23/14 4:07 PM

Exhibit 25

From: Collins, Mary


Subject: FW: Living the brand
Date: June 12, 2013 4:36:16 PM MDT
To: Montoya, Karen L, PRC <KarenL.Montoya@state.nm.us
I thought you might like to see this Facebook exchange Monday night
between one of our communications people and a customer. There is
some confidential information in it, so I ask that you dont share, but gives
you an idea of some of the challenges we were faced with Monday night.
Mary

From: Smith, Valerie


Sent: Tuesday, June 11, 2013 8:54 AM
To: Newton, JoAnn; Larsen, Roger
Subject: Living the brand

Last nights extensive outage caused a huge flurry of activity on Twitter


and Facebook. Ryan was (is) on duty and has done a fantastic job of
keeping customers updated. She has had 1.5 hours of sleep. I thought this
one exchange was particularly great. It was a private message so it isnt
visible to everyone.
Tiffany Crisostomo

Select messages to forward.


Select messages to delete.
Delete All

10 hours ago
Tiffany Crisostomo
o hi, my zip is 87102, my power is still on for now but it flickered
about a half hour ago, and i was just wondering, i have a son with
special needs and due to his condition i am not able to work (minimal
income) therefore i cannot afford a fancy backup generator for his
medical supplies and they only last a few hours when charged so my
question is when we were in the hospital they told us if you guys know
he has special needs and equipment and there is a blackout there is

Page 1 of 4

12/23/14 4:07 PM

Exhibit 25

some list or something we can be put on to get our power up and


running first? im just curious if said list exists and if so how do we get
put on it? my sons had two brain surgeries and is on a lot of
equipment....just saying...

10 hours ago
PNM
o Tiffany, I am so sorry I know this is scary. At this time we dont
anticipate your power to go out, most of the city experienced the flicker
and crews are working on that issue now. I can check into the list that
you are referring to and have someone contact you tomorrow if you
can give a good phone number.

10 hours ago
Tiffany Crisostomo
o that would be great, im always worried, we have made it this far and
i dont want something getting in the way like his equipment not
working if theres an outage...my number is 505-385-3467 whenever
someone could call me if there is something i can do to let you all
know because i think people with medical needs should have
something available to them...i appreciate you looking into it for me
thank you

10 hours ago
PNM
o I certainly understand the concern. I will contact you or have
someone from Customer Care contact you tomorrow. Are you
accessing Facebook on a mobile device?

10 hours ago

Page 2 of 4

12/23/14 4:07 PM

Exhibit 25

Tiffany Crisostomo
o at the moment no, and i very much appreciate that thank you

hours ago
PNM
Do you have a way to report your outage if it were to go out?

9 hours ago
Tiffany Crisostomo
o yes i only have a cell though...so if my phone and my moms phones
are both dead we would be in trouble with more than just reporting the
outage...but im usually good at charging it...so i guess yes is my true
answer

hours ago
PNM
Good. The winds have calmed and we are hoping the worst is over.
We do not anticipate that you would lose power again.

9 hours ago
Tiffany Crisostomo
o okay thank you very much for staying in touch with me this has
probably been the best customer service i have ever received

hours ago
PNM
Glad to hear that Tiffany. Will talk to you tomorrow.

Page 3 of 4

12/23/14 4:07 PM

Exhibit 26

From: Collins, Mary


Subject: AZ Press Release re Net Metering
Date: November 15, 2013 11:01:30 AM MST
To: Montoya, Karen L, PRC <KarenL.Montoya@state.nm.us

Link to the Arizona Republic story

FOR IMMEDIATE RELEASE


FOR INFORMATION CONTACT:
Jeff Ostermayer, 202-508-5683

Common Sense Net Metering Policies Benefit All Electricity


Customers
Washington, DC (November 14, 2013) -- Edison Electric Institute (EEl) President
Tom Kuhn issued the following statement today on the decision by the Arizona
Corporation Commission (ACC) to reform Arizonas current net metering policies.
"Solar power is an important part of our nations energy mix, and the ACCs actions
today preserve the long-term future of rooftop solar in Arizona. Importantly, the
commission recognized that current net metering policies unfairly shift costs from
solar homes to non-solar homes and approved changes to begin reducing this
growing cost shift.
"There are a number of state commissions currently reviewing outdated and
unsustainable net metering policies. By adopting common sense reforms today, the
ACC showed leadership in protecting electricity customers in Arizona, while also
ensuring that solar has a bright future in the state and around the country.
"EEl and the electric power industry support the continued growth of solar. In fact,
the industry leads in solar development with 1,781 megawatts installed in 2012
according to the Solar Energy Industries Association. In order for solar to grow and
to meet customer service expectations, we need a safe, reliable, and robust electric
grid. The ACC decision today recognizes that its only fair that everyone who uses
the grid and benefits from its services should help pay to support it and keep it
operating reliably at all times."
###
EEl is the association that represents all U.S. investor-owned electric companies.
Our members provide electricity for 220 million Americans, operate in all 50 states
and the District of Columbia, and directly employ more than 500, 000 workers. EEl
has 70 international electric companies as Affiliate Members, and 250 industry
suppliers and related organizations as Associate Members.

Page 1 of 1

12/23/14 4:07 PM

Exhibit 27

From:
To:
Date:
Subject:

Ortiz Gerard
Rip_p_y Dallas PRC
Thu, 17 Apr 2014 16:17:38 +0000
Re: [External] Seattle

505 450-5008. This is my cell. Please feel free to add it to my contact info. Thanks
for your help Dallas.
Sent from my iPhone

On Apr 17, 2014, at 10:13 AM, "Rippy, Dallas, PRC" <Dallas.Rip_p_y__@state.nm.us>


wrote:

What number should Commissioner Lyons cal you at?

Dallas Rippy
Executive Assistant to Commissioner Lyons
New Mexico Public Regulation Commission
District 2
(505) 827-4531
dallas, rip.p_y_@state, nm. us

Page 1 of 1

12/23/14 4:07 PM

Exhibit 28

From:
To:
Date:
Subject:

Ortiz Gerard
R_jp_p_y Dallas PRC
Wed, 30 Jul 2014 15:45:05 +0000
Re: [External] Contact info

Glad to provide it. 505 450-5008

Sent from my iPhone


On Jul 30, 2014, at 9:36 AM, "Rippy, Dallas, PRC <Dallas.Rip.p,y_.@state.nmus>
wrote:

Gerard,

realized that I didnt have a cell # for you. If its ok may I please have that?

Sincerely,

Dallas Rippy
Executive Assistant to Commissioner Lyons
New Mexico Public Regulation Commission
District 2
(505) 827-4531
dallas.rip_py@state.nm.us

Page 1 of 1

12/23/14 4:08 PM

Exhibit 29

From: Collins, Mary


Subject: White Paper 4.1.13.docx
Date: October 10, 2013 3:23:11 PM MDT
To: Montoya, Karen L, PRC <KarenL.Montoya@state.nm.us

Here is a white paper that I pulled tol~ether earlier this year that describes
distributed I~eneration and the impact on PNM (very end of paper.) We
are seriously Iookinl~ at solar PV and we are concerned that the costs
associated with servinl~ the solar PV customers is not being covered by
those customers because of net meterinl~, and as a result other customers
will have to bear the costs.
Net meterinl~ is basically running the meter backward. For each kWh the
rooftop facility generates the meter shows a credit. So, the customer I~et
the credit for the kWh that they did not use.
Hope this helps.
Mary

Page 1 of 1

12/23/14 4:08 PM

Exhibit 29

From: Collins, Mary


Subject: White Paper 4.1.13.docx
Date: October 10, 2013 3:23:11 PM MDT
To: Montoya, Karen L, PRC <KarenL.Montoya@state.nm.us

Here is a white paper that I pulled together earlier this year that describes
distributed generation and the impact on PNM (very end of paper.) We
are seriously looking at solar PV and we are concerned that the costs
associated with serving the solar PV customers is not being covered by
those customers because of net metering, and as a result other customers
will have to bear the costs.
Net metering is basically running the meter backward. For each kWh the
rooftop facility generates the meter shows a credit. So, the customer get
the credit for the kWh that they did not use.
Hope this helps.
Mary

Page 1 of 1

DISTRIBUTED
ENERGY
RESOURCES
April 201 3

Distributed Energy Resources

Distributed Energy Resources


APRIL 2013

Distributed energy resources (DER) are non-centralized sources of electricity located at or near customers
homes or businesses, as well as programs that help manage electricity use. Examples of DER include solar PV,
energy storage devices, fuel cells, energy efficiency and demand-side management programs and microgrids. The reduction in costs, especially solar PV, as well as tax credits, renewable incentives, REC payments
and net metering are making these resources very attractive to residential and business customers. Customers
are attracted to DER opportunities for several reasonsmto demonstrate their commitment to renewable
energy and as a price hedge against future rate increases. This white paper will focus primarily on one type
of DERmresidential customer ownership of solar PV, which is often referred to as distributed generation (DG).

SYSTEM IMPACT
Electric utilities, primarily through the Edison Electric Institute, have been evaluating the impact of DER on their
systems. Electric utilities want to ensure the DER systems are added to their distribution system in a way that
protects reliability, ensures the safety of the public and utility employees, and is fair not only to customers who
adopt DERs, but also to other customers who receive electricity from the local utility.
While the penetration of DER on utility systems is relatively low at this point in time, it is growing. More
customers will be finding DER attractive as the cost of PV panels continue to decline and the technology for
energy storage (batteries) improves, and local utilities seek additional rate recovery.

The addition of DER to the electric system significantly changes the way the system will operate. The
distribution system was built to transmit power one wayminto a customers premise. But the adoption of DER
means that power is flowing into and out of a customers premise and puts additional strains on the system.
As DER grows on a utilitys system there will be a need for increased distribution investment. Changes will be
required to properly integrate the resources. As a result there will be additional investments in the physical
infrastructure, operating systems, risk management (including cyber-security) and enhanced coordination with
generation and transmission systems. DERs need to be added to the system in a way that protects reliability,
ensures the safety of the public and utility employees, and is fair to all customers.

Since the energy generated by the DERs will not always match the energy needs of customers, utilities must
maintain sufficient generating capacity as well as distribution and transmission infrastructure to provide backup power, and ancillary services necessary to maintain grid stability. For example, the best solar production
occurs approximately 2 to 8 hours prior to the systems peak load. Many utilities, including PNM, are not fully
recovering the costs of providing this back-up infrastructure to current DER system customers.

PNM Resources

Page 1

Distributed Energy Resources

BENEFITS OF DER PROGRAMS


While there are costs associated with DER, there are a number of widely recognized benefits. In the short-run,
a DER can result in avoided fuel costs and a reduction in emissions from more traditional generation resources.
Increased efficiencies such as smaller line losses are also attributed to DER due to the proximity of the
generation source to the load center. And in the long-run, some potential benefits of DER programs that could
result with improved DER and electrical grid efficiencies are:

Produces ancillary services such as reactive power and voltage support providing for greater system
reliability.
Provides emergency power for public services, such as hospitals, police stations, military bases, etc.
Decreases vulnerability of the electric system to threats from terrorist attacks.

CUSTOMER IMPACT
While there are systems benefits there are also a number of costs associated with DER. The recovery of these
costs is an ever-growing concern as utilities lose an increasing amount of revenues each year due to new
programs that result in reduced energy consumption. Currently, the majority of fixed utility costs--customer
service, distribution and transmission (wires) and generation--are recovered through volumetric charges--cost
per kWh. Customers with DER systems are not contributing to their share of the fixed costs which means that
non-participating customers, especially low income, will be responsible for paying the costs that they not cause
to incur on the system.
Forty-seven states have net metering policies for DER systems. Under a net metering tariff the meter "runs
backward." The tariff provides a per kWh credit on the customers bill for the amount of energy they produce
during the month. The kWh credit is equal to the full retail rate that the customer would otherwise have paid
for that energy, absent a DER system. These customers are not paying the full cost associated with being
integrated with the grid and receiving instantaneous backup service.
Under traditional utility rate structures, the net metered credit does not provide accurate price signals, since
the credit is the same for each kWh generated; it does not accurately reflect the system costs that have been
offset.. For example, the typical PV system will produce surplus energy during early morning to ~ate
afternoon, and produce little to no energy during residential peak hours which typically occur during the
evening hours. For example, PNMs peak is typically between 7pm and 9pm during the non-summer months

PNM Resources

Page 2

Distributed Energy Resources

and between 2pro and 5pm during the summer months.


January: Comparison of PNM Retail Avg.
Load to Solar Production Profiles

Het~r lending

July: Comparison of PNM Retail Avg.


Load to Solar Production Profiles

Hour Ending

By crediting customers for all net energy produced at the full retail rate, irrespective of the timing of that
generation, utilities are distorting the price signal of the value of the energy produced. Some utilities have
considered crediting the customers with the time of use value or the avoided cost value, rather than the retail
rate.
There is growing concern about the shift of costs from DER customers to non-participants, what is being
referred to as the "green energy divide." The concept originated in California as more of the affluent
residential customers began to install solar PV on their rooftops, leaving the other customers the burden of
recovery of the additional costs. With a state target to install 1 million solar roofs (3000 MW) by 201 61 the
problem will only get worse
But, this is not just a California issue; all utilities could potentially face the problem if DER resources continue to
grow on a utilitys system and tariffs to recover the fixed cost of providing standby/back-up service are not
developed.
Customers that have installed DER systems, as well as DER developers, oppose the imposition of tariffs to
recover the fixed costs associated with the back-up/standby services that they receive. They argue that these
tariffs do not reflect the benefits provided by the DER installation.

REGULATORY CHALLENGES
The adoption of DER systems will have a significant impact on the traditional utility business, and as a result
the current regulatory paradigm. It is important to begin to develop new rate policies and rate designs to
sustain a reliable grid.

The primary question is how to collect sufficient revenues to maintain a safe and reliable system. In
developing new rates and policies it is important to keep the rate design guiding principles in mind.

Cost causation--If the utility incurs a cost specific to a customer or a small number of customers, those
customers should bear the cost.
FairmRates designed in a manner fair to all partiesmparticipating and non-participating DER
customers~and the utility. This avoids cost shifting.

This goal has been revised to 12,000 MW by 2020.

PNM Resources

Page 3

Distributed Energy Resources

Reliabilitymlntermittency and lack of control by a utility of many of the new technologies must be
considered so that a reliable power source is available to all customers at all times
Equitable~Utilities should be indifferent between traditional sources of generation and demand-side
resources. Cost to the utility of implementing demand-side generation or renewables should earn the
same returns as supply-side resources
Cost Competitive/Cost Effective---Technologies should be cost competitive with traditional generation
sources and should be evaluated based on cost effectiveness

Utilities throughout the US are wrestling with this dilemma and are evaluating a variety of potential rate
designs. The following are examples of some of the rate designs that are currently being evaluated.
Customer Charge: Fixed costs would be removed from the volumetric part of the tariff and would be
recovered through the customer charge.
Reservation Charge: This would recover the customers portion of costs incurred to hold generating
capacity available for backup service when the customers system is not generating energy.

Demand Charge: Recovers the customers portion of generating capacity costs actually incurred to
generate power. This is a common component of large commercial/industrial tariffs.
Time of Use Rates (TOU): The on-peak and off-peak rate distinctions more accurately align the value
of the energy with the time that it is produced.

Standby Service Charge for Distribution and Transmission: Recovers the fixed costs associated with
distribution and transmission services
Distributed Generation Surcharge: Surcharge recovers the fixed costs the DER customers would have
incurred if they did not have a DER system
Unbundling: Breaks up the rate into a customer charge, distribution charge, transmission charge and
generation (energy) charge
Net Billing: Customers monthly bill would be offset by the avoided cost rate times energy produced
during the month.

There is no one right answer, but utilities and commissions are initiating proceedings and evaluating what will
work best to provide transparent and equitable rates without inter-class subsidization. Under current rules and
rate structures, DER customers are being subsidized by non-DER customers because DER owning customers pay,
after bill credits for their production, less than the costs they incur on the system. That leaves the non-DER
owning customers to pay higher rates to offset the fixed costs that are no longer being recovered by the DER
owning customers. This creates intra-class subsidization which results in unmerited cost shifting to low-income
customers who may already struggle to pay their utility bills, while giving an unfair cost benefit to the more
affluent.

PNM Resources

Page 4

Distributed Energy Resources

DER AND THE IMPACT ON PNM


PNM currently has over 3,100 customer-owned DG (Solar PV) installations on its system, representing
approximately 20.8 MW of capacity. PNMs customers with DG Solar PV facilities tend to be more affluent
because the large up-front investments make it difficult for lower-income or small businesses to participate in
the programs. PNM is not unique in this respect. In fact, it is an effect of customer-owned DG that California
law-makers and utilities have been working to overcome.
Residential customers represent approximately 90% of PNMs DG customers and approximately 40% of the
installed capacity. In 201 2, PNMs DG systems produced approximately 44 GWh which resulted in
approximately $2.7 million in unrecovered fixed costs from DG customers.
By 2016, PNM expects to add an additional 23MW of capacity from DG customers, resulting in production
of approximately 103 GWh and approximately $6.0 million in annual unrecovered fixed costs. Under PNMs
current rate structure, the ~lost fixed cost" amounts identified would have to be recovered through rates
assessed to non-DG customers, resulting in an intra-class subsidy that benefits DG customers who are no longer
paying their fair share for the distribution and transmission services they require.
The majority of PNMs DG customers are on PNMs Residential Rate 1A utilizing an inverted block rate
structure. The inverted block structure exacerbates the intra-class subsidization issue because DG customers
tend to be high-use customers and the credits they reserve for their production tend to be based on the
highest tier rates. The higher rate credits result in a larger reduction of fixed costs paid by DG customers and
therefore, a higher amount of costs shifted to non-DG customers.
In addition to the reduced energy sales resulting from customer-owned distributed generation, PNM offers
additional programs that promote energy sales reductions. The PNM Energy Efficiency Program is now in its
sixth year and currently offers 10 Energy Efficiency (EE) programs. In 201 2, these programs generated 79
GWh of energy savings for customers. Since program inception in October of 2007, PNM customers have
saved a cumulative 271 GWh of energy. PNM has proposed to add 5 new programs to its Energy Efficiency
Program Portfolio. Per the Efficient Use of Energy Act(~Act") Jn 2013. PNM is required to save 411 GWh by
the end of 2014 and 822 GWh by the end of 20202 PNM is on track to meet or exceed the 2014 energy
savings goal. The result is a projected $4.7M in unrecovered fixed costs due to the large amount of fixed
costs that PNM currently recovers through volumetric charges.
Unlike customer-owned PV DG and Energy Efficiency programs, load management programs allow the utility
to shave peak load when needed. PNM was able to curtail 57MW of capacity during 201 2, through its Load
Management programs. That number is projected to increase to 65MW by 2017. The ability of the utility to
shave load, when needed, provides a valuable tool for managing system load but, but because it also results
in reduced energy sales. It is another mechanism that further hinders the utilitys ability to recover its fixed
costs. The following shows the annual incremental savings and annual cumulative savings achieved hrough201 2
and projections through 2014.

