On March 22, 2019, the governor of New Mexico signed the Energy Transition Act of 20191 into law. The law sets forth a plan to transition New Mexico to 100 percent renewable energy and for the state's largest utility, Public Service Company of New Mexico (PNM), to close a certain coal fired plant and to procure replacement resources. In adopting a 100 percent renewable energy plan, New Mexico joins Colorado, Hawaii and the District of Columbia. Several other states are considering similar 100 percent renewable energy mandates.
A key feature of the New Mexico Energy Transition Act is that it permits a utility seeking to close an existing coal-fired plant to request and obtain from the Public Regulation Commission (NMPRC) a related "financing order" to authorize the issuance and sale of related "energy transition bonds" that are backed by non-bypassable customer charges. Apart from this specified use of the proceeds of such bonds, the law is substantially similar to the laws of other states that permit utility tariff bonds2 insofar as the law includes the typical state pledge and true-up adjustment mechanism and provides that reasonable actions by a utility to comply with a financing order will be deemed to be just and reasonable for ratemaking purposes. The Energy Transition Act includes a broad definition of permissible "energy transition costs," which can include up to $20 million for employee retraining.
In order to provide more certainty that a utility applicant will timely obtain a requested financing order that meets the related requirements, the Energy Transition Act states that an uncontested application will obtain a financing order, without the need for a hearing, within 30 days of the required notice of filing of such application. If an application is contested, the NMPRC must either reject it or issue the requested financing order within six months of such application being filed.
In Colorado, the House recently passed bill 19-1037,3 the Colorado Energy Impact Assistance Act, and this bill is currently before the Colorado Senate. As in New Mexico's Energy Transition Act, the proposed Colorado Energy Impact Assistance Act includes provisions for "energy impact assistance" bonds but is more restrictive insofar as the bill requires a public hearing on a utility's application for a financing order even if uncontested, includes a narrower definition for permissible "CO-EIA Costs" and requires that a portion of the utility tariff bond proceeds be paid over to a newly established Colorado Energy Impact Assistance Authority.
The opportunity to use utility tariff bonds for efficient financing of fossil-fired plant retirement is made more likely by recent studies4 that claim that as much as 75 percent of US coal-fired power plants are now less competitive than replacement renewable resources.
As additional states and, as appears likely, Puerto Rico move to join Colorado, Hawaii and New Mexico and the District of Columbia in 100 percent renewable energy mandates, they may find it necessary or desirable to include similar provisions for utility tariff bond financing for coal and other fossil-fueled power plant retirements that are likely to be accelerated by the mandated transition.
2 See our earlier related Perspectives pieces, including this from 2008: https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2008/04/unstranding-stranded-cost-securitizations-new-appl/files/art_strandedcost_forrester/fileattachment/art_strandedcost_forrester.pdf.
3 See summary at: https://leg.colorado.gov/bill-search?search_api_views_fulltext=HB19-1037 &=Apply and the full text of the current bill at: https://leg.colorado.gov/sites/default/files/documents/2019A/bills/2019a_1037_ren.pdf.
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