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New Energy Economy, Inc. v. New Mexico Public Regulation Commission

Supreme Court of New Mexico

March 5, 2018

NEW ENERGY ECONOMY, INC., Appellant,
v.
NEW MEXICO PUBLIC REGULATION COMMISSION, Appellee, and PUBLIC SERVICE COMPANY OF NEW MEXICO, NEW MEXICO INDUSTRIAL ENERGY CONSUMERS, and WESTERN RESOURCE ADVOCATES, Intervenors-Appellees. 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, NMPRC Case No. 13-00390-UT

         APPEAL FROM THE NEW MEXICO PUBLIC REGULATION COMMISSION

          New Energy Economy Mariel Nanasi Santa Fe, NM Freedman Boyd Hollander Goldberg Urias & Ward, P.A. John Warwick Boyd Albuquerque, NM for Appellant

          Michael C. Smith Santa Fe, NM for Appellee

          PNM Resources, Inc. Patrick V. Apodaca Benjamin John Phillips Stacey J. Goodwin Albuquerque, NM Cuddy & McCarthy, LLP Patrick T. Ortiz Santa Fe, NM Keleher & McLeod, P.A. Thomas C. Bird Albuquerque, NM Miller Stratvert, P.A. Richard L. Alvidrez Albuquerque, NM for Intervenor Public Service Company of New Mexico

          Peter Jude Gould Santa Fe, NM for Intervenor New Mexico Industrial Energy Consumers

          Western Resource Advocates Steven S. Michel Santa Fe, NM for Intervenor Western Resource Advocates

          Paul F. Hultin Santa Fe, NM Heard Robins Cloud LLP Justin Ross Kaufman Rosalind Bell Bienvenu Santa Fe, NM for Amicus Curiae 350 New Mexico

          OPINION

          JUDITH K. NAKAMURA, Chief Justice.

         {¶1} New Energy Economy, Inc. (NEE) appeals from a final order issued by the New Mexico Public Regulation Commission (PRC). NEE contends that the PRC violated New Mexico law by approving a contested stipulation granting the Public Service Company of New Mexico (PNM) certificates of public convenience and necessity (CCNs) to acquire new generation resources and by filing a notice proposing to dismiss the protests to PNM's 2014 integrated resource plan (IRP). NEE's arguments are predicated on a mistaken understanding of the law and ask us to accept factual assertions that were rejected below. We affirm the PRC's final order.

         I. BACKGROUND

         {¶2} The record in this case is comprised of seventy-six volumes that contain nearly 50, 000 pages. It is, as PNM points out, "massive." Any attempt at a comprehensive account of the background of this direct appeal would be unproductive. A brief overview of the facts and procedure follows immediately below. Supplemental facts are provided as necessary in the course of our discussion.

         {¶3} The federal Clean Air Act (the Act) includes provisions designed to preserve visibility standards by imposing limitations on haze-causing emissions. 42 U.S.C. §§ 7410, 7491-92 (2012); see generally Arizona ex rel. Darwin v. U.S. E.P.A., 815 F.3d 519, 524-28 (9th Cir. 2016) (summarizing the legislative and regulatory framework underlying the federal government's efforts to address regional haze). The Act and the regulations adopted by the Environmental Protection Agency (EPA) to enforce it require states to develop state implementation plans to control and minimize sources of haze-causing emissions. See generally Arizona, 815 F.3d at 524-27 (discussing the responsibilities placed upon the states by the Act). If a state fails to submit a state implementation plan or submits a plan that is inadequate, the Act permits the EPA to impose a federal implementation plan. 42 U.S.C. § 7410(c)(1); see generally Arizona, 815 F.3d at 524-27.

         {¶4} PNM is a part-owner of the San Juan Regional Generation Station (San Juan), a four-unit, coal-fired power plant near Farmington, New Mexico that is a source of emissions that cause or contribute to haze. The EPA rejected New Mexico's state implementation plan to control and minimize haze-causing emissions at San Juan and proposed a federal implementation plan that would require PNM to install "extremely costly" emission controls on all four of the San Juan units.

         {¶5} Various stakeholders, including several New Mexico state agencies, the Governor of New Mexico, tribal leadership, and PNM, engaged in discussions and held open public meetings to identify an alternative to the federal implementation plan that would ensure New Mexico's compliance with the federal haze standards. Ultimately, an agreement was reached and a revised state implementation plan was submitted to the EPA proposing the following course of action: PNM would retire San Juan Units Two and Three, install less-costly pollution controls on San Juan Units One and Four, and replace the lost generation capacity from the retirement of San Juan Units Two and Three with generation from other resources that minimize impacts on visibility. The EPA accepted the revised state implementation plan. Approval and Promulgation of Implementation Plans New Mexico, 79 Fed. Reg. 26909, 26909-21 (May 12, 2014). In the wake of the EPA's acceptance, the focus of the various stakeholders turned to what resources PNM would utilize to replace the generation capacity lost as a consequence of the retirement of the two units. This question was extensively litigated before the PRC as PNM is required to obtain PRC approval to abandon, acquire, or construct generation resources. NMSA 1978, § 62-6-12(A)(4) (1989); NMSA 1978, § 62-9-1(A) (2005); NMSA 1978, § 62-9-5 (2005). These statutes governing the PRC's oversight of generation resources are examined more closely in our discussion.