2 HB 267, which was introduced during the 2013 legislative session and signed into law by Governor Martinez, reduces PNMs
mandated energy savings goal to 658GWh by the end of 2020

PNM Resources

Page 5

Distributed Energy Resources

PNM EE/LM Programs


Annual Savings and Budgets

"e-

20

[Annual Savings i 35.2

2009
39.9

2010
58.8

57.6

2012
79.3

2013
70.0

2014
75.0

,Annual Savings

CONCLUSION
Distributed energy resources will become a significant part of a utilitys generation portfolio. While the
impact on a utilitys system and current cost recovery may be minimal at this point in time, as the adoption of
DER increases, so will the problem. The industry on a whole is wrestling with this issue. A good example of
the increasing importance of this topic is the NARUC endorsed Critical Consumer Issues Forum meetings that
are being held throughout the year. This year the focus is on Distributed Energy Resources. Through this
forum, representatives from state regulatory commissions, public advocates and the industry will meet to
determine what the issues are and principles surrounding DER should be. The findings should be reported out
at the NARUC Annual Meeting in November.
There is no one right way to address this problem. As the industry becomes more aware of the potential
issues, it will begin to develop solutions. But, at this point in time there is still a great deal of uncertainty, and
the need to undertake further analysis. At the February NARUC Winter Meetings, then Secretary of Energy
Chu stated "The changed landscape (distributed energy resources) will have profound impacts on existing
business models and regulatory structures of U.S. utilities."
PNM will continue to monitor developments in this area and will share any additional findings with the
Commission.

PNM Resources

Page 6

Distributed Energy Resources

APPENDIXmUTILITY RATE STRUCTURES IMPLEMENTED/UNDER


CONSIDERATION
San Diego Gas &Electric (SDG&E) has proposed utilization of unbundled utility rates. The goal is to provide
accurate price signals to ensure that generation, transmission and distribution costs are recovered from
customers on the same basis that they are incurred. This becomes particularly useful for net metering customers
for two reasons. It allows the utility to recover fixed distribution and transmission costs of serving both net
metered and traditional customers.
A DG customer that generates excess generation that goes back to the company will receive a generation
credit at a rate equal to the generation component of the bundled rates. The customer would still pay the
transmission and distribution portion of the rates. This generation credit more accurately reflects the value of
the generation provided by the net metered customer, while ensuring recovery of the majority of the utilitys
fixed costs to serve its net metered customers.

Sacramento Municipal Utilities District (SMUD) and Arizona Public Service (APS) have recently published
studies proposing pricing models utilizing time-of-use (TOU) rates and higher customer charges. With TOU
pricing, a customers excess off-peak generation is credited against off-peak usage and on-peak generation
is credited against on-peak usage. This allows the utility to credit a rate that more closely aligns with the
value of generation in on-peak vs. off-peak hours.
By including a higher customer charge in conjunction with the TOU pricing, the utility is able to recover, at
minimum, a higher portion of the fixed distribution and transmission costs that would otherwise be reallocated
to non-DG customers in the long-run.

Dominion Virginia Power received an order from the State Corporation Commission, authorizing the inclusion
of two standby charges for bills rendered on or after April 1,2012. The Commission concluded that "the
evidence in the record indicates that customer generators who engage in net metering still make use of the
transmission and distribution grid." They also confirmed that "the evidence in the record indicates that any
avoided cost benefits provided by customer generators, at least in terms of the transmission and distribution
grid, are insufficient to pay for their proportionate share of the grid." The charges will be applicable to
customers with 10kW - 20kW PV systems. The result of the $2.79 per kW of distribution charge and $1.40
per kW transmission charge is a $60 average monthly charge for customers with these large PV systems.

PNM Resources

Page 7

Distributed Energy Resources

In Colorado, amendments to the rules for implementing the Renewable Energy Standard (RES) include a
surcharge for net metered customers. In Colorado, utilities are required to procure specified levels of
renewable energy resources each year, the cost of which is passed on to utility customers through a per kWh
RES charge. During the rule making proceedings, Public Service Company of Colorado argued that the
energy consumption that distributed generation (DG) customers avoid, results in a reduced contribution to the
RES fund. The General Assembly agreed that DG customers therefore do not contribute to the fund in
proportion to their energy consumption in the way that traditional customers do and they recognized that is
was unfair for DG customers to reap the full benefits of the fund without contributing their fair share. The
surcharge is intended to recover the full amounts that DG customers would pay to the Renewable Fund, absent
their DG systems.

PNM Resources

Page 8

12/23/14 4:08 PM

Exhibit 31

From: Collins, Mary


Subject: Some additional good information on how net metering works
Date: October 11,2013 1:18:34 PM MDT
To: Montoya, Karen L, PRC </O=STATE OF NEW MEXlCO/OU=EXCHANGE
ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/CN=RECIPIENTS/
CN=KarenL.Montoyabla>,Lara, Robert, PRC </O=STATE OF NEW MEXICO/
OU=EXCHANGE ADMINISTRATIVE GROUP (FYDIBOHF23SPDLT)/
CN=R ECI P I E NTS/C N = Robe rt. Lara142

http :llsp/pnmrservices/custcomm/solarissues/Net%20Metering/
net_metering_quick_reference_web I .pdf

Page 1 of 1

Exhibit 32

12/23/14 4:08 PM

From: Collins, Mary


Subject: FW: Harvard Business Law Review - new article on DG
Date: December 19, 2013 4:43:55 PM MST
To: Lara, Robert, PRC <Robert.Lara@state.nm.us>,Montoya, Karen L, PRC
<KarenL.Montoya@state.nm.us

This is a really good article.

Page 1 of 1

THE REGULATORY CHALLENGE OF DISTRIBUTED GENERATION


DavidB. Raskin,

I.

Introduction

Recent published reports point toward a growing conviction that the demand for
utility service from the U.S. electric grid may soon decline, perhaps substantially, due to
the expanding use of distributed generation.1 One report prepared by a division of
Citigroup describes the improving economics of distributed solar power, which the
authors expect will continue.2 A second Citigroup report projects reductions in the
demand for utility service in developed markets of up to fifty percent by 2050.3 Favorable
projections for distributed generation, however, depend on assumptions about
technological change that may turn out to be overstated, and even if distributed
generation grows substantially, millions of homes and businesses will continue to rely on
the electric grid for many decades.4
David Raskin is a partner in the Washington, DC office of Steptoe & Johnson LLP. He has
represented stakeholders in the electric power industry for more than thirty years. During this time, he has
been involved in most of the significant federal regulatory initiatives designed to increase competition in
the electric industry and has assisted clients in managing the unprecedented changes that have occurred in
recent decades.
1 E.g., Diane Cardwell, On Rooftops, a Rival for Utilities, N.Y. TIMES, July 26, 2013,
http://www.nytimes.com/2013/07/27/business/energy-environment/utilities-confront-fresh-threat-do-ityourself-power.html; Peter Kind, Disruptiw~. Challenges." Financial Implications and Strategic Responses
to a Changing Retail Electric Business, EDISON ELECTRIC INSTITUTE (Jan. 2013),
www.eei.org/ourissues/finance/Documents/disruptivechallenges.pdff.
2 Citi Research, Rising Sun." Implications for US Utilities (Aug.
8, 2013),
http://www.wecc.biz/c~mmittees/B~D/TEPPC/SPSG/Lists/Events/Attachments/7~6/CITIRising0 ~20Sun0 ~20Implications0 ~20for0 ~20US0 ~20Utilities.pdf.
3 Jason Channell et al., Energy Darwinism." The Evolution of the Energy Industry, C1TI GLOBAL
PERSPECTIVES
&
SOLUTIONS
73-75
(Oct.
2013),
https://ir.citi.com/Jb89SJMmf% 2BsAVK2AKa3QE5 EJwb4fvI5UUplDOICiGOOk0NV2CqNI O~2FPDLJq
xidz2VAXXAXFB6fOY%3 D.
4 Even if Citis aggressive prediction of fifty percent demand reduction by 2015 turns out to be

THE REGULATORY CHALLENGE OF DISTRIBUTED GENERATION

VOLUME 4

Germany has gone further to promote distributed generations than any other
industrialized nation, and its experience provides a cautionary tale. More than a decade
after Germany initiated its Energiewende,6 the average residential price for electricity is
almost 36 cents per kWh,7 and rates are projected to rise another thirty to fifty percent in
the next ten years.8 Without a change in policy, German residential electric rates may
therefore approach 50 cents per kWh by the end of this decade. In contrast, the average
residential rate in the U.S. is approximately 12.5 cents per kWh.9 Because the average
U.S. residence uses approximately 1,000 kWh of electricity per month,l the current
German rate would be equivalent to an average household tax of $3,000 per year. Rates
anywhere near the levels being experienced in Germany would be unacceptable in the
U.S.l~

accurate, that prediction leaves fifty percent of electric load dependent on grid service.
s In this Article, references to "distributed generation" refer to energy sources located behind the
retail meter or connected to a micro grid, where the intent is to remove some load or demand from the
system of integrated electric generation, transmission, and distributed facilities that comprise what is
referred to in this Article as the "grid."
6 Energiewende, or energy transformation, is the product of the German Renewable Energy Act of
2000 (Erneuerbare-Energien-Gesetz) that put in place substantial subsidies for distributed generation and
grid-connected renewables. See General InJbrmation. Transformation of Our Energy System, GER. FED.
MINISTRY FOR THE ENVT, NATURE CONSERVATION AND NUCLEAR SAFETY, www.bmu.de/P118-1/(last
visited Nov. 24, 2013).
7 Jesse Morris, How Germanys Solar Evolution Impacts America, EARTH TECHLING (Oct. 12, 2013),
http://www.earthtech~ing.c~m/2~~3/1~/h~w-germanys-s~lar-ev~~uti~n-impacts-america. Ironically, this
article laments the fact that the German feed-in tariff rate for distributed solar is only 20 cents per kWh,
well below the full retail rate.
8 Institute for Energy Research, Germanys Energy Policy: Man-Made Crisis Now Costing Billions
(Oct. 30, 2012), http://www.instituteforenergyenergy research.org/10/20/2012. Many Germans claim they
can no longer afford to buy electricity. Germanys Energy Poverty: How Electricity Became a Luxury
Good, SPIEGEL ONLINE INTL (Sept. 4, 2013), http://www.spiegel.de/international/germany/high-costsand-errors-of-german-transition-to-renewable-energy-a-920288.html.
9 Energy Info. Admin., Table 5.6.A. Average Retail Price of Electricity to Ultimate Customers by
End-Use
Sector,
(Nov.
20,
2013),
http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt 5 6 a.
~0 Energy Info. Admin., How Much Electricity Does an American Home Use?,
http://www.eia.gov/tools/faqs/faq.cfm?id=97&t=3 (last updated Mar. 19, 2013).
~ Germanys Environment Minister, Peter Altmaier, has acknowledged that Germany has overdone
the subsidies and needs to cut them back. Diarmaid Williams, Altmaier says German energy transition
could cost $1.34trn, POWER ENERGY INTERNATIONAL (Feb. 21, 2013),
http://www.powerengineeringint.com/articles/2013/02/Altmaier-says-German-energy-transition-couldcost-134trn.html; Minister Altmaier: LEG Cuts Needed--or Energiewende Costs Will Reach Trillion
Euro Mark by 2040, GERMAN ENERGY BLOG (Feb. 20, 2013),
http://www.germanenergyblog.de/?p= 12278.
39

2013

HARVARD BUSINESS LAW REVIEW ONLINE

Even with extraordinarily high and increasing electric rates, aggregate carbon
dioxide emissions by the German electric sector are rising.12 In contrast, U.S. emissions
are falling even though renewables constitute a much smaller percentage of the electric
energy mix in the U.S.~3 The stability of the German grid is also being put at risk: it has
relied more heavily on variable, renewable generation at the same time that grid resources
capable of rapidly balancing supply and demand have been shutting down due to
anomalous market price signals.~4 Energiewende has also taken a toll on the utility
companies that may have to make the grid investments to fix these operating problems.
Equity values for Germanys biggest utilities have fallen by fifty percent or more over the
past three years.15
While Germany struggles with Energiewende, the growth of distributed generation
in the U.S. is being fueled by a controversial regulatory practice known as net metering.
If distributed generation comes to play a significant role, the loss of demand for service
from the grid may eventually make it difficult for the owners of grid assets to recover
their costs, creating what the utility industry calls "stranded costs." This Article explores
the debate over net metering and t~hen turns to the longer-term prospect of having to
address potential stranded costs produced by the expanded use of distributed generation.
II.

Net Metering: The Current Battlefield

Most renewable generation in the U.S. is subsidized through investment or


production tax credits.16 This Article focuses on an additional subsidy to distributed
renewable generation alone that exists as a result of "net metering" as applied in about
forty states. Under net metering, retail customers (including commercial and industrial
customers) can offset their electricity purchases from the grid with energy generated
12 Spiegel Online Intl, supra note 8; Max Luke, Jessica Lovering & Alex Trembath, Trash, Trees and
Taxes: The Cost of Germanys Energiewende, ENERGY COLLECTIVE (Sept. 16, 2013),
http://theenergycollective.com/maxluke/274041/trash-trees-and-taxes.
13 An environmental critique of Energie.wende can be found in Will Boisvert, Green Energy Bust in
Germany, DISSENT (2013), http://www.dissentmagazine.org/article/green-energy-bust-in-germany.
14 Tilting at Windmills, ECONOMIST, June 15, 2013, available at
http://www.economist.com/news/special-report/21579149-germanys-energiewende-bodes-ill-countryseuropean-leadership-tilting-windmills.
~5 How to Lose Half a Trillion Euros, ECONOMIST, October 12, 2013,ERROR! BOOKMARK NOT
DEFINED. available at http://www.economh;t.com/news/briefing/21587782-europes-electricity-providersface-existential-threat-how-lose-half-trillion--euro.
16 German subsidies primarily take the form of "feed in tariffs" that guarantee minimum per kWh
payments to those employing favored technologies, which are paid out of a pool funded by consumers.
See Stefan Nicola, German Industry Wants End of Feed-in Tariff on Rising Power Cost, BLOOMBERG
(Sep 19, 2013, 5:53 AM), http://www.bloomberg.com/news/2013-09-19/german-industry-wants-end-offeed-in-tariff-on-rising-power-cost.html.
4O

THE REGULATORY CHALLENGE OF DISTRIBUTED GENERATION

VOLUME 4

behind the retail meter, such as from rooftop solar panels. In most of the states that allow
net metering, the credit equals the bundled retail rate. The credit applies not only to
foregone consumption but also--with limited exceptions--to the energy generated from
behind the meter in excess of the customers own use and delivered to the utility.17
Net metering therefore values the energy produced by distributed generators at the
bundled retail rate for electricity. The bundled retail rate includes, in addition to the cost
of producing electric energy, the costs associated with investment in and operation of
transmission and distribution facilities and other costs incurred to ensure reliability and
fund public policy initiatives endorsed by utility regulators. As noted above, the average
residential price of electricity (the average bundled rate) is currently around 12.5 cents
per kwh. ~8 According to published data as of November 2013, the market price of energy
from grid-connected~9 generators is averaging, in most locations, between 2 and 3 cents
per kwh during off-peak periods and between 4 and 5 cents per kwh during on-peak
periods.2 Recent sales of grid-connected renewable energy have been priced near or
below 3 cents per kwh.2~ Therefore, net metering allows the owners of distributed
generation to effectively sell their energy at prices between two and six times the market
price for energy.
Grid-connected renewable generators are paid the much lower market price for
their energy, so the issue is not, as advocates of distributed generation allege, merely
about promoting "clean" energy. A grid-connected solar generator at the same location as
a distributed solar generator receives a fraction of the compensation for providing energy
using similar--and equally clean--technology.22 Grid-scale solar generation is actually
more efficient, so net metering provides a huge subsidy to a less efficient form of
17 As discussed below, the Federal Energy Regulatory Commission (FERC) has disclaimed

jurisdiction over energy supplied from behind-the-meter distributed generation so long as the customer
does not supply more excess energy than it acquires from the grid over the course of a monthly retail
billing period.
18 Energy Info. Admin., Table 5.6.A, supra note 9.
19 This Article refers to generators that are connected on the utility side of the customer meter as
"grid-connected generation" for ease of refierence. This is a misnomer, however, because all generation,
including generation located on a retail customers property on the customer side of the meter, is
connected to and part of the electric grid. Electricity does not recognize the difference in location; at all

times sufficient energy must be supplied to meet the aggregate demand of all users, and the system must
be kept in precise balance (supply equaling: demand) in order to prevent outages and serious damage to
facilities.
2o See Platts, MEGAWATT DAILY, at 2-10 (November 27, 2013).
2~ American Wind Energy Association, The Cost of Wind Energy in the U.S.,

http://www.awea.org/Resources/Content.aspx?ItemNumber=5547 (last visited Nov. 24, 2013).


