New Mexico adopts energy efficiency regulations

Legislators in New Mexico have adopted a new regulation aimed at encouraging the state’s utilities to invest in more energy efficiency programs. The bill removes disincentives for utilities to invest in energy saving measures, while also increasing the amount utilities can invest in efficiency programs.

The main feature of the new measure, backed by Democratic Gov. Michelle Lujan Grisham, is decoupling. Under this system, utilities can only recover a set amount of money for fixed costs, plus an additional amount reserved for profits.

The approach aims to remove the incentive for utilities to maximize profits by selling as much energy to customers as possible, since they won’t be able to make any additional returns beyond the set limit. Instead, the state’s utilities, led by Public Service Company of New Mexico, are encouraged to spend more on steps to improve energy efficiency.

In addition, the bill lifts the cap on energy efficiency spending from 3 percent to a range between 3 and 5 percent. State Rep. Andrea Romero, who co-sponsored the bill, explains that energy efficient programming has saved New Mexico ratepayers around $400 million since 2005. Romero anticipates that the new cap will result in a further $500 million in savings for consumers over the next decade.

Energy efficiency campaigners are also upbeat about the new measures. “It’s not fair to ask [utilities] to sell less of their product,” explains the Southwest Energy Efficiency Project’s Tammy Fiebelkorn. ”So this decoupling mechanism will make them pretty much indifferent to whether they sell more energy or not. They’ll still get all their costs recovered.”

Decoupling gains in popularity

Decoupling is not unique to New Mexico. Over the past several years, decoupling initiatives have spread across the country. According to the Natural Resources Defense Council, half of all states operate some form of decoupling for electricity or gas utilities.

The NRDC argues that decoupling offers a preferable alternative to traditional regulatory options that incentivize higher sales. Traditional regulations encourage “utilities to work against energy efficiency despite policies promoting it. Customers lose in every scenario:

• “If sales are higher than projected, they pay for windfall profits.
• “If sales are lower, the utility can still recover its approved costs but has to go through a costly litigated regulatory proceeding to do so, which customers pay for.”

By contrast, decoupling has been described as a win-win-win scenario.

• It benefits utilities, since they can recover their fix costs and make a profit.
• It helps environmentalists, because utilities are encouraged to work towards energy efficiency goals, which cut CO₂ emissions and support the clean energy transition.
• And it assists ratepayers, who can save money by using less energy.

Others, however, take a more critical view of decoupling.

According to a research paper by the Grantham Research Institute at the London School of Economics, decoupling in recent years in the U.S. typically results in a 19 percent rate increase during its first two years of implementation. New Mexico’s average residential rate in February, the most recent month available, is 12.6 cents per kilowatt hour – the 33rd highest rate in the country. The researchers also question the fairness of the policy because it provides little benefit to low-income ratepayers, who they say are less able to access the financial benefits created by energy efficiency programs.

Decoupling supports New Mexico’s clean energy strategy

New Mexico’s decoupling legislation is part of a broader push to encourage a shift toward clean energy and energy efficiency in the state. The clean energy drive has developed rapidly following Grisham’s victory in the 2018 mid-term elections.

In January, the governor issued an executive order committing New Mexico to join the U.S. Climate Alliance, a group of states that have pledged to implement the provisions of the 2015 Paris Agreement on climate change. The order included measures to reduce greenhouse gas emissions and improve air quality. It also created a climate task force to oversee these policies.

Then, in March, legislators passed a commitment for New Mexico to generate 100 percent of its electricity requirements from non-carbon producing sources by 2045. The decision, which would allow renewables like solar and wind power, as well as nuclear to be used, makes New Mexico the third state to adopt such a target. The other two states with a 100 percent clean energy goal are California and Hawaii.

The clean energy transition is a major shift for New Mexico, which generated 30 percent of its electricity needs from natural gas and 50 percent from coal in 2018.

“This legislation launches New Mexico to the forefront of clean energy in the United States with new renewable energy, making our state completely carbon-free by 2045,” says Speaker of the House Brian Egolf. “My office has spent 14 months working with groups across the state to make sure we are doing this right.”

Jordan Smith is a freelance journalist and translator covering issues related to energy, the environment, and politics. His work has appeared on the independent news site Opposing Views, and at the Canadian Labour Institute.