New Mexico Court Strikes Down Surcharge For Revenue Lost To Energy Efficiency

Utilities are often dismissed or ignored in most discussions of energy efficiency and green building  I find this quite remarkable.  First, many state laws mandate that utilities engage in energy efficiency efforts.  Second, as utilities are directly connected to the energy consumer, utilities are often n the best place to advocate for energy efficiency and deliver energy efficiency programs.

The problem is that utilities are not usually incentivized, and are often disincentivized, from promoting energy effiiciency.  Historically, utilities have made money by selling electricity or natural gas, and recovering a return on their sales and investment in infrastructure from ratepayers.  The trouble with this scenario is that it does little to incentivize utilities to promote energy efficiency.  If the utility promotes conservation, thus selling less energy and reducing investment in infrastructure, they will make less money.   

Some energy efficiency advocates are beginning to promote different utility rate structures which pay the utilities for the lost revenue attributable to energy efficiency, so that the utilities are made whole for thheir investment. An article on energy efficient rate making is available here.

These new rate structures are not without their challenges.  For example, the Public Regulation Commission of New Mexico put in place a rate scheme which allowed utilities to collect one cent for each kilowatt hour of electricity that was saved through energy efficiency programs.  The average increase on a residential customer was 17 cents a month. 

On August 3, the New Mexico Supreme Court struck down the surcharge, holding:

The PRC did not inquire into any of the utilities’ revenue requirements, nor any of
the traditional elements of the ratemaking process. At the evidentiary hearing, the utilities merely presented evidence on what the impact of [the surcharge] would be. Without inquiring into a utility’s revenue requirements, we fail to see how the PRC could adequately balance the investors’ interests against the ratepayers’ interests when adopting [the surcharge]. The PRC’s adoption of the adder rates was arbitrary and unlawful in that they were not evidence based, cost-based, nor utility specific.

The full opinion is available here.

Energy efficiency advocates seeking to use utility ratemaking as a mechanism for promoting energy efficiency must pay careful attention to ratemaking regulations, and realize that attempts to change the historical rate structures will face opposition from many sides, including consumer advocates.