22 The analysts at Citi put it succinctly: "While residential solar has the advantage of competing
against higher residential electricity prices, merchant utility scale solar must compete against wholesale
power prices." Citi Research, supra note 2 at 21.
41

2013

HARVARD BUSINESS LAW REVIEW ONLINE

renewable energy.
Utilities point out that the differential is paid by other retail customers. Because
virtually all retail service is billed based on energy usage, net metering causes a reallocation of transmission, distribution, and reliability costs to those customers who do
not own distributed generation. Yet, the owners of distributed generation continue to rely
on utility service from the grid for back-up and supplemental energy (for example, at
night and when it is cloudy). Presently, the use of distributed generation in the U.S. is
sufficiently limited that the cost-shifting effects are minor. However, subsidies this large
can induce rapid changes. A report recently issued by the California Public Utilities
Commission forecasts that net metering will cost the State $1.1 billion per year in 2020.23
It also finds that the average net metering customer in California has an income almost
twice the states average, 24 confirming claims that net metering entails a wealth transfer
from low- to high-income consumers.
Net metering raises a number of legal issues that are just beginning to be explored.
The definition of "net metering service" in the Energy Policy Act of 2005 indicates that
Congress did not endorse the subsidy described above.25 Section 111 (d)(11) of the Public
Utility Regulatory Policies Act (PURPA)26 was added in 2005 to a list of retail
ratemaking practices that state utility commissions are required to evaluate for use in
their jurisdictions. This provision defines "net metering service" as follows"
Net Metering - Each electric utility shall make available upon request net
metering service to any electric consumer that the electric utility serves. For
purposes of this paragraph, the term "net metering service" means service
to an electric consumer under which electric energy generated by that
electric consumer from an eligible on-site generating facility and delivered
to the local distribution facilities may be used to offset energy provided by
the electric utility to the electric consumer during the applicable billing
period.27

23 See Cal. Pub. Utils. Commn, CALIFORNIA NET ENERGY METERING (NEM) DRAFT COSTEFFECTIVENESS EVALUATION (2013), available at http://www.cpuc.ca.gov/NR/rdonlyres/BD9EAD367648-430B-A692-8760FA 186861/0/CPUCN EM DraftReport92613.pdf.
24/d. at 110.
25 Energy Policy Act of 2005, Pub. L. No.109-58, sec. 1251, l l l(d), 119 Stat. 962 (codified as
amended at 16 U.S.C. 2621(d)(11)).
26 See id.; Pub. Util. Reg. Policies Act of 1978, Pub. L. No. 95-617, 11 l(d), 92 Stat. 3117, 3142-43
(codified as amended at 16 U.S.C. 2621(d)(10)(E)(11) (2006)).
27 Energy Policy Act 11 l(d); 16 U.S.C. 2621(d)(10)(E)(l 1).

42

THE REGULATORY CHALLENGE OF DISTRIBUTED GENERATION

VOLUME 4

Under this definition, "electric energy" generated by a retail customers on-site


facility may be used to offset "energy" provided by the utility. The language strongly
implies that Congress meant only to ensure that consumers would receive an appropriate
credit for the energy supplied from on-site generation and not a credit based on the
bundled retail rate that includes costs associated with transmission, distribution, and
reliability. If this is correct, net metering as applied in most states is inconsistent with this
part of PURPA.28
In 2002, the Supreme Court of Ohio addressed this very issue in connection with
interpreting Ohio legislation that required public utilities to offer net metering.29 In that
case, FirstEnergy proposed a net metering regime under which net metered customers
would receive a credit for energy supplied from on-site generation based on the
unbundled generation component of the retail rate.3 This proposal was rejected by the
Ohio Public Utilities Commission, which directed that FirstEnergy offer a credit based on
the full bundled retail rate.3~ The Ohio Supreme Court held that FirstEnergy had correctly
applied statutory language requiring utilities to provide a credit for the "electricity"
produced by on-site generators by offering to credit only the generation component of the
retail rate.32 The Court found that FirstEnergy was correct in contending that a net meter
customer "does not provide transmission, distribution or ancillary services," and therefore
the term "electricity" in the statute did not require a credit for the costs associated with
these other unbundled services.33
Net metering also appears to be inconsistent with provisions of PURPA that were
designed to protect electric consumers from cross-subsidization. Under PURPA, utilities
are required to purchase energy from qualifying "small power production" facilities that
meet eligibility standards established in the law.3a Under FERC regulations, retail
customers that own on-site generators with a maximum net generating capacity of less
than 1 MW are permitted to self-implement PURPAs mandatory purchase requirement

28 Congress also did not define what it meant by "delivered to the local distribution facilities" in this
provision. It may have intended the energy credit to apply only to energy in excess of the customers onsite use, or it may have intended that all energy produced on-site be treated as energy provided to the grid
because all such energy substitutes energy that would otherwise be supplied from the grid. Either way, the
definition provides only for an energy credit, which is not what occurs in most jurisdictions.
29 FirstEnergy Corp. v. Pub. Utils. Comm n of Ohio, 768 N.E.2d 648 (Ohio 2002).
30 ld. at 650.
311d"

32 ld. at 652.
33 ld.

34 Pub. Util. Reg. Policies Act 210 (codified at 16 U.S.C. 824a-3(a) (2006)). FERC regulations
refer to these as "qualifying facilities." 18 C.F.R. 292.101(b)(1).
43

2013

HARVARD BUSINESS LAW REVIEW ONLINE

without any notification to or approval from FERC.35 Most retail customers using net
metering rely on the mandatory purchase requirement to require their host utilities to
purchase their energy.36 Absent the PURPA requirement, utilities would generally have
no obligation to buy energy from distributed generators because the Federal Power Act37
(the law that applies in the absence of PURPA) does not obligate utilities to purchase
energy at wholesale.38
PURPA, however, while requiring utilities to buy, also caps the price paid to
qualifying facilities at the purchasing utilitys "avoided cost," which is defined as the cost
of energy that would have been supplied from the utilitys own system if the energy had
not been supplied by the qualifying facility.39 Because net metering compensates owners
for the energy supplied from distributed generation at the utilitys bundled retail rate, this
practice would appear to violate the avoided cost rate cap that is based on the cost of
energy alone.
The FERC, however, permits net meter customers to avoid this price cap. The
FERC holds that unless a retail customer with on-site generation is a net supplier of
energy to the grid over the state retail billing period (almost always one month), no sale
takes place under PURPA or the Federal Power Act, even if there are substantial
deliveries of energy to the grid during the month.4 In the absence of a "sale" to the
utility, FERC deems that no mandatory purchase of energy is taking place under PURPA
and the avoided cost price cap does not apply.41
The FERCs theory, that the existence of a "sale" can be determined by netting
metered inflows and outflows over the course of a month, was recently rejected in two
appellate cases involving FERCs use of this same theory to determine whether a retail
sale has occurred when generators acquire energy for station service purposes, the mirror
35 18 C.F.R. 292.203(d)(2010).
36 See Stephanie Watson, How Net Metering Works, HOW STUFF WORKS,
http://science.howstuffworks.com/environmental/green-science/net-metering2.htm (last visited Nov. 24,
2013).
37 16 U.S.C 791a-825r.
3s From the earliest days of Federal Power Act jurisprudence, courts have emphasized that wholesale
power transactions under the Federal Power Act are voluntary. Fed. Power Comm n v. Sierra Pae. Power
Co., 350 U.S. 348 (1956). In organized Regional Transmission Organization (RTO) markets, any
generator that signs a service agreement with RTO is permitted to bid its energy into the market and, if
dispatched, gets paid the locational marginal cost of energy, even if the generator does not have a contract
with a specific buyer.
39Am. Paper lnst. v. Am. Elee. Power Serv. Corp., 461 U.S. 402,404 (1983).
4o See MidAmeriean Energy Co., 94 F.E.R.C. P 61,340 (2001); Sun Edison LLC, 129 F.E.R.C. P
6,1146 (2009).

44

THE REGULATORY CHALLENGE OF DISTRIBUTED GENERATION

VOLUME 4

image of the net metering situation.47 In these two cases, the D.C. Court of Appeals held
that netting could not be used to determine whether a sale has taken place and that there
is a sale whenever energy is delivered from the generator to the utility and vice versa.43
The FERCs disclaimers of jurisdiction in MidAmerican and SunEdison may therefore be
subject to a renewed challenge, which, if successful, would require net metering rules to
be changed at the state level.
This same "netting" theory allows FERC to avoid facing the fact that the prices
inherent in net metering are discriminatory. The Federal Power Act prohibits charges for
wholesale energy that are "unduly discriminatory,a4 but this prohibition only applies if
there is a FERC-jurisdictional wholesale transaction. MidAmerican Energy and
SunEdison therefore provide a rationale for FERC to avoid addressing the huge
differential between the prices paid to distributed and grid-connected generators for the
energy they supply.
From both economic and environmental perspectives, energy from distributed
generation is no more beneficial than other forms of renewable generation. Energy
available to meet electric load, whether generated behind the retail meter or from gridconnected generation, provides equivalent value to the electric system. Therefore, the
price discrimination inherent in net metering cannot be justified based on differences in
the value of the services offered. If anything, distributed solar is less valuable than most
energy from grid-connected generators because the energy output of solar facilities varies
uncontrollably. Consequently, utilities must have sufficient grid-connected capacity on
hand to supply the entire load when solar generation is non-productive. For the same
reason, retail customers with distributed generation require access to grid-supplied energy
up to their full load at unpredictable times.45 Indeed, solar generation has a pernicious
effect on energy markets because energy from solar generators tends to suppress energy
market prices during peak-load periods, providing less revenue for grid-connected

42 See S. Cal. Edison Co. v. FERC, 603 F.3d 996 (D.C. Cir. 2010); Calpine Corp. v. FERC, 702 F.3d
41 (D.C. Cir. 2012).
43 See S. Cal Edison Co. 603 F.3d at 1000-01 ; Calpine Corp. 702 F.3d at 45.
44 16 U.S.C. 824e(a).
45 California is attempting to overcome this issue by requiring utilities to purchase storage
capacity using new technologies to help balance supply and demand. Order Instituting
Rulemaking Pursuant to Assembly Bill 2514 to Consider the Adoption of Procurement
Targets for Viable and Cost-Effective Energy (published October 17, 2013), Cal. Pub. Utils.
Commn, 2013 Cal. PUC LEXIS 569, available at
http ://docs.cpuc.ca.gov/Publ ishedDocs/Publ ished/G000/M078/K912/78912194.PDF.
Whether these alternative technologies will become available in sufficient quantities and at
a reasonable cost to replace balancing generation from the grid, and how long this may take,
is unknown.
45

HARVARD BUSINESS LAW REVIEW ONLINE

2013

generation and falsely signaling to the market that grid-connected generation that is
needed for reliability is no longer economic.46

In conclusion, net metering as currently practiced in most states provides a huge


subsidy to distributed generators over and above the tax subsidy provided to all
renewable generation, discriminates against all forms of grid-connected generation
(including renewables), forces an inappropriate re-allocation of the costs of the grid to
remaining (and disproportionately lower income) customers, and sends a faulty price
signal that can cause under-investment in (or early shut down of) grid-connected
generation that is needed for real-time balancing purposes and to meet peak demands.
These same problems--in larger scale--are among the primary causes of Germanys
growing dysfunction.
III.

The Return of Stranded Costs

Broadly speaking, the current dispute over net metering is about managing the
growth of distributed generation during the period when growth is being fueled by
subsidies. If projections such as those made by Citigroup are correct, the cost of energy
from distributed generation will decline, eventually making it competitive with energy
from the grid without subsidies, and the pace of growth will accelerate. At some point,
distributed generation could be married to behind-the-meter storage capability, permitting
customers to disconnect from the grid or significantly limit their use of utility service.
Investments in distributed generation combined with storage should expand rapidly when
and if the combined cost of distributed energy and storage reaches parity with the cost of
bundled service from the grid.
In this scenario, as the demand for service from the grid declines and utilities need
to recover the cost of the grid from a smaller customer base, utilities will have to respond
by filing to raise rates. While this is occurring, a large body of customers will remain
dependent on electricity from the grid for a considerable period of time since many
customers may not have the resources to install distributed generators and others may
choose to take their electric service from the grid.
Even as this possible transition approaches, billions of dollars of grid investments

46 The Economist notes: "Renewables can depress wholesale prices, e.g. when the sun creates a
midday jolt. This discourages investors in the flexible, gas-powered generation needed to provide backup
for windless, cloudy days." Energiewinde, ECONOMIST, July 28, 2012, at 3. Citi Research, noting that
solar production causes lower utilization rates for conventional generation plants, concludes: "This would
in a perfect economic world lead to the closure of some higher heat rate gas plants, but the problem of
course is that much of this generation capacity needs to remain to cover lost generation on less sunny days
and at night, and through the winter .... " Citi Research, supra note 2, at 17.
46

THE REGULATORY CHALLENGE OF DISTRIBUTED GENERATION

VOLUME 4

are being made, mostly in response to regulatory mandates.47 As the use of distributed
generation grows, investors in grid assets will demand that regulators provide assurance
that their investments will be recoverable over time with a reasonable return. Otherwise,
the cost of capital will rise, exacerbating the problem of rising rates during the transition,
and in a worst case making it impossible for utilities to raise the capital needed to serve
remaining customers and compensate investors for their prior investments in the grid.
Around the turn of the century, the utility industry faced the prospect that
investments in generation might be unrecoverable. In those jurisdictions that permitted
"retail choice" of electricity suppliers, utility generation was unbundled and re-priced to
market. This competitive transformation produced debates over whether utilities were
entitled to recover the costs associated with prior generation investments from departing
customers when sunk costs exceeded the revenues recoverable at market prices. The
differential was known as "stranded costs."
Utilities argued that they were entitled by law to recover their stranded costs
pursuant to an implicit bargain with the government under which utilities had assumed an
obligation to serve the public in return for assurance that they would be compensated for
their prudent investments made to meet that obligation. Along with many scholars,
utilities argued that the law recognized this "regulatory compact" and that failure to
permit the recovery of stranded costs represented an unconstitutional taking of utility
property.48 Others argued that no such legal right exists and that allowing utilities to
recover their stranded costs would be inconsistent with the transition to competition.49
In the states that endorsed retail choice, legislative or regulatory compromises
were reached in which utilities recovered most of their stranded costs. The underlying
legal question was never resolved decisively in the courts. The stranded cost issue will be
different in the context of utility loss of demand to distributed generation. In this context,
stranded cost issues will not appear at one point in time (such as a legislative
47 For example, the electric industry is investing significant sums in response to state laws imposing
renewable portfolio standards. Large additional investments are being made to modernize the
transmission and distribution systems and incorporate so-called "smart grid" technologies. One utility
executive recently noted that halt the existing transmission grid is more than fifty years old, so sizable
investments to sustain it are inevitable. Lisa Barton, 1HS The Energy Daily, September 26, 2013, at 14.
Several northeastern states are requiring utilities to invest in "hardening" their systems in response to
recent storm-related outages. See Diana Cardwell et al., Hurricane Sandy Alters Utilities Calculus on
Upgrades, N.Y. TIMES, Dec. 28, 2012, at 131. Since 2005, the utility industry has also been subject to
mandatory reliability standards approved by the FERC that require significant ongoing investments in the
grid. 16 U.S.C. 824o (2005).
48 See, e.g., J. Gregory Sidak & Daniel F. Spulber, Deregulatory Takings and Breach of the
Regulatory Contract, 71 N.Y.U.L. REV. 851 (1996).
49 See, e.g., Susan Rose-Ackerman & Jim Rossi, Disentangling Deregulatory Takings, 86 VA. L. REV.
1436 (2000).
47

2013

HARVARD BUSINESS LAW REVIEW ONLINE

determination to permit retail customer choice) but will emerge gradually as utilities and
regulators respond to reductions in aggregate demand for utility service. The stranded
cost issue may also include stranded investment in transmission and distribution assets as
well as generation. Further, stranded cost recovery will have to be addressed in the
context of a declining utility customer base that may ultimately become too small to
support recovery. In the last round of stranded costs, customers changing power suppliers
remained as transmission and distribution customers of the utility and stranded costs
could be recovered in the rates for these unbundled services.
A. Cost Recovery for Regulated Assets
Assuming distributed generation becomes economical without subsidies, retail
customers will be making independent decisions about whether to reduce or jettison
utility service, and these decisions will occur over time as the relative economics of gridproduced and distributed electricity change. The stranded cost issue is therefore likely to
arise in individual rate proceedings as utilities file to increase their rates to offset the
effects of declining demand and regulators respond by requiring offsetting cost
reductions to cabin these rate increases to remaining captive customers. As this process
unfolds, history teaches that there will be disputes over the prudence of past utility
expenditures and over whether particular assets remain "used and useful" and thus
eligible for cost recovery.
The Supreme Courts decision in Duquesne Light Co. v. Barasch holds that a
utilitys Constitutional right to recover its costs to serve the public is not infringed by
regulatory decisions disallowing individual items of cost.5 An unlawful "taking" occurs
only when the overall level of rates produces insufficient revenue to satisfy the "endresult" test established in FPC v. Hope Natural Gas Co.~1 Hope held that overall rate
levels "which enable a company to operate successfully, to maintain its financial
integrity, to attract capital, and to compensate its investors for the risk assumed... " are
sufficient to pass Constitutional muster.~2 The Hope test is fairly subjective and may not
produce rates that are attractive to investors. Duquesne suggests that stranded cost issues
will have to be addressed through rate litigation, which means the availability of relief to
distressed utilities may be delayed.~3 Without legislation, moreover, the remaining
50 488 U.S. 299, 314-15 (1989) [hereinafter Duquesne].
51 320 U.S. 591,602-03 (1944) [hereinafter Hope].
52 !d. at 605.
53 The takings issue will recur if demand declines further over time. If demand declines after rates
have been set, utilities will once again under-recover their costs, forcing them to file for another round of
rate increases to offset the effect of the loss of load since the prior rate case. Utilities will be playing
"catch-up" to get the revenues needed to recover their costs and attract investment.
48

THE REGULATORY CHALLENGE OF DISTRIBUTED GENERATION

VOLUME 4

customer base will eventually become too small, forcing utilities to try and convince
regulators to permit them to charge exit fees to departing customers. For these reasons,
substantial pressure will arise to resolve stranded cost recovery issues through legislation.
Legislative fixes will be a hard sell politically, but legislators may be convinced to act in
order to prevent important energy policy issues from being decided in the courts.54
In determining which facilities remain used and useful, regulators will have to
balance reliability and environmental effects as well as economics. They will also have to
address complex competing interests. For example, utilities supply power using a
combination of owned generation and purchases in the form of FERC-jurisdictional
power purchase agreements (PPAs), most of which are the product of regulatory
mandates. Federal law protects FERC-jurisdictional PPAs by requiring state regulators to
pass through the costs incurred by utility buyers in their retail rates.5~ But this "trapped
cost" protection will be a two-edged sword for utilities that face premature retirement of
their own generation while continuing to pay third parties for purchased power. FERC
may therefore face a host of contract termination disputes. The transition will be made
more difficult by the fact that most utility-owned generation is subject to state regulation,
PPAs are regulated by FERC, and substantial generation is publicly owned and not
subject to traditional rate regulation.
Generation cost recovery is likely to be under pressure before transmission and
distribution. For the most part, the electric delivery system operates as an integrated
network, and it will be difficult to identify specific assets that are no longer required as
demand declines. Nonetheless, a substantial portion of the cost of electricity consists of
investments in transmission and distribution, and a regulator under pressure to reduce
rates would eventually have to pay attention to the cost of these facilities. Stranded
transmission and distribution cost issues will play out simultaneously at FERC (which
regulates most unbundled transmission) and in state proceedings (for bundled
transmission and local distribution) unless Congress changes jurisdictional
responsibilities.56