         {¶6} In December 2013, PNM filed an application with the PRC to retire San Juan Units Two and Three and for CCNs to utilize two sources to replace the generation capacity lost from the retirement of the two units: Palo Verde Nuclear Generating Station (Palo Verde) Unit Three and additional generation capacity from San Juan Unit Four.[1] The PRC appointed a hearing examiner (HE) to address the merits of PNM's applications. See 1.2.2.29(B) NMAC ("In all proceedings, the [PRC] may designate a hearing examiner . . . to preside over the proceeding."); 17.1.2.9(C) NMAC ("The [PRC], upon receipt of an application for a certificate of public convenience and necessity, shall fix a time for a public hearing."). NEE and sixteen other parties, including several New Mexico governmental agencies, environmental advocates, and industrial and consumer advocates, joined the proceedings as intervenors.

         {¶7} In October 2014, after discovery had been provided and numerous witnesses and subject-matter experts testified at multiple hearings, PNM, along with several parties, submitted a stipulation that proposed a resolution to the proceedings. NEE and several other parties contested the stipulation. Additional hearings were conducted and the HE issued a thorough and detailed recommendation advising the PRC to reject the stipulation.

         {¶8} The HE concluded that the stipulation was fatally flawed because PNM had not shown that San Juan Unit Four was a reliable replacement generation resource. Nevertheless, the HE concluded that PNM should receive a CCN to obtain replacement generation from Palo Verde Unit Three and determined that the stipulation as a whole should be approved if PNM and the other stipulating parties demonstrated that San Juan Unit Four could be relied upon as a replacement generation resource. PNM and the other stipulating parties acted on the HE's guidance and submitted a supplemental stipulation in August 2015 that addressed the HE's concerns. NEE contested the supplemental stipulation, but this time was joined by only one other party.

         {¶9} Hearings were again conducted and the HE issued another thorough and detailed recommendation in which all of NEE's objections to the supplemental stipulation were addressed. The HE was satisfied that PNM had demonstrated that it had adequate replacement resources and had resolved the issues that had previously concerned the HE with respect to San Juan Unit Four. The HE recommended that the PRC accept the supplemental stipulation with minor modifications that are not relevant here. The HE also recommended that the PRC accept a provision within the supplemental stipulation stating that "protests of PNM's 2014 IRP should be closed without further [PRC] action in that docket."

         {¶10} The PRC issued a final order on December 16, 2015 accepting the HE's recommendations. NEE appeals the PRC's final order. We have jurisdiction over the appeal under NMSA 1978, Section 62-11-1 (1993) ("Any party to any proceeding before the commission may file a notice of appeal in the supreme court asking for a review of the commission's final orders.").

         II. DISCUSSION

         {¶11} NEE argues that "[t]he PRC's order violates NM statutes and PRC regulations" because "[t]he PRC accepted PNM's limited alternatives in violation of the law." In support of its position, NEE makes many arguments that this court finds are unpersuasive or entirely without merit. We begin our discussion by examining the applicable statutory and regulatory standards implicated by NEE's arguments. We then review the administrative record and describe how these standards were applied in this case. Next, we identify the standard of review that governs our review of NEE's arguments and clarify what we meant when we explained in the collateral mandamus proceeding NEE initiated that we would review this appeal with "heightened scrutiny." Finally, we turn to NEE's specific arguments.

         A. Statutory and Regulatory Standards

         1. IRPs

         {¶12} The Efficient Use of Energy Act, NMSA 1978, §§ 62-17-1 to -11 (2005, as amended through 2013), requires "public utilities supplying electric or natural gas service to customers [to] periodically file an [IRP] with the [PRC]." Section 62-17-10; see also § 62-17-2(I) ("[P]ublic utility resource planning to meet New Mexico's energy service needs should be identified and evaluated on an ongoing basis in accordance with the principles of integrated resource planning."). These IRPs

shall evaluate renewable energy, energy efficiency, load management, distributed generation and conventional supply-side resources on a consistent and comparable basis and take into consideration risk and uncertainty of fuel supply, price volatility and costs of anticipated environmental regulations in order to identify the most cost-effective portfolio of resources to supply the energy needs of customers.

         Section 62-17-10. "The preparation of resource plans shall incorporate a public advisory process." Id. The PRC has promulgated regulations to effectuate the IRP provisions. 17.7.3 NMAC (04/16/2007, as amended through 08/29/2017).

         {¶13} Under 17.7.3.9 NMAC, utilities must file an IRP with the commission every three years. Each IRP is to employ a twenty-year planning horizon. 17.7.3.7(K) NMAC. An IRP should seek to identify "resource options" and determine "the most cost effective resource portfolio and alternative portfolios[.]" 17.7.3.9(B)(4), (7) NMAC. Additionally, 17.7.3.9(G)(1) NMAC provides as follows:

To identify the most cost-effective resource portfolio, utilities shall evaluate all feasible supply, energy storage, and demand-side resource options on a consistent and comparable basis, and take into consideration risk and uncertainty (including but not limited to financial, competitive, reliability, operational, fuel supply, price volatility and anticipated environmental regulation). The utility shall evaluate the cost of each resource through its projected life with a life-cycle or similar analysis. The utility shall also consider and describe ways to mitigate ratepayer risk.

         Other statutes govern the circumstances under which a utility may procure, construct, or abandon generation resources.

         2.CC ...


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