Will Utilities Monopolize Distributed Generation?

In a case currently before the New Mexico Public Regulation Commission, PNM and other regulated monopoly utilities are objecting to third-party developers installing generators (solar, wind, cogeneration, etc.) within their service territories and charging their customers based on the kilowatt-hours produced by the generator. They say that such arrangements amount to operating a competing public utility within their exclusive service territories.

The case is interesting because the City of Santa Fe recently entered into an agreement with Sun Edison to install solar power on its facilities using a power-purchase agreement—just the type of financing system that PNM and others object to. Apparently the City was unsatisfied with shipping its energy dollars to a New Mexico-based, Wall-Street funded corporation, and instead hopes to ship them to a Maryland-based, Wall-Street funded firm. (Sun Edison’s primary funder is Goldman Sachs – the financial behemoth whose alumni keep getting appointed to run our treasury.) If the City moves forward with the Sun Edison deal, the rate at which energy dollars leave the local community will actually increase. (The message that Local Energy has spent six years promoting has yet to catch on at the City, apparently!)

In effect, the case seeks a legal interpretation of what constitutes a public utility in New Mexico. On Tuesday (November 10, 2009), hearing officer Carolyn Glick of the NMPRC explained her understanding of the laws regarding when a third-party can own, operate, and finance distributed generation without being considered a public utility.

The short answer to the legal question, according to Glick, is that a DG developer is not a public utility if it develops a single system on a host’s property and then sells the energy to that host. The developer can even repeat this model at multiple host-sites without being considered a public utility. The line is crossed, in her eyes, when the developer builds a single system and then delivers the energy to multiple customers – then it could be considered a public utility.

Chairman Jones and Marks both questioned Glick. Jones was primarily concerned with whether PNM Resources, the parent of PNM, would begin installing DG through one of its unregulated divisions. He thinks that this would be bad because he believes that DG tends to raise rates because with DG, the utility’s fixed costs must be spread over a smaller load.

His comment illustrates just how effective utilities have been in their 35-year campaign against DG. Despite mountains of evidence to the contrary, regulators and lawmakers still think that using distant generators operating at very low efficiency and then shipping the power over hundreds of miles of expensive transmission lines is superior to using many small, highly efficient generators located near load centers.

Chairman Jones also remarked that his job as a commissioner includes making sure utilities stay in business. At one time the job of the commission was to protect ratepayers against monopoly mischief, but it was re-branded at some point to one of “balancing the interests of ratepayers and utilities”. Even that would be OK if ratepayers had an advocate in cases before the commission, but we don’t.

Commissioner Marks remarked that he would like for the case be resolved before the legislature meets in January. The smart money, it seems, is on PNM dragging the case out as long as possible so that they can get the relief they seek from the legislature before the NMPRC tells them they can’t have it.

It should make for a very interesting legislative session this coming January!