54 Assuming much of the utility industry will have moved into other business lines, including
distributed generation, legislators could be less inclined to provide full stranded cost relief in these
circumstances.
55 See Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953,970 (1986); Entergy La., Inc. v. La.
Pub. Serv. Comm n, 539 U.S. 39, 48 (2003).
56 In Texas, the Public Utility Commission of Texas (PUCT) regulates all of these functions. In other
states where retail rates remain bundled, states will have most of the control over this process for both
transmission and distribution assets, unless the FERC chooses (or is forced) to assume jurisdiction over
interstate transmission costs that are bundled into retail rates pursuant to the Supreme Courts opinion in
New York v. FERC, 535 U.S. 1 (2002).
49

2013

HARVARD BUSINESS LAW REVIEW ONLINE

Disputes will likely arise over which assets should be targeted for early retirement.
The interstate transmission grid, for example, is an integrated network of facilities owned
by a large number of entities.57 One can imagine a form of competition among
transmission asset owners to protect their assets and avoid stranded costs. Most publiclyowned transmission is not subject to FERC or state jurisdiction, which will further
complicate the process.
As this process unfolds, utility investors will be watching. As cost recovery
uncertainty rises, debt and equity investors will demand higher returns, making it more
expensive to maintain a reliable grid and putting further upward pressure on utility rates.
At some point, the risks could be large enough that investors will not provide capital on
acceptable commercial and regulatory terms, and investment in the grid will become
problematic, even as many consumers continue to rely on it.
B. Unregulated Generation
In regions where utilities have already divested their generation to merchant power
producers, capacity and energy is transacted in wholesale markets under the control of
RTOs, subject to overarching FERC regulation. Market forces will therefore play a
significant role in determining which generators survive as demand declines. The owners
of unregulated generation have assumed the market risk and are much less likely to have
valid stranded cost claims.
But electricity markets will only provide a partial solution. With recent reductions
in natural gas costs and flat demand, grid-connected generation is already under
considerable economic pressure, and regulators are being asked to approve additional
revenue streams to support reliabili .ty and new investment. In response to disputes over
market rules, regulators are making critical decisions on the economic margin. Therefore,
even where generation is subject to market forces, the future portends complex regulatory
disputes over how wholesale markets should be organized to respond to reductions in the
demand for energy from the grid. At the core of these disputes, an enduring tension will
exist between economics, reliability, and fairness.

57 FERC has recently decided that more entities should be eligible to build and own transmission
facilities. Transmission Planning and Cost Allocation by Transmission Owning and Operating Public
Utilities, Order No. 1000, FERC Stats. & Regs. 31,323 (2011), order on reh g, Order No. 1000-A, 139
FERC 61,132, order on rehg, Order No. 1000-B, 141 FERC 61,044 (2012), appeal docketed, S.C.
Pub. Serv. Auth. v. FERC, No. 12-1232 (D.C. Cir. 2012).

5O

VOLUME 4

THE REGULATORY CHALLENGE OF DISTRIBUTED GENERATION

IV.

Conclusion

Once a sizable number of customers have invested in distributed generation in


response to the subsidies afforded under net metering, changing the economic rules will
be difficult, both because some customers will have relied on subsidies to make their
investments and others will want the same opportunities as their neighbors. Policymakers
therefore should not long defer addressing the consequences of providing these subsidies
in order to promote distributed generation over other alternatives. What may appear
politically attractive in its early stages can quickly become a regulatory and political
quagmire, as the Germans are learning. The U.S. will not countenance electric rates
anywhere close to German levels, nor an electric system that is not reliable. Over the long
term, any required unwinding of the utility-owned grid due to distributed generation will
be extraordinarily complex and will raise many novel and intractable legal and policy
issues.

51

12/23/14 4:08 PM

Exhibit 34

From: Collins, Mary


Subject: FW: PUC ElM Group/CA PUC comments to the CAISO Board of Governors
Date: December 13, 2013 11:42:24 AM MST
To: Montoya, Karen L, PRC <KarenL.Montoya@state.nm.us
Dont know if you are on this distribution list

From: Rebecca Johnson [mailto:rjohnson@westgov.org]


Sent." Thursday, December 12, 2013 3:40 PM
To-" Rebecca Johnson
Subject: PUC EIM Group/CA PUC comments to the CAISO Board of
Governors
TO:
FROM:
DATE:
RE:
of Governors

PUC ElM Group Distribution List


Rebecca Johnson, Western Interstate Energy Board
December 12, 2013
PUC ElM Group/CA PUC comments to the CAISO Board

Hello,
th

On December 1_1 , the PUC ElM Group and the California PUC submitted
joint comments to the CAISO in support of the ElM governance proposal.
The CAISO Board of Governors will discuss the ElM during their meeting
t"
. The
agenda and other meeting materials are
on December 18"and 19
available via:
http://www.caiso.com/Documents/PublicComment-PUC ElM Group_CPUC CommentsGovernanceProp_osal_____=.p_d._~f
Please feel free to contact Travis Kavulla (tkavulla.@_mt__=go__v) or Rebecca
Johnson (riohnson(~.wes~tgov.~orF~) if you would like additional
information.
Rebecca

Rebecca Johnson
PhD/Policy Analyst
Western Interstate Energy Board

Page 1 of 2

12/23/14 4:08 PM

Exhibit 34

1600 Broadway, Ste. 1700


Denver, CO 80202
Office 720.897.4604
Cell 303.902.2808
rjohnson@westgov.org

Page 2 of 2

12/23/14 4:08 PM

Exhibit 35

From: Collins, Mary


Subject: Fwd: CCIF 2014 Summits -- Save the Dates!
Date: December 20, 2013 8:47:30 AM MST
To: Robert Lara <Robert.Lara@state.nm.us>,Karen Montoya
<karenl.montoya@state.nm.us

FYI
Sent from my iPhone

Begin forwarded message:


From: Elizabeth Stipnieks <estip_nieks@eei.orq>
Date: December 20, 2013 at 7:27:18 AM MST
To: NARUC <narucout@ Is.eei.org>
Subject: CClF 2014 Summits -- Save the Dates!
Reply-To: <esti .pnieks @ eei.orcl>

Page 1 of 1

12/23/14 4:09 PM

Exhibit 36

From: Collins, Mary


Subject: Link to Registration for Net Metering Webinar in February
Date: January 10, 2014 10:35:33 AM MST
To: Lara, Robert, PRC <Robert.Lara@state.nm.us>,Montoya, Karen L, PRC
<KarenL.Montoya@state.nm.us

http://www.csl~.orl~/events/webinar/default.aspx
Mary Collins
Director, Strategic Initiatives
Marketing and Communications
PNM
414 Silver Avenue SW, MS-0605
Albuquerque, NM 87158
Work: 505.241.2214
Cell: 505.242.2010

Page 1 of 1

12/23/14 4:09 PM

Exhibit 37

From: Lara, Robert, PRC


Subject: RE: Link to PUC ElM website
Date: November 12, 2013 2:31:09 PM MST
To: Collins, Mary <Mary.Collins@pnmresources.com

gracias

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1
New Mexico Public Regulation Comission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015
From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]
Sent: Tuesday, November 12, 2013 2:33 PM
To: Lara, Robert, PRC
Subject: RE: Link to PUC EIM website
E-mail address and phone number:
E-Mail: tkavulla@mt.gov
(406) 444-6166

From: Lara, Robert, PRC [mailto:Robert.Lara@state.nm.us]


Sent: Tuesday, November 12, 2013 2:27 PM
To: Collins, Mary
Subject: RE: Link to PUC EIM website
M a ry,
Do you have a contact email for Travis Kavalla?
r

Page 1 of 3

12/23/14 4:09 PM

Exhibit 37

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1

New Mexico Public Regulation Comission


1120 Paseo de Peralta

Santa Fe, NM 87501


robert.lara@state.nm.us
505.827.8015
From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]
Sent: Friday, November 08, 2013 11:19 AM
To: Montoya, Karen L, PRC; Lara, Robert, PRC
Subject: Link to PUC EIM website
Pat Lyons is listed as the N M representative, but when I had talked to
Dallas earlier this year he did not think that he would be able to make the
meetings because of his commitment to SPP.
If you are interested in joining you should contact Travis Kavalla from
Montana to get on the distribution/invitation list.
This is a really good group of commissioners. I have gone to several of the
meetings and they are very well attended and very interesting.
The Southwest utilities are participating in this forum through the
Southwest Variable Energy Resources Initiative (SV ERI)
As I find additional information I will forward to you

Mary

htt p._JJwww.westgov.org/P U CeimJindex.htm


Mary Collins
Director, Strateg ic I nitiatives

Page 2 of 3

12/23/14 4:09 PM

Exhibit 37

Marketing and Communications


PNM
414 Silver Avenue SW, MS-0605
Albuquerque, NM 87158
Work: 505.241.2214
Cell: 505.242.2010

Page 3 of 3

12/23/14 4:09 PM

Exhibit 38

From: Lara, Robert, PRC


Subject: RE: Registration Opens at 12 noon Today!!
Date: December 16, 2013 12:28:37 PM MST
To: Collins, Mary <Mary.Collins@pnmresources.com
Thanks you mary

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1

New Mexico Public Regulation Comission


1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015
From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]
Sent: Monday, December 16, 2.013 12:05 PM
To: Montoya, Karen L, PRC; Lara, Robert, PRC
Subject: FW: Registration Opens at 12 noon Today!!
FYI
From: NARUC Admin [mailto:admin@naruc.orq.]
Sent: Monday, December 16, 2013 9:36 AM
To: Collins, Mary
Subject: Registration Opens at 12 noon Today!!

Having Trouble Viewing, This Message, Click Here

Page 1 of 3

12/23/14 4:09 PM

Exhibit 38

IRegistration Opens
lat noon Today!!

2014
Sponsors

Here are Your Top Four Reasons to Register


Early for the NARUC Winter Committee
Meetings:

1. Reduce Holiday Stress: The earlier you


register, the better chance that you will get a
room at the conference hotel
2. Save Money! Online registrants save on
attendance fees
3. Save Time! Pre-registered guests will have
:heir name badges and programs already printed.
)nsite registrants will face longer lines.
4. Be Prepared: The Winter Committee
Meetings routinely attract top congressional and
administrative speakers. Dont procrastinate!
And please remember this timeless holiday
classic: "May your days be merry and bright and
may all your registration info be right!"
For more information, please go to http:/L
~nter.narucmeetings.orgL.

Page 2 of 3

12/23/14 4:09 PM

Exhibit 38

Having Trouble Viewing. This Message, Click Here


National Association of Reg.ulatory Utility Commissioners 2013

You are currently subscribed to meetings as:


ma~.collins@pnmresources.com.
To unsubscribe click here: ht.tp://www.naruclist.org:81/u?
idh639.2f970eaa3 ff6eb9cae9fe81 fb500706c&n=T&l=meetings&o
.(24765
(It may be necessary to cut and paste the above URL if the line is
broken)
or send a blank email to
leave-2824765-68639.2f970eaa3 ff6eb9cae9 fe 81 fb500706c@.naruclist.
org

Page 3 of 3

12/23/14 4:33 PM

Exhibit 39

From: Lara, Robert, PRC


Subject: RE: The National Energy Risk Lab in DC, Feb 12-13 2014
Date: January 2, 2014 10:45:36 AM MST
To: Collins, Mary <Mary.Collins@pnmresources.com

Thanks for the info Mary, we will be planning on attending.


r

Robert Lara, Esq.


Executive Assistant to Comissioner Karen L. Montoya
District 1
New Mexico Public Regulation Comission
1120 Paseo de Peralta
Santa Fe, NM 87501
robert.lara@state.nm.us
505.827.8015

From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]


Sent: Thursday, January 02, 2014 9:29 AM
To: Montoya, Karen L, PRC; Lara, Robert, PRC
Subject: FW: The National Energy Risk Lab in DC, Feb 12-13 2014

FYI
From: Miles Keogh [mailto:mkeoqh@naruc.org]
Sent." Thursday, January 02, 2014 8:55 AM
To; National Energy Risk Lab
Subject: [risklab] The National Energy Risk Lab in DC, Feb 12-13 2014

Friends,
NARUCs National Energy Risk Lab is running on February 12 and 13 in
Washington DC. Youll definitely want to come participate.
The Lab brings together decision-makers from every corner of the
electricity world in an interactive format- a game - that explores where the

Page 1 of 2

12/23/14 4:33 PM

Exhibit 39

power sector is headed. Youll work in a team to shape the electric sector,
facing real-world challenges using pretend power plants and "monopoly"
money, and seeing the implications of different choices. Instead of hearing
a few experts speak youll hear perspectives from all the participants - and
theyll hear from you.
There are only 360 seats, first-come, first-served. Travel support and
registration fee waivers are available to State participants, in part thanks to
support from the US Department of Energy. If youve played it before,
dont worry! Weve partnered up with the Nicholas Institute at Duke
University to soup up the game and make it run smoother, smarter, and
faster (no more little calculators!)
Learn more and register online at:
www. na ru c. o rg!e n e~rg. riy_~k
Regards, Miles

Miles Keogh
Director of Grants & Research
National Association of Regulatory Utility Commissioners (NARUC)
1101 Vermont Ave. NW, Suite 200
Washington, DC 20005
ph, 202-898-2217

What will the grid look like in 2030? Find out at NARUCs National Energy Risk Lab, Feb
12-t3, in Washington DC. http://www.naruc.org/energyrisk

To stop getting email from me, click here: http://www.naruclist.org:81/


u?id 1841 .cee7137a85ae41 fOe I fl 9baa069f371 a&n=T&l=risklab&o
.(.24989
(It may be necessary to cut and paste the above URL if the line is
broken) or send a blank email to
leave-2824989-141841 .cee7137a85ae41 fOe I fl 9baa069f371 a@narucli
st.org

Page 2 of 2

Exhibit 40

June 2013
SuMo TuWe Th Fr Sa
1
2 3 4 5 6 7 8
9 10 11 12 13 1415
1617 18192021 22
2324 25262728 29
3O

Jjune 17, 2013 une 23, 2013


Monday, June 17

July 2013
SuMo TuWe Th Fr Sa
1 23456
7 8 910111213
1415 16 17 18 19 20
21 22 23 24 25 26 27
2829 30 31

iTuesday, June 18

10:00am - 12:00pm NMFA Task Force Meeting (NMFA Office, 344


4th Street SW, Albuquerque, NM)
6:00pm - 7:00pm Tony (?)

Wednesday, June 19

Thursday, June 20

9:30am - 10:30am Open meeting

10:30am - 11:00am Meeting with Gerard Ortiz (PERA Building,


Room 407)

Friday, June 21

Saturday, June 22

Sunday, June 23

Banner, Thomas, PRC

10/28/2014 8:59 PH

Exhibit 40

July 2013
SuMo TuWe Th Fr Sa
I 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31

Monday, July 22

Tuesday, July 23

Wednesday, July 24

Thursday, July 25

August 2013
SuMo TuWe Th Fr Sa
123
4 5678910
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31

8:00am - 10:00am PNM Meeting (414 Silver SW ABQ Nfvl )

Friday, July 26

Saturday, July 27

11:00am - 12:00pm Meeting with Esperanza on Saferide (NM 811,


1021 Eubank NE, Albuquerque)

11:45am - 12:45pm New Event

Sunday, July 28

Banner, Thomas, PRC

10/28/20148:59 PM

Exhibit 40

August 2013
SuMo TuWe Th Fr Sa
123
4 5 6 7 8 9 10
12
13
141516
17
11
18 192021 222324
25262728293031

August 26, 2013 September 1, 2013


Monday, August 26

September 2013
SuMo TuWe Th Fr Sa
1 2 3 4 S 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
2223 24 25 26 27 28
2930

Tuesday, August 27

9:00am - 5:00pro 12-00380-UT - Workshop on High Cost Support - 9;00am - 5:00pm 11-00001-UT 13-00085-UT AV Water Co., LLC
Sandra Skogen (PERA BLD.G 4TH FLOOR HEARING ROOM)
- Mediation (Requested by Bill Herrmann) (LS) 9am-Spin - (Ground
Floor Board Room)

Wednesday, August 28

Thursday, August 29

9:00am - 5:00pro 11-00001-UT & 13-00085-UT AV Water Co., LLC


- Mediation (Requested by Bill Herrmann) (LS) 9am-Spin - (Ground
Floor Board Room)
l:30pm - 4:30pm 56th NMML Annual Conference Workshops
(Taos Convention Center )
6:00pm - 8:00pm Opening Social for 56th Annual NMML
Conference (Kit Carson Park Taos NM)

9:00am - 10:1Sam Opening Session for NMML Conference (Taos


Convention Center )
10:4Bam - 12:15pm NMML Workshops- Social Media In the
Workplace (Taos Convention Center )

Friday, August 30

Saturday, August 31

11:00am - 11:30am Meeting at Le Peep with Janet Winchester


Silbaugh of the Sandia Knolls Neighborhood Association (Le Peep
P~estaurant, 2125 Louisiana Bird NE)
1:30pro - 2:00pro Meeting with Ron Darnell (PNM Headquarters)

Sunday, September 1

Banner, Thomas, PRC

14

10/28/2014 8:59 PM

12/23/14 4:09 PM

Exhibit 41

From: Edwards, Cindy


Subject: need a last name
Date: August 6, 2014 10:41:23 AM MDT
To: Dallas.Rippy@state.nm.us <Dallas.Rippy@state.nm.us
Hi Dallas- Cindy from Ron Darnells office at PN M. Last month at
NARUC, Ron was at dinner with the Chairman and his sister/brother-inlaw. I think its Carolyn and Pat. Im just Iookinl~ for their last name.
thanks, Cindy

Page 1 of 1

State Implementation of CO~ Rules


Institutional and Practical Issues with State and
Multi-State Implementation and Enforcement

A White Paper
Release 1.0 - July 2014
Raymond L. Gifford
Gregory E. Sopkin
Matthew S. Larson

Release 1.0

necessary, and adapting an "environmental dispatch"


protocol will risk anointing winners and losers across
EPAs proposed rule to regulate carbon dioxide states. Finally, the multi-state plan option implicates
emissions ("Section lll(d)" or the "CO2 Emission the need for interstate compacts, state legislation
Guidelines") from electric generating units (EGUs), authorizing the compacts, and compliance with the
issued June 2, 2014, has triggered immediate analysis Compact Clause of the U.S. Constitution.
and commentary about the prudence and legality of
Because it takes years for utilities and energy
EPAs approach under the Clean Air Act. This White
providers to plan and develop substantial changes to
Paper approaches the proposed rule from the
electricity generation portfolios - and additional time to
perspective of states, and focuses in particular on the
obtain necessary state agency approval of these plans institutional and practical challenges that states face in
EPAs Section 11 l(d) implementation timeline is very
implementing the proposed rule. ~
short indeed. States must submit their enforceable State
implementation Plans (SIPs) by June of 2016 (absent
To state our conclusion up front: There are
manifold challenges and decisions for states, and an EPA grant of a l- or 2-year delay), and the SIPs
must demonstrate considerable carbon reductions by
between states, about how to implement the rule. In all
conceivable scenarios, Section 11 l(d) implementation 2020. Therefore, the issues that must be debated and
will require state legislation to erect new institutional decided among and between states to determine what
institutional structures must be in place to even begin
arrangements for a state to consider a "Carbon
deciding how the carbon reduction mandates will be
Integrated Resource Plan" (Carbon IRP). In verticallyintegrated states, non-jurisdictional generation and reached must occur over the next several months, not
years. These political, logistical,
distribution
operators
like
cooperatives and municipal utilities
and jurisdictional issues may
The
issues
that
must
be
debated
well prove complex and
will need to be brought into the
intractable enough to undermine
Carbon IRP process. Threshold
and decided among and between
the foundation for EPAs Section
institutional questions will also need
states to determine what
11 l(d) goals.
to be answered. Will the Carbon IRP
take place under the auspices of a
institutional structures must be in
States must formulate SIPs
public utilities commission or the
place
to
even
begin
deciding
how
2
state environmental regulator? In
under the Section l I l(d)
implementing regulations. The
states with restructured wholesale
the carbon reduction mandates
CO~ Emission Guidelines are
markets, there is a compelling
will be reached must occur over
accompanied by numerous legal
rationale for states to enter into
multi-state plans coincident with the
and technical memoranda,
the next several months, not
including a memorandum that
wholesale market (RTO) territory.
years.
addresses state-level compliance
But even regionally, something
"plan pathways." In its State
resembling a Carbon iRP will be
I. Overview

~ For purposes of this analysis, we do not question EPAs


legal authority to issue the rule, but rather what a state CO2
regime will look like under Section 11 l(d) and the proposed
implementing regulations.
2 The U.S. Supreme Court recently denied a certiorari
petition seeking review of a Missouri PSC decision denying
Kansas City Power & Light cost recovery of FERC-approved
transmission costs. Based on this, an investor-owned utility
will likely insist on PUC involvement in Carbon IRP
planning to ensure cost recovery of Carbon IRP planning
decisions. See State of Missouri ex. tel. KCP&L v. Missouri
Public Service Commission, 408 S.W. 3d 153 (Mo. App.
2013), cert. denied, 2014 WL 2921776 (June 30, 2014).
WILKINSON ) BARKER) KN,~.U ER) LLP

Plan Considerations Technical


Support Document, EPA proposes four "state plan
pathways": (1) rate-based CO~ emission limits; (2)
mass-based CO2 emission limits; (3) a state-driven
portfolio approach; and (4) a utility-driven portfolio
approach. A portfolio approach "would include
emission limits for affected EGUs along with other
enforceable end-use energy efficiency and renewable
energy measures that avoid EGU CO2 emissions."
EPA generally addresses the role of existing
programs and processes in the CO2 Emission
Guidelines, including resource planning processes:

Release 1.0
universe of regulators (public utility commissions
(PUCs), environmental regulators, gubernatorial
energy offices) in a state statutory and
administrative context.
Obtain and concentrate jurisdiction in the
appropriate regulatory bodies over all affected
entities, including current non-state jurisdictional
entities like cooperatives and municipal utilities.
Institute carbon-driven resource planning and
dispatch in restructured markets to ensure adequate
capacity and reliability.
Structure enforceable and constitutional multi-state
SIPs with interstate enforcement mechanisms,
which may well require Congressionally-approved
interstate compacts to satisfy EPA SIP approval
criteria.

"States would be able to rely on and extend programs


they may already have created to address the power
sector. Those states committed to Integrated Resource
Planning (IRP) would be able to establish their CO2
reduction plans within that framework, while states
with a more deregulated power sector system could
develop CO2 reduction plans within that specific
framework." Here, then, is the crux of the institutional
and practical questions states must confront with this
rule.
This White Paper proceeds in five parts: overall
considerations for SIP development, SIP
implementation in vertically-integrated states, SIP
implementation in restructured states and within RTOs,
multi-state SIP considerations, and tentative
conclusions.
At the outset, we want to emphasize that this
"Release 1.0" of the White Paper is meant to be
iterative, to provoke comment, correction and
disputation. As we contemplate the practical
implementation of the rule, we foresee the issues
detailed below, but also emphasize that a rule this
As we contemplate the
practical implementation of
the rule, we foresee the issues

II.

The Structure of the CO2 Emission


Guidelines and Key EPA Assumptions

a. Building Blocks and Performance Goals under


the C02 Emission Guidelines

EPAs proposed CO2 Emission Guidelines limit


CO2 emissions from EGUs in every state save Vermont
and the District of Columbia. The proposed guidelines
require each state to devise its own enforceable state
implementation plan to meet the CO2 performance goal,
i.e., emission limit, established by EPA for the state.3

detailed below, but also


emphasize that a rule this
complex is difficult to get
ones mind around.
complex is difficult to get ones mind around. The
issues we raise and conclusions we reach, therefore,
should be regarded as tentative and partial.. We
welcome feedback because we envision iteratively
focusing and improving this White Paper in future
releases. For now, we see a daunting set of institutional
challenges for the states that will protbundly affect the
implementation and effectiveness of the rule, and its
effect on the nations electric system. These key issues
and challenges include the need to:

Pass enabling legislation to implement the


proposed rule at the state level.
Construct institutional arrangements between the

3 Carbon Pollution Emission Guidelines for Existing


Stationary Sources: Electric Utility Generating Units, 79 Fed.
Reg. 34,830 (June 18, 2014). In the proposed Table 1 to
Subpart UUUU of 40 C.F.R. Part 60, EPA proposes interim

and final goals for each state in pounds of CO2 per net MWh.
CO2 Emission Guidelines at 643-645. The interim goals
apply from 2020-2029, while the final goal applies in 2030.
The interim goals as currently structured present a unique
challenge for some utilities, as the 2020-2029 interim goal is
"the simple average of the annual rates computed for each of
the years from 2020 to 2029." CO2 Emission Guidelines at
355. In addition, "[t]o be approvable, a state plan must
demonstrate that the emission performance of affected EGUs
will meet the interim emission performance level on average
over the 2020-2029 period." CO2 Emission Guidelines at
409. Part of the justification for the 2020-2029 interim goals
is that "EPA recognizes the importance of ensuring that,
during the proposed 10-year performance period (2020-2029)
for the interim goal, a state is making steady progress toward
achieving the required level of emission performance." CO2
Emission Guidelines at 411. The need for de facto ongoing
compliance on a trajectory could be difficult for utilities that
may want to engage in long-term system planning such that
it may miss interim goals in some years but would ultimately

Release 1.0
A state is free to determine how it will achieve the
EPA-set CO2 performance goal, but EPA made certain
general assumptions, applied to all states, to calculate
each individual performance goal.
EPA calculated the CO2 perfor~nance goal using
four "building blocks": (l) assuming a six percent heatrate efficiency improvement to each existing coal-fired
EGU; (2) assuming a 70 percent capacity utilization
rate for combined-cycle gas-fired EGUs; (3) calculating
a renewable portfolio standard (RPS) based on the
average RPS of states in the same region of the country,
and assuming usage of nuclear power plants based on
existing and expected nuclear units; and (4) assuming a
one and one-half percent per year reduction in electric
usage through demand-side management (DSM)
measures.

c. Must States Conform Resource Planning to


Match the Building Blocks?
States are not required to overhaul the generation
fleet to adopt assumptions used in the four building
blocks; in other words, states do not necessarily have to
reduce the heat rate of all coal-fired EGUs by six
percent or increase gas CC dispatch to 70 percent.
However, each state is ultimately responsible for
achievement of its performance goal or, as discussed in
more detail later in this paper, an aggregated multi-state
performance goal. This is where EPAs "flexibility"
talking point comes in, as states technically have
flexibility to meet the performance goal as they see fit.4
States do not have "flexibility" to modify the CO2
performance goal set by EPA.

III.
b. Illustrative Application of the
Building Blocks

State Considerations in Formulating SIPs

Each state is ultimately

a. State Primacy and EPAs


Proposed "Plan Pathways"

responsible for achievement


EPA relied on the four building
blocks in establishing the CO2
As referenced above, states have
of its performance goal or,
primacy and discretion in devising
performance goal for each state. For
as discussed in more detail
SIPs under the CO2 Emission
example, EPA calculated the CO2
Guidelines.s For example, although
performance goal for Georgia as
later in this paper, an
the state-promulgated "emission
follows: (1) all coal-fired EGUs will
aggregated multi-state
standards" are to be "no less stringent
improve their respective heat rate by
six percent; (2) dispatch to gas
than the corresponding emission
performance goal.
guideline(s)" issued by EPA, states
combined cycle (CC) units can be
increased to 70 percent; (3) the state
may make a case-by-case
can continue utilizing existing nuclear plants and determination that a specific facility or class of
Southern Company will complete construction of the facilities are subject to a less-stringent standard or
longer compliance schedule due to: (1) cost of control;
Vogtle 3 and 4 nuclear units; (4) statewide renewable
energy power generation can and will increase from
(2) a physical limitation of installing necessary control
equipment; and (3) other factors making the lessthree to ten percent; and (5) statewide DSM levels
(demand reduction) will increase from 1.8 to 9.8 stringent standard more reasonable.6 State-level
percent. The EPAs interim (2020-2029) mandate for
Georgia is a CO2 emission reduction from 1,534 to 891 4 See, e.g., EPA Administrator Gina McCarthy, Remarks
pounds of CO2 per megawatt hour (CO2/MWh), which
Announcing Clean Power Plan, As Prepared, (June 2, 2014)
represents a reduction of 41 percent; and its final (by
available at
2030) mandate is a reduction to 834 CO2/MWh. This
http://yosemite.epa.gov/opa!admpress.nsf/8d49f7ad4bbcf4ef
852573590040b7f6/c45baade0306640785257ceb003 f3ac3 !O
represents roughly a 46 percent reduction from 2012
penDocument (mentioning the word "flexibility" eight times
baseline emissions.
in speech announcing the CO2 Emission Guidelines and
stating "it]his plan is all about flexibility. Thats what makes
it ambitious, but achievable. Thats how we can keep our
energy affordable and reliable. The glue that holds this plan
together, and the key to making it work, is that each states
achieve compliance on average through specific actions
goal is tailored to its own circumstances, and states have the
taken all at one time or over a one- to two-year period just
prior to the implementation of the final goal in 2030. This
flexibility to reach their goal in whatever way works best for
"less steady" strategy would still comply with the interim
them.")
5 See generally 40 C.F.R. Part 60, Subpart B.
goals on average and utilities may wish to preserve this
6 40 C.F.R. 60.24(0.
option.
WILKINSON)BARKE.) KNAUI:R) LLP

Release 1.0
compliance "plan pathways" are discussed in a
accompanying Technical Support Document (TSD) to
the rule.7 The TSD details the states options:
Rate-based CO2 emission limits: "Rate-based
emission limits would apply a Ib CO2/MWh
emission limit to affected EGUs. Depending on a
states approach, compliance flexibility could be
provided through different mechanisms, such as
averaging among affected sources, or the use of
tradable credits for avoided CO2 emissions
resulting from end-use energy efficiency and
,,8
renewable energy measures ....
Mass-based COz emission limits: "Mass-based
emission limits would apply either an individual
limit on CO2 tons emitted from an affected EGU or
establish a finite CO2 emissions budget for a group
of affected EGUs. The latter approach is typically
implemented through a tradable allowance system.
With mass-based emission limits, end-use energy
efficiency measures that avoid EGU CO2 emissions
could be a major component of a states overall
strategy for cost-effectively reducing EGU CO2
emissions, but would be complementary to the
enforceable state plan (i.e., not included as
enforceable measures in a state plan). These actions
could be used to help a state cost-effectively
achieve the CO2 emissions limits, or to achieve
other policy goals, but CO2 emissions performance
would be assured through the enforceable limit on
mass emissions from affected EGUs.9
Portfolio approach: "The second basic state plan
approach uses a portfolio of actions, in which a
state plan includes multiple programs and measures
that are designed to achieve either a rate-based or
mass-based emissions performance goal for
affected EGUs .... [A] portfolio approach is
distinguished from an emission limit approach by
the fact that achievement of the full level of
required emission performance for affected EGUs
specified in the plan is not ensured through the
7 See EPA Office of Air and Radiation, State Plan
Considerations - Technical Support Document for Carbon
Pollution Emission Guidelines for Existing Stationary
Sources: Electric Utility Generating Units, Docket ID No.
EPA-HQ-OAR-2013-0602 (June 2014), available at
http://www2.epa.gov/sites/production/files/201406/documents/20140602tsd-state-plan-considerations.pdf.
81d at 7.
91d. at8.
WILKINSON)BARKER) KNAUER) LLP

application of direct emission limits that apply to


affected EGUs .... [A] portfolio approach
implemented in a restructured state with retail
competition will likely look quite different from
one implemented in a state with vertically
integrated, regulated electric utilities. This includes
the process for developing the portfolio approach,
the mechanisms for implementing it, the
responsible parties, and the regulatory and legal
relationships among parties and state regulators.t
State-driven portfolio approach: "A statedriven portfolio approach - rather than a
utility-driven approach - is more likely to
be adopted in a state with a restructured
electricity sector .... Under a state-driven
portfolio approach a mix of entities might
have enforceable obligations under a state
plan. This includes owners and operators of
affected EGUs subject to direct emission
limits, as well as electric distribution
utilities, private or public third-party
entities, and state agencies or authorities
that administer end-use energy efficiency
and renewable energy deployment
programs or are subject to portfolio
requirements." 11
Utility-driven portfolio approach: "Under a
utility-driven portfolio approach, a
vertically integrated utility would develop
and implement a portfolio of measures
designed to meet the rate-based or massbased emission performance level for its
affected EGUs specified in the state plan.
This plan would likely be developed and
approved through an IRP-like process
overseen by the state public utility
commission. If there is more than one rateregulated electric utility in the state, the
state might apportion the state emission
performance level for affected EGUs
among utilities .... Under a utility-driven
portfolio approach, the entire suite of
obligations under the plan would be
enforceable against the utility company,
which would also be an owner and operator
of affected EGUs .... A similar approach
could be taken by municipally owned
utilities or utility cooperatives, which often

Release 1.0
also engage in an IRP process. However,
state public utility commissions often do
not regulate these utilities. As a result,
implementation of a portfolio approach by
these entities would introduce practical
enforceability considerations under a state
plan.12

The EPA is proposing to evaluate and approve


state plans based on four general criteria: 1)
enforceable measures that reduce EGU CO2
emissions; 2) projected achievement of
emission performance equivalent to the goals
established by the EPA, on a timeline
equivalent to that in the emission guidelines; 3)
quantifiable and verifiable emission reductions;
and 4) a process for biennial reporting on plan
implementation, progress toward achieving
CO2 goals, and implementation of corrective
actions, if necessary, t4

According to EPA, "[s]tates would be able to rely


on and extend programs they may already have created
to address the power sector. Those states committed to
Integrated Resource Planning would be able to
establish their CO2 reduction plans within that
framework, while states with a more deregulated power
sector system could develop CO2 reduction plans
within that specific framework.~3 However, this
In vertically-integrated states, investor-owned
generic statement belies the myriad complexities
utilities are regulated by state PUCs, generally through
associated with building a CO2-driven regulatory integrated resource planning processes. Municipal and
regime into preexisting, state- or region-level resource rural electric cooperative utilities, by contrast, are often
planning architecture.
"self-regulating" and autonomously
determine their resource portfolios, with
In order for a state to
b. Enforcement as a Prerequisite
exceptions)s In states that are all- or
for EPA Approval
partially-restructured, independent
devise an acceptable
system operators (1SOs) or RTOs help
A SIP must be enforceable by a
SIP, the necessary
govern the electric system. However,
state or group of states as a prerequisite
generation in ISOs and RTOs is not
regulatory structures
for EPA acceptance. Consistent with
subject to traditional IRP processes and
must be in place to
the history of the Clean Air Act and the
can be owned by merchant generators
SIP-driven compliance approach, EPA
enfbrce CO2 reductions
or utilities.
makes clear in the CO2 Emission
of EGUs. For a
Guidelines that the ability to enforce
c. The Need for New State-Level
emission standards is a key; if not the
Regulatory Architecture
substantial percentage of
most important, element the agency
will consider in evaluating SIPs.
EGUs across the U.S.,
In order for a state to devise an
Enforcement is paramount under single
these structures do not
acceptable SIP, the necessary regulatory
state or multi-state SIPs, and applies
structures must be in place to enforce
across the board to any and all actions
exist.
CO2 reductions of EGUs. For a
relied upon to achieve compliance with
substantial percentage of EGUs across
emission standards. EPA provides
the U.S., these structures do not exist.
that:
With the possible exception of California, no states
A state plan must include enforceable CO2
emission limits that apply to affected EGUs. In
doing so, a state plan may take a portfolio
approach, which could include enforceable CO2
emission limits that apply to affected EGUs as
well as other enforceable measures, such as RE
and demand-side EE measures, that avoid EGU
CO2 emissions and are implemented by the
state or by another entity.
~2 Id. at 11-12.
13 CO2 Emission Guidelines at 22.
W,t~,~so~) B^R~zE~) KN^U~R)

LLP

have expressly delegated regulatory authority to


implement and oversee carbon-based resource
planning, including enforcement and corrective action
14 CO2 Emission

Guidelines at 43-44, 46.

~5 While many states exempt municipal utilities and


cooperatives from PUC administrative regulation, others do
not. For instance, Arkansas and Florida regulate cooperative
utilities to a greater extent; other states have exempted their
municipal and cooperative utilities from administrative
regulation. It will be a state-by-state determination of the
institutions which are authorized to regulate a given EGU or
distribution utility.

Release 1.0
authority. Therefore, states will likely need to pass carbon reductions to itself. Furthermore, EPA would
legislation to enforce carbon reductions set forth in a take jurisdiction over where carbon reductions come
SIP. This is not to say that all states will necessarily
from and what makes up an adequate portfolio of
need legislation, but in particular to take advantage of reductions -- the right combination of heat rate
improvements, increased CT dispatch, and renewable
the portfolio approaches detailed by EPA, a new
and demand response. In short, a state would be
institutional arrangement between PUCs and state
handing over its Section l ll(d) prerogatives to the
environmental regulators will be necessary. By the
federal agency, which has little to no experience with
same token, even for states adopting a source-based
approach, the environmental regulator will likely need issues such as reliability, cost analysis or demand
response verification. Thus, while defiance of EPA is
to coordinate with the PUCs to fully appreciate cost and
reliability concerns.
certainly an option, the potential downside of such an
approach could be precipitous for states electing such a
Enacting legislation to create the new institutional path. ~ 7
arrangements may be difficult in vertically-integrated
states.
Generation & Transmission (G&T)
IV.
C02 SIP Implementation in Vertically
organizations, rural electric cooperatives, and
Integrated States
municipalities have traditionally been opposed to
ceding generation planning to an outside regulatory
a. General Resource Planning Issues
agency (assuming, arguendo, that the outside agency
has jurisdiction over these entities in the first instance).
In vertically-integrated states, modem IRPs look at
Municipal and public power utilities have always self- issues that go well beyond a utilitys self-build
determined their resource plans. While G&Ts are
generation plans. Investor-owned utilities present
required in some states to obtain approval to construct a
estimates to state public utility commissions for future
new generation plant, they have not been required to
load, customer growth, fuel (gas and coal) prices, cost
obtain approval of their IRPs. In addition, the rivalrous of renewables, resource margins, and other data to
nature of different utilities interests threatens whos support proposed IRPs. In addition to any self-build
ox is being gored rivalries, where the costs and pains proposals, these plans involve power purchases from
will be difficult to apportion among utilities with independent power producers (IPPs), renewable energy
dramatically different carbon profiles.
portfolios, and DSM. Typically, state policy goals or
d. What if a State Declines to Participate?
A final option states might consider with carbon
rule implementation would involve the affirmative
refusal to participate in devising a SIP. This could
occur through the failure of legislation creating the
institutional administrative structure described earlier.
Or, it could be conceived as an affirmative policy
stance of the state to not submit a SIP. 16
While a state may chart such a course, the outcome
would be EPA implementing its own Federal
Implementation Plan (FIP) and enforcement authority
under the Clean Air Act. The FIP would, in essence,
amount to EPA taking over resource planning in the
given state and subsuming enforcement powers for
16 There are cooperative federalism schemes in the utility
sphere where states have opted-out. Alaska and Hawaii, for
instance, have not passed statutes to participate in the federal
PHMSA program. Virginia, quite notably, refused
to participate in implementation of the Telecommunications
Act of 1996.
WILKINSON)BARKER) KNAUER) LLI

mandates such as renewable energy penetration and


DSM are overlaid onto a lowest cost portfolio
approach.
While G&Ts, rural electric cooperatives, and
municipalities have been subject to environmental
regulation at the federal and state levels, including air
quality regulation under the Clean Air Act, EPAs
proposed CO2 Emission Guidelines go beyond
pollution control measures directed at EGUs. Perhaps
recognizing that inside-the-fence, i.e., implemented at
the source, measures are insufficient to meet EPAs 30
percent carbon reduction goal by 2030, only one
building block assumption
average heat rate
improvement of six percent for coal-fired EGUs - is
source-focused. Building blocks 2, 3 and 4 of the CO2
Emission Guidelines assume that utilities can meet
~7 EPA enforcement is not limited to imposition of a FIP.
Under certain circumstances, EPA may (1) prohibit the
approval by the U.S. Secretary of Transportation of state
highway funding for the state or (2) increase the nonattainment area New Source Review emission offset ratio to
at least two to one. 42 U.S.C. 7509(a)(3), 7509(b).

Release 1.0
PUC is much more likely to adjudicate the resource
plan. In the alternative, with a pure source-based
compliance plan, the environmental agency might be
adequately suited to take the lead. However, the PUC
would still need to be involved because the state will
b. State PUC or Environmental Regulator as"
also have cost and system reliability concerns. In either
Lead Agency
case, states will be wrestling to create a new hybrid
regulatory process that likely involves both the PUC
Portfolio-based metrics, i.e., non-source-based and the environmental regulator,z
emission limits, strongly resemble the resource
The state agency devising the Carbon IRP also will
planning function traditionally performed by state
utility commissions: reliance on existing and under- have to take on the role as CO2 SIP enforcer. Normally,
construction natural gas CC units to up
utilities present a resource plan to the
Portfolio-based
metrics,
to 70 percent capacity factor; expansion
state commission, and the
commission
may approve, deny or
of renewable generation; reliance on
i.e., non-source-based
modify the plan. A utility gains a
existing and under-construction nuclear
emission limits, strongly presumption of prudency by
facilities; and increase of demand-side
following the measures in the
energy efficiency to one and one-half
resemble the resource
approved plan. A state agency
percent annually. A state may choose to
planning
function
enforcing the EPA Section 11 l(d)
enforce the measures utilized by the
rule must be able to enforce
EPA to determine carbon reduction
traditionally performed
"measures that reduce EGU CO2
amounts for the state. In the alternative,
by state utility
emissions" and implement "corrective
if these prove impracticable or
actions, if necessary.2~ This changes
unworkable, a state may order a variant
commissions.
the consequences of a missed IRP
of these measures or simply mandate
closure of carbon-emitting EGUs.
decision: the state must be able to
certain outside-the-fence metrics. Although the
proposed rule does not require states and utilities to
actually implement these metrics, they are the root of
each CO2 performance goal.

In any case, entities that own or dispatch EGUs and that have not been subject to state authority - will
inevitably find themselves under the umbrella of state
COz regulations by a designated agency. That agency
could be the state PUC, or the state environmental
agency, or some new hybrid of the two agencies.
With a portfolio compliance approach in particular,
the state PUC makes the most sense based on its
exp~erience and expertise with Building Blocks 2, 3 and
4.~ State environmental agencies may be given a
consulting role similar to the process employed in the
Clean Air-Clean Jobs Act in Colorado,~9 but the state
~8 It could be argued that state environmental agencies should
be given the authority to develop and impose carbon
reductions on EGUs, as these agencies have traditionally
been involved with implementation of EPA pollution
reduction measures. However, given the IRP-like "building
block" approach of EPA in its proposed rule, it appears more
appropriate for state PUCs to have primary authority.
Nevertheless, one of the political disputes that may develop
is over which agency should be tasked with this important
role.
~~ See Colorado PUC Docket No. 10M-245E; Colorado
House Bill 10-1365.
W I LK! N$ON ) BARKER) KNAU ER) LL,

enforce the Carbon IRP, presumably by dictating and


sanctioning all relevant EGUs or other participants in
the carbon reduction portfolio under the state SIP. The
corrective actions available to the state Carbon IRPenforcer include those sanctions available under
Section l l3(a)-(f) of the Clean Air Act, including
without limitation the issuance of administrative
penalties of up to $37,500 per day2z and instituting
criminal proceedings against "[a]ny person who
knowingly" violates relevant provisions of a SIP.z3
The "any person" language in the Clean Air Act can
and does allow for enforcement against private parties.
20 Tennessee and Nebraska, because they are exclusively
served through public power, might either consider
implementing the rule exclusively through the environmental
regulator - a tall order if they are going to pursue a portfolio
approach, especially involving the audit and verification
burdens associated with DR. Alternatively, they could
decide to confer the Nebraska PSC and the Tennessee
Regulatory Authority (TRA), respectively, with new
jurisdiction over the carbon IRP that they do not currently
possess.
21 COz Emission Guidelines at 46.
22 42 U.S.C. 7413(d). In late 2013, EPA made the default
penalty up to $37,500 per day of violation. 78 Fed. Reg.
66,643 (Nov. 6, 2013).
23 42 U.S.C. 7413(c).

Release 1.0

c.

Timing Issues with State Enabling Legislation

multiple utilities would be making the filing at the same


time.-~4

The need for state legislation in vertically The proposed CO2 Emission Guidelines do include
integrated states creates a significant timing issue. Thea one- or two-zear extension provision that involves a
proposed COz Emission
Guidelines will not be finalized
until June 2015 under EPAs
current timeline, and (absent an
EPA-granted extension of time)
states must submit SIPs by June
2016. Most state legislative
sessions are conducted in the
early months of the calendar year,
e.g., January to April or May. In
addition, some state legislatures
do not meet every year. For
example, the state legislative
sessions of Montana, Nevada,
North Dakota and Texas occur
biennially, in odd-numbered
years.

two-phased SIP submittal process for


This time crunch could become state plans. If a state needs additional
time to submit a complete plan, then it
even more severe considering
must tender an initial plan by June 30,
2016 that explains why the state needs
that many utilities, e.g., nonmore time and includes commitments
jurisdictional municipal utilities to ensure that the state will submit a
complete plan by June 30, 2017 or
and cooperatives, have never
2018, as appropriate.2S To be
filed an integrated resource
approvable, the initial plan must
include specific components,
plan before, and multiple
including a description of the plan
utilities would be making the
approach, initial quantification of the
level of emission performance that
filing at the same time.
will be achieved in the plan, a
commitment to maintain existing
measures that limit CO2 emissions, an explanation of
the path to completion, and a summary of the states
response to any significant public comment on the
Many states may be reluctant to pass legislation
approvability of the initial plan. If the initial plan is
granting CO2 reduction enforcement authority to state
PUCs or other agencies until the EPA rule is final.
approved, the state would have until June 30, 2017 to
EPA has made clear that it is engaged in a "listening
submit a complete plan if the geographic scope of the
plan is limited to that state. If the state develops a plan
tour" to receive comments from the states and other
using multi-state approach, it would have until June 30,
stakeholders, and that it may change the proposed rule
based on this feedback. Indeed, EPAs proposed rule
2018 to submit a complete plan.
poses numerous questions about whether certain
provisions should be imposed, introducing a degree of
uncertainty regarding the potential scope of the final
rule.
24 Any planning process necessarily involves the input of
regulatory bodies at the state level as well as
Those states that wait until 2016 to pass legislation appropriate
affected entities. This may require PUCs to open
may find themselves in an unenviable position due toinvestigatory/miscellaneous dockets or their functional
impossible time constraints (notably, Montana, Nevada, equivalent under state law to allow utilities and other
North Dakota and Texas will not have a 2016 affected entities to submit relevant data and preserve
legislative session unless a special session is called).confidentiality protections, where necessary. Some utilities
Resource planning cases require substantial planningare already receiving informal "discovery requests"
and development by utilities before they are filed.regarding CO2 emissions data and other relevant information.
These cases are quasi-adjudicatory, inw~lving To allow utilities to protect this information, PUCs should
interventions from various stakeholders, testimony,open investigatory/miscellaneous dockets or a functional
discovery, motions practice, briefing, and evidentiaryequivalent such that there is a level of administrative law
hearings. This time crunch could become even moreformality to allow affected entities to protect confidential and
information. In addition, affected entities,
severe considering that many utilities, e.g., non-proprietary
specifically jurisdictional and non-jurisdictional utilities as
jurisdictional municipal utilities and cooperatives,, havewell as fuel supply, should be engaging with state regulators
never filed an integrated resource plan before, and and pushing to begin the exploration of the structure of a
Carbon IRP or similar process what legislative changes may
be required.
25 See, e.g., 40 C.F.R. 60.5755, 5760 (as proposed in the
CO2 Emission Guidelines at 618).
WII.KIN$ON)BARKER) KNAUER)

Release 1.0
However, it is unclear whether the EPA would
allow a one- or two-year delay for a state that has not
both passed legislation effective before June 30, 2016
and have a state agency-determined initial plan
approach with "quantification of the level of emission
performance that will be achieved in the plan.26 The
language of the CO2 Emission Guidelines appears to
require a demonstration that the plan will meet the
required carbon reductions and be enforceable,
suggesting that the legislation and state agency
determination must be complete for any initial plan and
related extension of time to submit a complete plan to
be approved.
COs SIP Implementation in Restructured
States

a. Background on Restructured States and


References in the CO: Emission Guidelines
In restructured states, the wholesale market clears
generation needs, and utilities either have spun-off their
generation assets, or hold them in a separate subsidiary.
Electric distribution utilities purchase electricity from
competitive wholesale markets. There is no IRP
process in these states, and therefore EPA takes the
position that "[a] state-driven portfolio approach" is
likely most suitable for restructured states. EPA
envisions a regime where a wide variety of entities,
ranging from generation owners to non-profit
organizations, would be subject to an overarching
regulatory scheme to achieve standards and CO2
emission reductions set forth in the SIP. EPA provides
an example for restructured states:
One likely state plan scenario involves
inclusion of enforceable obligations for
state-regulated entities other than affected
EGUs. An example of a state-regulated
entity that is not an owner or operator of
affected EGUs may be an electric
distribution utility. These entities are
typically regulated by a state public utility
commission. An example of an enforceable
state plan measure that might apply to an
electric distribution utility is a compliance
obligation under a state end-use energy
efficiency resource standard (EERS) or
renewable portfolio standard (RPS), or
implementation of incentive programs for

z6 CO2 Emission Guidelines, at 48.


WILKINSON)BARKi~R) KNAUER) LL,

the deployment of end-use energy


efficiency and renewable energy
technologies.27
b. Practical Issues in Restructured States
This creates numerous practical issues. Perhaps the
paramount issue is that the regime outlined by EPA
may ultimately result in a degree of soft reintegration of
the utility function in restructured states. These states
opted for competitive generation as a means to lower
costs and achieve optimal resource mixes through
competition instead of centralized resource planning by
state utility commissions or similar entities. An
equivalent Carbon IRP process necessarily reintroduces
a central planning aspect to generation because
allowable facilities must now be approved through the
regulatory process and portfolios must be balanced by
each state.

Perhaps the paramount issue is that the regime


outlined by EPA may ultimately result in a
degree of soft reintegration of the utility
function in restructured states.

There are other practical considerations in


restructured states. First, as with vertically integrated
states, regulation of such a diverse group of entities will
almost certainly require new enabling legislation. This
introduces all of the same timing considerations
discussed above. It also creates overlapping regulator
issues between state utility commissions and
environmental regulators, as regulation of certain
activities, e.g., non-profits administering or
implementing energy efficiency programs, may be done
by one agency while merchant generators may be
regulated separately by a another agency. In turn, this
creates implementation difficulties for any SIP
approved by EPA.

Finally, submission of a SIP premised upon a new


regulatory scheme raises general compliance issues.
SIPs must be enforceable by the states to be approved
by EPA. If a state submits a SIP which it cannot
enforce because it cannot convey legal authority and
get itself organized, it opens itself up to a FIP and
numerous other potential sanctions by EPA. The FIP
27 State Plan Considerations at 14.

Release 1.0
would create a host of legal issues, from potentiallyachieves appropriate power balance, satisfies unit
forcing state officials to enforce obligations they do notoperating limits, and minimizes both fuel cost and CO2
have authority to enforce under state law to EPA emissions. Based upon our rudimentary understanding
indirectly engaging in resource planning and directing
of environmental dispatch protocols, the use of a
system dispatch. Another concern in restructured states carbon imputation in bid pricing represents a clear way
is that states would pass new legislation implementingto implement an environmental dispatch strategy.
a new regulatory paradigm to allow for enforcementHowever, the CO2 Emission Guidelines do not appear
against the relevant entities and actors. Once thisto provide for such a compliance strategy in a SIP. In
avenue is created under state law, it creates an
opportunity for EPA to come in and regulate these
It is unclear how a SIP, or a
entities indirectly through the FIP under the new state
multi-state SIP for that matter,
laws. Indeed, the creation of new regulatory paradigms
creates a similar issue in vertically-integrated states as
would be built around a
well.
dispatch protocol for an RTO.
Another concern in restructured
states is that states would pass
new legislation implementing a

This also raises questions of


enforcement.

Restructured markets thus present a challenge to


the state-by-state Carbon IRP model that seems to be
contemplated by the EPA rule. To be sure, the most
sensible course would appear to be for restructured

addition, it is unclear how a SIP, or a multi-state SIP


for that matter, would be built around a dispatch
protocol for an RTO. This would be novel to say the
least, and also raises questions of enforcement,
specifically whether the member states could enforce
the dispatch protocols through the SIP and how
corrective action might work in this context. Both
enforcement and corrective action are mandated within
EPAs SIP approval criteria.28 While significant
questions remain, EPA seeks comment on the roles of
RTOs in implementing SIPs: "The ISO/RTO Council,
an organization of electric grid operators, has suggested
that ISOs and RTOs could play a facilitative role in
developing and implementing region-wide, multi-state
plans, or coordinated individual state plans. Existing

states to engage in multi-state plans coincident with

ISOs and RTOs could provide a structure for achieving

new regulatory paradigm to


allow for enforcement against
the relevant entities and actors.
Once this avenue is created
under state law, it creates an
opportunity for EPA to come in.

RTO boundaries. This creates its own problems, efficiencies by coordinating the state plan approaches
applied throughout a grid region.29 Needless to say,
particularly in states like Missouri, Illinois, Indiana and
Arkansas, where two separate RTOs operate within the the roles of RTOs and environmental dispatch in
state. Nevertheless, we turn to the institutional issues effectuating CO2 Emission Guidelines are an open
associated with multi-state plans below.
question in this rulemaking.
c. Environmental Dispatch as a Compliance
Strategy

The SIP modification process, as proposed, raises


questions how a SIP premised on an "environmental
dispatch" strategy would be modified if it were not
Environmental dispatch protocols have been achieving the intended results. When implementing an
referenced in the days following the issuance of theapproved SIP, a state might find the need to update or
CO2 Emission Guidelines as potential multi-statealter one or more of the enforceable measures in the
compliance strategies in states that participate instate plan, or even replace certain existing measures
restructured wholesale markets. With environmentalwith new measures. The C02 Emission Guidelines
dispatch, speaking strictly in the CO2 context, the RTO provide:
seeks to identify an optimal generation schedule that
28 CO2 Emission Guidelines at 46.
29 [d. at 430.

Release 1.0
EPA

proposes ]

The notion that states can jointly submit a SIP, and in turn rely on one another to

that the state may


effectuate compliance with an emission standard, is novel under the Clean Air Act.
revise its state
plan provided that
the revision does not result in reducing the jointly submit a SIP, and in turn rely on one another to
effectuate compliance with an emission standard, is
required emission performance for affected
novel
under the Clean Air Act.32 EPA describes multiEGUs specified in the original approved plan.
In other words, no "backsliding" on overall state SIPs as follows:
plan emission performance through a plan
For states wishing to participate in a multi-state
modification would be allowed.
plan, the EPA is proposing that only one multi-state
plan would be submitted on behalf of all
If the state wishes to revise enforceable
participating states. The joint submittal would be
measures in its approved state plan, EPA
signed by authorized officials for each of the states
proposes that the state must submit the revised
participating in the multi-state plan and would have
enforceable measures to the EPA and
the same legal effect as an individual submittal for
demonstrate that the revised set of enforceable
each participating state. The joint submittal would
measures in the modified plan will result in
adequately address plan components that apply
emission performance at affected EGUs that is
jointly for all participating states
equivalent to or better than
and for each individual state in
the level of emission
States retain primacy under
the multi-state plan, including
performance required by the
3
Section
11
l(d)
to
develop
legally
necessary state legal authority to
original state plan.
implement the plan, such as state
enforceable emission standards
regulations and statutes. Because
Accordingly, a SIP premised on
and
compliance
schedules,
but
the multi-state plan functions as
environmental dispatch of generation
a single plan, each of the
would appear to require EPA
states submitting a multi-state
required plan components ...
approval before any material changes
SIP
would
have
a
multi-state
would be designed and
to dispatch protocol were made.
implemented by the participating
EPA thus would become the approval
rather than single state CO2
states on a multi-state basis.3-~
authority for generation dispatch
performance goal and would
protocols under a mass emissions
31
States retain primacy under
plan.
demonstrate emission
Section lll(d) to develop
performance "in aggregate with
legally enforceable emission
VI.
Multi-State State SIP

Considerations

partner states."

a. EPAs Proposed Multi-State


SIPs
In the proposed CO2 Emission Guidelines, EPA
proposes a multi-state SIP compliance avenue, i.e., two
or more states can jointly submit a SIP with aggregated
emission goals. EPA has implemented past air quality
programs, such as the NOx Budget Trading Program,
on a regional basis; however, the notion that states can
30 Id at 468-69.
31 "[A]ny person," including PUCs, would also likely be
subject to novel Clean Air Act citizen suits during the
pendency of its request to modify dispatch protocols. 42
U.S.C. 7604. Certain special interest groups bring these
suits with regularity.
WILKINSON)BARKER) KNAUER) LL,

standards and compliance

schedules, but states submitting


a multi-state SIP would have a
multi-state rather than single state CO2 performance
goal and would demonstrate emission performance "in

32 See, e.g., EPA, Guidance on Infrastructure State


Implementation Plan (SIP) Elements under Clean Air Act
Sections 110(a)(1) and 110(a)(2), at 1 (Sept. 13, 2013)
(providing in part that "Under Clean Air Act (CAA) sections
110(a)(1) and 110(a)(2), each state is required to submit a
state implementation plan (SIP) that provides for the
implementation, maintenance, and enforcement of each
primary or secondary national ambient air quality standard
(NAAQS). Moreover, section 110(a)(l) and section
110(a)(2) require each state to make this new SIP submission
within 3 years after promulgation of a new or revised
NAAQS.") (emphasis added).
33 COz Emission Guidelines at 434.

Release 1.0
aggregate with partner states.34 This aggregation EPAs understandable emphasis on enforceability,
occurs notwithstanding whether states pursue a rate- however, it is questionable whether RGGI as currently
structured could submit a SIP that would satisfy EPAs
based or mass-based compliance approach:
four general criteria.
[S]tates taking a rate-based approach would
RGGI is a cap-and-trade system for CO~ emissions
demonstrate that all affected EGUs subject to
from
fossil-fuel fired EGUs with 25 MW or greater
the multi-state plan achieve a weighted average
CO2 emission rate that is consistent, in generating capacity. The following nine states
aggregate, with an aggregation of the state- currently participate: Connecticut, Delaware, Maine,
specific rate-based CO2 emission performance Maryland, Massachusetts, New Hampshire, New York,
goals established in the emission guidelinesRhode Island, and Vermont. This regional CO2
that apply to each of the participating states. If emissions reduction strategy began in 2005, when
states were taking a mass-based approach, seven states signed a Memorandum of Understanding
participating states would demonstrate that all (MOU) committing the state to the "CO2 Budget
affected EGUs subject to the multi-state plan Trading Program." The MOU set an initial regional
emit a total tonnage of CO2 emissions emission cap of 121.2 million short tons; this regional
consistent with a translated multi-state mass- base annual CO2 emissions budget was then
based goal. This multi-state mass-based goal apportioned to each state individually based on its
would be based on translation of an specific emissions history. EPA explains that:
aggregation of the state-specific rate-based CO2
The program works as a coordinated regional
emission performance goals established in the
emission guidelines that apply to each of the
whole through a shared emission and
participating states.35
allowance tracking system and allowance
auction process, but is implemented in
accordance with materially consistent, standAccordingly, regardless of the emission calculation
approach chosen, multi-state SIPs are submitted jointly
alone state regulations and individual statutory
and based upon aggregated performance goals. States
authority. These regulations recognize CO2
allowances issued by other participating states
would "rise and fall" together based on collective
performance and compliance with the multi-state SIP.
for use by affected EGUs when complying with
each states emission limitation, but contain all
EPA also may include state-specific requirements
the necessary components to administer the
for multi-state plans. The proposed rule asks whether
program requirements on an individual state
basis.37
states submitting multi-state plans should also be
required to provide individual submittals that: (1)
provide state-specific elements of the multi-state plan;
As a result, each state develops its own individual
and (2) address all elements of the multi-state plan.
regulatory and/or statutory structure based on an
agreed-upon "Model Rule" that provides a framework
b. RGGI as the Prototypical Multi-State SIP
for the development of individual state proposals.
The CO2 Emission Guidelines reference the mass-based plan that demonstrates emission performance by
Regional Greenhouse Gas Initiative (RGGI) onaffected EGUs on a multi-state basis. Additional states may
numerous occasions as an example of a regime thatalso choose to join a multi-state plan. The mechanics of
addresses CO~ emissions on a multi-state, regional translating rate-based goals into mass-based goals and
basis, and EPA cites RGG1 as an example of a group of considerations related to multi-state plans are discussed
below in Section VIII on state plans.")
states that may submit a multi-state SIP.36 Given
.~7 State Plan Considerations at 18 (further providing that
341d at 116,438.
35 ld at 438.
36 Id. at 360 ("[T]he EPAs approach allows states to submit
multi-state plans. The EPA expects this flexibility to reduce
the cost of achieving the state goals and therefore expects it
to be attractive to states. For example, the RGGIparticipating states could choose to submit a multi-state
WILKINSON ) BARKER) KNAUER) LLP

"It]he emission limitation consists of a requirement to submit


CO2 allowances equal to reported CO2 emissions during a
compliance period. While states have individual emission
budgets, representing the total number of allowances issued
for a given year that are available for allocation, there are no
individual state emission limits. The CO2 emission
constraint is regional, based on the sum of state COz
emission budgets.")

Release 1.0
act as the states directors.42
While this CO2 budget trading program is enforceable
at the state level, EPA admits that "enforceability

c. RGGI Administration and Enforcement

would be contingent, in part, on states having

While each participating state is responsible for its


own
regulatory program, the RO serves as a "forum
comparable enforcement mechanisms."
for collective deliberation and action" and provides
Importantly, each member state passed new legislation technical assistance in implementing certain
offsets,
to implement the Model Rule in their respective statescomponents of the program, such as auctions, 43
emissions
tracking,
and
market
monitoring.
To be
3s
and facilitate participation in RGGI. The Model Rule
sure,
Article
XII
of
the
ROs
By-Laws
explains
that
the
does not supplant state-developed rules, but rather,
RO
is
a
technical
assistance
organization
only,
and
provides a general organizational structure for states to
"shall have no regulatory or enforcement authority with
follow when implementing their own provisions. While
this CO2 budget trading program is enforceable at the respect to any existing or future program of any
authority is
state level, EPA admits that "enforceability would beSignatory State, and all such sovereign
44 In sum, with the
reserved
to
each
Signatory
State.
contingent, in part, on states having comparable
technical assistance of the RO, each member state
enforcement mechanisms.39
A regional organization (RO) facilitates the This calls into question EPAs ability to find that a
ongoing administration of RGGI. The RO (RGGI, multi-state SIP premised upon a RGGI-like structure,
Inc.) is a non-profit entity incorporated in Delaware
that was created in 2007 to provide technical and i.e., a regional entity with mere "technical assistance"
administrative support to the member states.4 It authority and a consortium of state laws implemented
operates pursuant to by-laws agreed upon by the
and enforced at the state level, could be approved
member states.4~ The RO is managed by its Board of
Directors, which consists of two directors from each under EPAs "general criteria" for SIP evaluation as
member state, (1) the chair of the states energy
set forth in the CO2 Emission Guidelines.
regulatory agency, and (2) the chief executive of the
states environmental regulatory agency, unless the
Governor determines that other state officials shouldessentially adopts the Model Rule into its preexisting
regulatory framework through new state legislation.
Importantly, however, the Model Rule, as well as state
38 See Connecticut (R.C.S.A 22a- 174-31; Conn. Gen. Stat.
legislation implementing the Model Rule as modified to
Section 22a-200c); Delaware (7 DE Admin Code 1147; Title a member states satisfaction, is not enforceable as
7 Chapter 60 of the Delaware Code, Subchapter IIA, .6043); between the states because the structure lacks an
interstate enforcement mechanism and state laws by
Maine (DEP Chapter 156-158; Maine Rev. Stat., Title 38,
Chapter 3-B); Maryland (Department of Environment, Title their very nature cannot result in extraterritorial
26, Subtitle 9; Environment Article, 1 - 101, 1-404, 12-103, enforcement.
and 2-1002(g), Annotated Code of Maryland); Massachusetts
(DEP Regulations 310 CMR 7.70; 225 CMR 13.00; M.G.L. This calls into question EPAs ability to find that a
c. 21A, 22); New Hampshire (NH Code of Admin. Rules,
multi-state SIP premised upon a RGGI-like structure,
Chapter Env-A 4600; Chapter Env-A 4700; Chapter Env-A
i.e., a regional entity with mere "technical assistance"
4800; RSA 125-O: 19-28p; RSA 125-O:8, I(c)-(g)); New
York (DEC, Chapter III, Subchapter A, Part 242; 21 NYCRR authority and a consortium of state laws implemented
and enforced at the state level, could be approved under
Part 507); Rhode Island (Dept. of Environmental
Management Office of Air Resources, Air Pollution Control EPAs "general criteria" for SIP evaluation as set forth
Regulation No. 46 and 47; R.I. Gen. Laws 42-17.1-2(19),
in the CO2 Emission Guidelines. States would not be
23-23 and 23-82); Vermont (30 V.S.A. 255; 30 V.S.A.
able to enforce the terms of the joint, multi-state SIP
209(d)(3); Agency of Natural Resources, Vermont CO2
vis-b-vis one another under a RGGI-like structure. This
Budget Trading Program 23-101 - 23-1007).
39 State Plan Considerations at n. 19.

40 2007 RGGI By-Laws, at Art. I, available at


http://www.rggi.org!old/docs/rggi bylaws 12 12 07.pdf.
41 2007 RGGI By-Laws, at Art. I.
WILKINSON)BARKI:R) KNAUER) LLP

42 RGGI By-Laws, at Art. IV, 1.


43 RGGI By-Laws, at Art. I.
44 RGGI By-Laws, at Art. XII.

Release 1.0
would likely render the SIP unenforceable, and thus notnoncompliance; it is these potential noncompliance
approvable by EPA, absent an interstate enforcement scenarios that would lead to an action by one state
mechanism.
against another state. In February 2013, the RGGI cap
was lowered to 91 million tons for 2014 with 2.5%
d. Member State Rivalries and the Practical Need annual reductions until 2020. Accordingly, the future
for Enforcement Authority
may hold more rivalrous member state relationships in
RGGI with a more restrictive cap.
From a practical standpoint, member states
themselves may want interstate enforcement authority e. Enter the Interstate Compact
to ensure that all member states fulfill their obligations
The U.S. Constitution expressly addresses what
under a multi-state SIP. Member state interests could
become rivalrous if and when a state does not fulfill itsamounts to contracts between individual states. Article
SIP obligations or through issues involving interstateI, section 10, clause 3 of the U.S. Constitution provides
capacity needs.45 For instance, in many cases aroundthat "[n]o State shall, without the consent of Congress
the nation, electric capacity serving demand in one state... enter into any Agreement or Compact with another
comes from another state. A multi-state program State." Interstate compacts can create enforceable
makes sense to ensure that a given states parochial obligations between parties, and the U.S. Supreme
carbon interests do not negatively affect another statesCourt has held for nearly 200 years that compacts are
capacity needs.
contracts between individual states.46
Under any rivairous scenario, states would want the
Courts have discussed "some of the indicia of
ability to enforce the multi-state SIP provisions againstcompacts," specifically "establishment of a joint
the offending member state. While it is valid to pointorganization for regulatory purposes; conditional
out that state rivalry has not been an issue in RGGI,consent by member states in which each state is not
there is no interstate enforcement provision in thefree to modify or repeal its participation unilaterally;
RGGI structure. Moreover, and equally as important, and state enactments which require reciprocal action for
the RGGI cap of allowed emissions from regulated their effectiveness.47 Whether Congressional approval
power plants was 165 million tons in 2013, but actual of an interstate compact is required, however, depends
2012 emissions were only 91 million tons. Emissionsupon the nature &the agreement:
were lower than previously anticipated due to low
To form a compact, two or more states
natural gas prices, energy conservation measures, and
typically negotiate an agreement, and then each
the struggling economy. Accordingly, with a cap that
high, no member state was in severe danger of
state legislature enacts a law that is identical to
the agreement reached. Once all states
specified in the compact have enacted such
45 For example, the Missouri Joint Municipal Electric Utility
laws, the compact is formed. In some cases, if a
Commission (MJMEUC) is authorized by Missouri state law
compact affects the balance of power between
to operate as an electric utility for the benefit of the
the states and the federal government or affects
combined requirements of its members. MJMEUC has
a power constitutionally delegated to the
ownership interests in coal-fired generation units in
federal government, it must also obtain
Missouri, Arkansas, lllinois and Nebraska. Accordingly,
congressional consent. In consenting to a
MJMEUC customers are dependent upon out-of-state
generation to meet its capacity needs. If one of these states
COmnsPaCt, Congress may add certain conditions

decides to retire coal-fired generation to meet its single state


or multi-state SIP obligations such that reliability and/or
affordability is affected, one can easily foresee a rivalrous
scenario. This interstate capacity issue exists in the western
U.S. as well - the North Valmy Generating Station in
Nevada serves Idaho customers (in addition to in-state
customers), the Navajo Generating Station in Arizona serves
customers in California and Nevada (as well as Arizona), and
the Jim Bridger Power Plant in Wyoming serves customers
in Idaho and Utah. These provide just a few examples of the
widespread interstate capacity issues across the country
necessarily implicated by the CO2 Emission Guidelines.

46 Green v. Biddle, 21 U.S. (8 Wheat.) 1, 92 (1823).


47 Seattle Master Builders Ass n v. Pacific Northeast Electric
Power & Conservation Planning Council, 786 F.2d. 1359,
1363 (9th Cir. 1986).
48 U.S. Government Accountability Office, INTERSTATE
COMPACTS." An Overview of the Structure and Governance
of Environment and Natural Resource Compacts, at 1 (Apr.
2007), available at
http://www.gao.gov/assets/260/258939.pdf.

Release 1.0
federal structure or effects on the interest of nonFor example, a 2007 Government Administrative compacting sister states, Congressional approval is
Office (GAO) study identified 76 environmental and required for the compact.55
natural resources interstate compacts, and 59 required
Congressional approval.49 The U.S. Supreme Court has
f Multi-State SIPs and the Compact Clause
wrestled with the line of where Congressional approval
The multi-state enforcement issues with RGGI lead
of interstate compacts is needed and where it is not
to the conclusion that a contract, in the form of an
several times. In 1893, the Supreme Court held:
Looking at the clause in which the terms
"compact" or "agreement" appear, it is evident
that the prohibition is directed to the formation
of any combination tending to the increase of
political power in the states, which may
encroach upon or interfere with the just
supremacy of the United States.s

interstate compact, would be necessary to implement an


enforceable multi-state SIP that would allow states to
enforce rights against one another to achieve
compliance with the multi-state performance goal.

Any such agreement would facially have all indicia


of a compact: (1) a joint organization formed for
regulatory purposes to effectuate compliance with the
CO2 Emission Guidelines; (2)
conditional consent by each
Therefore, the Compact Clause
The multi-state enforcement
member state to have no right to
applies to agreements directed to
issues
with
RGGI
lead
to
the
modify or repeal its participation
the formation of any unit that may
unilaterally as this consent would
increase states political power
conclusion that a contract, in the
be required to submit an approvable
encroaching on federal power.5~
form of an interstate compact,
Congressional consent is not
multi-state SIP; and (3) state
enactments requiring reciprocal
required for joint state activity not
would be necessary to implement
affecting federal authority.52
action, as each member state would
an enforceable multi-state SIP.
pass new legislation to allow for
According to the analysis
participation in the multi-state SIP
developed by the Supreme Court,
and achievement of the multi-state
a court first evaluates whether the agreement or
performance goal would turn on each member state
arrangement at issue constitutes a compact. The key
satisfying its obligations under the multi-state SIP. In
component of this analysis involves looking at the fact, while some commentators have questioned
"indicia" set forth by the Ninth Circuit in Seattle whether RGGI was an interstate compact,56 an
Master Builders Association. If a compact is in fact at
agreement to implement multi-state SIPs would even
issue, courts evaluate if the compact encroaches upon
more directly satisfy the Seattle Master Builders
federal power, ie., whether it is "political." A compact Association factors because states likely could not
is "political" if it (1) impacts the federal structure or (2)
effects the interests of non-compacting sister states.53
55 ld. at 477. In both U.S. Steel and Northeast Bancorp, the
As to the first inquiry, in the words of the Supreme
Supreme Court applied a sister state interest analysis,
Court, "[t]he relevant inquiry must be one of impact on suggesting that the sister state interest doctrine is in force
our federal structure.54 Courts also consider whether despite being rejected as a justification for overturning the
the compact affects the interests of non-compacting
compacts in those particular cases.
56 See, e.g., Edison Electric Institute, Comments to Regional
sister states. Under either scenario, ie., impact on
Greenhouse Gas Initiative Memorandum of Understanding,
at 22-24 (Mar. 20, 2006), available at
,,9 ld.
http://www.rggi.org/docs/rggi5o Virginia v. Tennessee, 148 U.S. 503, 519 (1893).
eeimou comments032006final.pdf. In addition, a New
5~ Northeast Bancorp, Inc. v. Board of Governors of Federal
York state lawsuit challenged RGGI in part on grounds that
Reserve System, 472 U.S. 159 (1985).
it violated the Compact Clause. However, this case was
52 Seattle Master Builders Assn v. Pacific Northwest Elec.
dismissed without considering the merits by the New York
Power and Conservation Planning Council, 786 F.2d 1359
Supreme Court because the all claims were either timebarred
or moot. See Thrun v. Cuomo, Memorandum and
(9th Cir. 1986).
53 U. S. Steel Corp. v. Multistate Tax Commn, 434 U.S. 452,
Order 516556 (N.Y. App. Div. Dec. 5, 2013), available at
477
http://decisions.courts.state.n.us/ad3/Decisions/2013/51
.s4 Id.(1978).
at 471.
6556..pdf.
WILKINSON )BARKER) KN^UER) LLI~

Release 1.0
unilaterally withdraw as they can under RGGI. If avenue raises a constitutional issue that has not been
member states could unilaterally withdraw, it would visited by the Supreme Court for many years.
Accordingly, it provides an interesting academic
raise questions as to whether the multi-state SIP was
enforceable between member states and could satisfy
question at a minimum and a likely litigation path for
any party seeking to challenge the
EPAs general criteria.
It would almost certainly appear
validity of a multi-state SIP.

Assuming an agreement or
multi-state SIP is in fact a compact, that any interstate compact would
the next question is whether the require Congressional approval
compact is "political." As to on the basis of effects upon nonfederal structure, a multi-state SIP
would appear to impact the federal
compacting sister states.
structure given that the Clean Air
Act is a federal statute and the CO2

g. CongressionaI Approval
and Timing Issues

The potential need for


Congressional approval injects
additional political and timing
elements into any multi-state SIP
Emission Guidelines are promulgated by EPA pursuant process. Indeed, political issues are beyond the scope
to Section l ll(d) and its federal implementing of this paper but could certainly inject delay into the
regulations. Indeed, a counterargument exists that the
approval process, as Congressional approval for an
Clean Air Act, through its purported embrace of
interstate compact would likely need to precede EPA
cooperative federalism, actually involves states approval of any multi-state SIP tied to the interstate
implementing state-specific programs through SIPs. In compact. In its report, the GAO discusses the process
other words, it is technically a federal program but for Congressional approval:
there is no federal structure because the states
Congress generally gives its consent in one of
implement and enforce the requirements. However, the
three ways: (1) after the fact, by passing
former argument would appear to be stronger and, at
legislation that specifically recognizes and
the very least, would potentially subject a multi-state
SIP that did not receive Congressional approval for
consents to the compact as enacted by the
states; (2) in advance, by passing legislation
litigation. Moreover, there is also an argument that a
encouraging states to enter into a
multi-state SIP would interfere with
The potential need for
federal authority by potentially
specified compact or compacts for
specified purposes; or (3) implied
affecting the grid reliability.
Congressional approval injects
after the fact, when actions by the
additional political and timing
Second, notwithstanding the
states and the federal government
analysis above regarding impact on
indicate that Congress has granted
elements into any multi-state SIP
the federal structure, it would
its consent even in the absence of
process.
almost certainly appear that any
a specific legislative act. In
interstate compact would require
addition, Congress may impose
conditions as part of granting its
Congressional approval on the basis
of effects upon non-compacting sister states. As EPA
consent, and it typically reserves the right to
notes in the CO2 Emission Guidelines, "It]he utility
alter, amend, or repeal its consent. Any
proposed amendment to a compact must follow
power sector is unique in that, unlike other sectors
where the sources operate independently and on a local
the compact approval process, unless the
compact specifies otherwise.58
scale, power sources operate in a complex,
interconnected grid system that typically is regional in
scale.57 Accordingly, if a subset of states in an Advance approval is irrelevant with regard to Section
interconnected regional grid system entered into a
11 l(d) and the CO2 Emission Guidelines. An example
multi-state SIP and associated interstate compact, it
of a statute providing advance Congressional approval
would likely affect the interests of the non-compacting of an interstate compact is the Energy Policy Act of
states in that region. While the Supreme Court has
2005, which provided advance Congressional approval
never rejected an interstate compact on the basis of
for any interstate compact entered into to address the
siting of transmission lines to deliver renewable
effects on sister state interests, the multi-state SIP
57 CO2 Emission

Guidelines, at 72.
Interstate Compacts GAO Report at 6.

Release 1.0
energy.59 The Clean Air Act contains no such
provision. Accordingly, Congressional approval will
come in either the form of express legislation or
implication through the actions of states and the federal
government. While the express approval avenue could
decrease the likelihood of future litigation under the
Compact Clause, it also injects significant timing risk
into the process because any multi-state SIP would be
contingent upon approval of legislation. The "implied
consent" avenue mitigates the timing risks, but carries
with it the possibility that litigation could be brought
for violation of the Compact Clause since no express
action occurred. Under these circumstances, the
member states would have to establish that Congress
did in fact provide implicit consent.
VII. Initial Conclusions and Takeaways

We offer these tentative conclusions and takeaways


based upon the above analysis and discussion:

States have relatively little time to make crucial


decisions regarding EPAs proposed rule, including
whether to act individually or on a multi-state
basis, which of four state plan pathways to take,
what state agency(ies) should be responsible to
implement a Carbon IRP-like process, how any

59 Energy Policy Act of 2005, Title XII, Subtitle B, Section


1221. The statutory section provides:

(i) INTERSTATE COMPACTS.--(1) The consent


of Congress is given for three or more
contiguous States to enter into an interstate
compact, subject to approval by Congress,
establishing regional transmission siting agencies
to-(A) facilitate siting of future electric
energy transmission facilities within those States;
and
(B) carry out the electric energy
transmission siting responsibilities of those States.
(2) The Secretary may provide technical assistance
to regional transmission siting agencies
established under this subsection.
(3) The regional transmission siting agencies shall
have the authority to review, certify, and
permit siting of transmission facilities, including
facilities in national interest electric
transmission corridors (other than facilities on
property owned by the United
States).

To date, no interstate compacts have been entered into under


the statute.
WILKINSON)BARKER) KNAUER) LLP

ISOs or RTOs operating within the state will play a


role, and what enforcement and corrective action
measures are necessary to ensure compliance with
the proposed rule.
States will need to devise institutional
arrangements, which almost certainly will require
new legislation, between the state PUC and state
environmental regulator to implement carbondriven resource planning.
State plans will need to encompass all electric
generation units, including those owned or operated
by current non-state jurisdictional entities like rural
cooperatives and municipal utilities. To the extent
a state SIP relies on energy efficiency or demand
response, all distribution utilities will need to be
brought within carbon IRP planning as well.
Restructured wholesale markets will require
integrated carbon planning across the market areas
to ensure adequate capacity and reliability.
Multi-state plans may be attractive within many
regions, particularly when coincident with ISO or
RTO footprints.
Because state interests will be potentially rivalrous,
multi-state SIPs will need an enforcement
mechanism and may well require congressionallyapproved interstate compacts to satisfy EPA
requirements of enforceability.
State SIPs that are adjudged by EPA to be
inadequate in terms of enforceable, quantifiable
and verifiable reductions of EGU CO2 emissions
equivalent to EPAs goals, and implementation of
corrective actions, if necessary, will result in a FIP.
A FIP creates legal issues of whether EPA has the
authority to force state officials to enforce
obligations they do not have authority to enforce
under state law, and to engage in resource planning
and direct system dispatch.

Wilkinson Barker Knauer, LLP


1755 Blake Street
Suite 470
Denver, CO 80202
Phone 303.626.2350
Fax 303.626.2351

12/23/14 4:09 PM

Exhibit 43

From:
To:
Date:
Subject:

R_~p_p_y Dallas PRC


Banner Thomas PRC
Oct 27, 2014 9:51 AM
FW: Two things

From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]


Sent: Monday, June 10, 2013 9:39 AM
To: Rippy, Dallas, PRC
Subject: RE: Two things

We got the issue with Mr. McSherry resolved. We have put the irrigation meter on
the correct rate. We have adjusted his bill back 4 years, which resulted in a credit
of approximately $6,000. From the e-mail correspondence I have seen he is happy
with the results.

Mary

From: Rippy, Dallas, PRC [mailto:Dallas. Rip_p_y.@state. nm.us]


Sent: Wednesday, May 29, 2013 3:35 PM
To: Collins, Mary
Subject: RE: Two things

Sure, and Ill work on getting Lyons to commit to that meeting.

From: Collins, Mary [mailto:Mary.Collins@.pnmresources.com]


Sent: Wednesday, May 29, 2013 3:29 PM
To: Rippy, Dallas, PRC
Subject: Two things

Can you send me the e-mail about the back billing issue? Also, can I set up a
meeting with Commissioner Lyons and Ron on Wednesday, June 26th at 1 to
discuss San Juan?

Page 1 of 2

12/23/14 4:09 PM

Exhibit 43

Thanks
Mary

Mary Collins
Director, Strategic Initiatives
Marketing and Communications
PNM
414 Silver Avenue SW, MS-0605
Albuquerque, NM 87158
Work: 505.241.2214
Cell: 505.242.2010

Page 2 of 2

12/23/14 4:09 PM

Exhibit 44

From: Collins, Mary


Subject: Re: Another meeting with the Commissioner
Date: June 13, 2013 12:09:06 PM MDT
To: Gibson, Faye, PRC <Faye.Gibson@state.nm.us
Sure
Sent from my iPhone
On Jun 13, 2013, at 11:54 AM, "Gibson, Faye, PRC" <Faye.Gibson@state.nm.us>
wrote:

M a ry,
Commissioner Montoya can indeed meet on Friday June 28, however
could we move it up just a bit to 3:00-4:30PM. Thank you!
Faye
From: Collins, Mary [mailto:Mary.Collins@pnmresources.com]
Sent: Wednesday, June 12, 2013 4:18 PM
To: Gibson, Faye, PRC
Subject: RE: Another meeting with the Commissioner
Thank you! That date seems to work best for the people that will need to
be at the meeting from our side.
Welcome back!
Mary

From: Gibson, Faye, PRC [mailto:Fave.Gibson@state.nm.us]


Sent; Wednesday, June 12, 2013 3:42 PM
To-" Collins, Mary
Subject= RE: Another meeting with the Commissioner
Hi Mary,
Sorry it took me a minute to get back to you on this. I was out of town
and had many items for follow-up when l returned.
Yes, Fridays are better for Albuquerque meetings. The afternoon for the

Page 1 of 3

12/23/14 4:09 PM

Exhibit 44

June 28 so far looks open, I will just double check with her to see if that is
okay.
Let me ask her and I will get back to you.
Thank you!
Faye

From; Collins, Mary [mailto:Mary.Collins@pnmresources.com]


Sent; Monday, June 10, 2013 2:06 PM
To; Gibson, Faye, PRC
Subject= Another meeting with the Commissioner
HiFaye,
Hope you had a l~reat week-end. We had a really good meeting with
Commissioner Montoya Friday afternoon. The discussion was so I~ood
that we didnt have a chance to cover everything that we wanted.
th

Would she be available to meet with us again on Friday, June 28 from


3:00 to 4:30 (the meet-inl~ will probably only take an hour, but I would like
to build in some extra time.)
I am assuming that the best tirne for her to meet with us in Albuquerque is
on Friday afternoons. If there is another day during the week that also
works well, please let me know and I can see what the availability is on our
side.
See you Wednesday.
Thanks for all of your help.
Mary

Mary Collins
Director, Strategic Initiatives
Marketing and Communications
PNM

Page 2 of 3

Exhibit 44

12/23/14 4:09 PM

414 Silver Avenue SW, MS-0605


Albuquerque, NM 87158
Work: 505.241.2214
Cell: 505.242.2010
< imageO01 .jpg > < imageOO2.jpg > < imageOO3.jpg >

Page 3 of 3

BEFORE THE NEW MEXICO PUBLIC REGULATION COMM!S~~I! !~ i tC ~

IN THE MATTER OF THE APPLICATION OF


)
PUBLIC SERVICE COMPANY OF NEW MEXICO )
FOR APPROVAL TO ABANDON SAN JUAN
)
GENERATING STATION UNITS 2 AND 3,
)
ISSUANCE OF CERTIFICATES OF PUBLIC
)
CONVENIENCE AND NECESSITY FOR
)
REPLACEMENT POWER RESOURCES,
)
ISSUANCE OF ACCOUNTING ORDERS AND
)
DETERMINATION OF RELATED RATE-MAKING)
PRINCIPLES AND TREATMENT.
)
PUBLIC SERVICE COMPANY OF
NEW MEXICO, Applicant

Case No. 13-00390-UT

)
)
)
)

CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the
Motion and Supporting Brief of New Energy Economy for Recusal of Public Regulation
Commissioners Montoya and Lyons was filed today and was delivered as indicated on December
24, 2014 to the parties listed below:
Benjamin Phillips
Bradford Borman
Mark Fenton
Bruce C. Throne
Erin Overturf
Douglas Howe
Charles Kolberg
Thomas Wander
Charles Noble
David Van Winkle
Noah Long
Camilla Feibelman
Don Hancock
Nellis Howard
Mariel Nanasi
Lisa Tormoen Hickey
Sarah Cottrell Propst
John W. Boyd
Josh Ewing
Nancy Burns
Dwight Lamberson
Bruno Carrara
Anthony Sisneros
Jack Sidler

Ben.phillips@pnmresources.com;
Bradford.Borman@pnmresources.com;
Mark.Fenton@pnmresources.com;
bthroneatty@newmexico.com;
erin.overturf@westernresources.org;
Dou~las.howe@westernresources.org
ckolberg@abcwua.org;
Thomas.wander@pnmresources.com;
Noble@energyenvironmentlaw.com;
david@vw77.com;
nlon~@nrdc.org;
cam illa.feibelman@sierraclub.org;
sricdon@earthlink.net;
nellis.khoward@sierraclub.org;
Mariel~seedsbeneaththesnow.com:
lisahickey@coloradolawye~.net;
propst~,interwest.org;
jwb@fbdlaw.com;
~e@fbdlaw.com;
Nancy.bums@state.nm.us;
Dwi~ht.Lamberson~state.nm.us;
Bruno.carrara@state.nm.us;
Anthony.sisneros~,state.nm.us;
iack.sidler@state.nm.us;

Cholla Khoury

James R. Dittmer
Peter Gould
Nann Winter
Marcos Martinez

Nick Schiavo
Jeffrey Albright
Patrick Ortiz
Tom Singer
Joseph A. Herz
Loretta Martinez
Dahl Harris
Andrea Crane
Michael Dirmeier
Vincent DeCesare
Charles Gunter
Jocelyn Torres
Cydney Beadles
Laura Sanchez
John M. Stomp |lI
Donald Gruenemeyer

Ckhoury@nmag.gov;
idittmer@utilitech.net;
pgouldlaw@gmail.corn;
nwinter@stelznerlaw.com;
mdmartinez@santafenm.gov;
naschiavo@santafenm.gov;
jalbright@lrrlaw.com;
Portiz@cuddymccarthy.com;
Singer@westernlaw.org;
iaherz@sawvel.com;
LMartinez@nmag.gov;
dahlharris@hotmail.com
ctcolumbia~aol.com;
mdirmeie@gmail.com;
vincent.decesare@state.nm.us;
charles.gunter@state.nm.us;
jocelyn.torres@state.nm.us;
cydney,beadles~state.nm.us;
laura@nmgreenchamber.com;
laura.e.sanchez@comcast.net;
istomp@abcwua.org;
degruen@sawvel.com;

Sandra Skogen
Rob Witwer
David Rhodes
Brogan Sullivan
Rachel Brown
Michael I. Garcia
Susan Kery
Robb Hirsch
Rick L. Alvidrez

sandra.skogen@state.nm, u,!;
witwerr@southwestgen.com_;
rhodesd@southwest~n;
brogan.sullivan@huschblackwell.com;
rabrown@santa fecou ntynm .~:,py_;
mikgarcia@ben~;
sck@sheehansheehan.com;
rhirsch@edlconsulting.u_s;
RAlvidrez@mstLAW.com

Sandra Skogen
Sandra.Skogep@state.nm.us
Michael C. Srnith
MichaelC.Smith@state.nm.us
Dwight Lamberson
Dwight.lamberson@state.nm.us
Nancy Burns
_N~rns@state.nm.us
Elisha Leyba-Tercero
Elisha.levba-tercero@state.nm.us
Ashley Schannauer
Ashley.schannauer@state.nrn.us

Decernber 24, 2014

Louis W. Rose
Randy S. Bartell
Steve Gross
Martin R. Hopper
Maurice Brubaker
Jim Dauphinais
Daniel Dolan
Adam Baker
REIA of NM

lrose@rnontand.com;
rbartell@montand.com;
gross@portersirnon.corn:
m__hopper@rnsrpower.org;
mbrubaker@consultbai.corn;
idauphinais@consultbai.corn;
dan@lobo.net;
abaker@bakerlawoffice.net;
prcaction@reia-nm.org;