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Public Service Company of New Mexico v. New Mexico Public Regulation Commission

Supreme Court of New Mexico

May 16, 2019

PUBLIC SERVICE COMPANY OF NEW MEXICO, Appellant,
v.
NEW MEXICO PUBLIC REGULATION COMMISSION, Appellee, and NEW ENERGY ECONOMY, INC., NEW MEXICO INDUSTRIAL ENERGY CONSUMERS, and ALBUQUERQUE BERNALILLO COUNTY WATER UTILITY AUTHORITY, Interveners-Appellees/Cross-Appellants, and WESTERN RESOURCE ADVOCATES, NEW MEXICO ATTORNEY GENERAL, and COALITION FOR CLEAN AFFORDABLE ENERGY, Interveners-Appellees. In the Matter of the Application of Public Service Company of New Mexico for Revision of its Retail Electric Rates Pursuant to Advice Notice No. 513, NMPRC Case No. 15-00261-UT

          APPEAL FROM THE NEW MEXICO PUBLIC REGULATION COMMISSION

          PNM Resources, Inc. Patrick V. Apodaca Stacey J. Goodwin Albuquerque, NM Miller Stratvert, P.A. Richard L. Alvidrez Albuquerque, NM Keleher & McLeod, P.A. Thomas C. Bird Albuquerque, NM for Appellant

          Michael C. Smith Santa Fe, NM for Appellee New Energy Economy

          Mariel Nanasi Santa Fe, NM for Intervener-Appellee/Cross-Appellant New Energy Economy

          Peter Jude Gould Santa Fe, NM for Intervener-Appellee/Cross-Appellant New Mexico Industrial Consumers

          Stelzner, Winter, Warburton, Flores, Sanchez & Dawes Nann M. Winter Albuquerque, NM Dahl L. Harris Santa Fe, NM for Intervener-Appellee/Cross-Appellant Albuquerque Bernalillo County Water Utility Authority

          OPINION

          BARBARA J. VIGIL, JUSTICE

         {¶ 1} This appeal arises from the final order of the New Mexico Public Regulation Commission (Commission) granting part, but not all, of the increase in retail electric rates sought by the Public Service Company of New Mexico (PNM) in Case No. 15-00261-UT. The Commission's final order is appealed by PNM and cross-appealed by the Albuquerque Bernalillo County Water Utility Authority (ABCWUA), New Energy Economy (NEE), and the New Mexico Industrial Energy Consumers (NMIEC). On appeal, PNM, NEE, ABCWUA, and NMIEC all raise numerous issues with the Commission's final order. In this opinion we address challenges made to the Commission's decisions regarding Palo Verde Nuclear Generating Station, the installation of balanced draft technology at San Juan Generating Station, the new coal supply agreement at Four Corners Power Plant, the inclusion of Rate 11B in rate banding, PNM's prepaid pension asset, and the adoption of Method A. {¶ 2} With respect to Palo Verde, PNM appeals the Commission's denial of recovery in its rate base for (1) the repurchase of 64.1 MW of Palo Verde Unit 2 capacity at a valuation of $2, 550/kW; (2) $49 million in improvements made to Palo Verde Unit 2; and (3) future recovery for nuclear decommissioning costs. In separate cross-appeals, NEE and ABCWUA each challenge the Commission's decision to allow PNM to recover for the repurchased 64.1 MW at a net book value of $1, 306/kW and for the cost of renewing five leases at Palo Verde. We additionally address ABCWUA's argument that the Commission violated its right to due process by refusing to reopen the proceedings to allow replies to PNM's response to a bench request regarding Palo Verde.

         {¶ 3} We also answer the remaining challenges to the Commission's final order: PNM's appeal to the Commission's decision to deny recovery of $52.3 million for the installation of balanced draft technology at San Juan Generating Station; NEE's claim that the Commission acted unreasonably and unlawfully by allowing recovery of $19.5 million for the new coal supply agreement at Four Corners Power Plant; ABCWUA's challenge to the Commission's decision to reject PNM's proposal to exclude Rate 11B from rate banding; and NMIEC's arguments that the Commission acted unreasonably or unlawfully by allowing recovery of $137.8 million for PNM's prepaid pension asset and by adopting the Method A rate adjustment.

         {¶ 4} We reject each of the arguments on appeal except one: we conclude that, by denying PNM any future recovery for its nuclear decommissioning costs related to the Palo Verde capacity at issue in this case, the Commission denied PNM due process of law. Therefore, we declare all other aspects of the Commission's final order to be lawful and reasonable, yet must annul and vacate the final order in its entirety pursuant to NMSA 1978, Section 62-11-5 (1982). See Hobbs Gas Co. v. N.M. Pub. Serv. Comm'n, 1993-NMSC-032, ¶ 6, 115 N.M. 678, 858 P.2d 54 (concluding that the Court may declare parts of an order to be reasonable and lawful while vacating an order in its entirety pursuant to Section 62-11-5). We remand the case to the Commission for further proceedings as required and the entry of an order consistent with this opinion. See Hobbs, 1993-NMSC-032, ¶ 6 (recognizing that on remand "the Commission may properly enter an order embodying those provisions in the earlier, vacated order that have been declared reasonable and lawful"); Pub. Serv. Co. v. N.M. Pub. Serv. Comm'n, 1979-NMSC-042, ¶¶ 13, 24, 92 N.M. 721, 594 P.2d 1177 (remanding to the Commission for the entry of an order based on substantial evidence and acknowledging that the Commission may conduct additional hearings as necessary).

         I. BACKGROUND

         {¶ 5} The complexity of this case compels us to begin our opinion by setting forth a brief overview of the procedural history as well as the relevant legal background. See New Energy Economy v. Pub. Regulation Comm'n, 2018-NMSC-024, ¶ 2, 416 P.3d 277. Additional background is provided as necessary in our discussion.

         A. Procedural Background

         {¶ 6} On August 27, 2015, PNM filed an application with the Commission claiming a revenue requirement of approximately $123 million. In accordance with its procedural rules, the Commission appointed a hearing examiner to preside over the ratemaking proceedings and submit a recommended decision to the Commission. See 1.2.2.29(B), (D)(4) NMAC. Nearly twenty parties filed motions to intervene in the proceedings and, in a public hearing lasting three weeks and a two day supplemental hearing, over forty witnesses presented testimony on PNM's proposed rate increase.

         {¶ 7} After the hearing examiner issued her corrected recommended decision and the parties filed their exceptions to her recommendations, the Commission issued its final order that incorporated and adopted the corrected recommended decision except as expressly modified or disapproved. The Commission's final order approved a revenue increase of $61.2 million. The appeal and cross-appeals are taken directly from that order. See NMSA 1978, § 62-11-1 (1993) ("Any party to any proceeding before the [C]ommission may file a notice of appeal in the [S]upreme [C]ourt asking for a review of the [C]ommission's final orders.").

         B. Legal Principles Governing Rate Cases

         {¶ 8} We next set forth the general legal principles which apply to the setting of retail electric rates by the Commission. The Commission has the general and exclusive power to regulate a public utility's rates under NMSA 1978, Section 62-6-4(A) (2003). A utility's rates are generally based upon the utility's revenue requirement, the traditional elements of which are "(1) determination of the costs of the operation, (2) determination of the rate base which is the value of the property minus accrued depreciation, and (3) determination of the rate of return." Hobbs Gas Co. v. N.M. Pub. Serv. Comm'n, 1980-NMSC-005, ¶ 5, 94 N.M. 731, 616 P.2d 1116.

         {¶ 9} The Commission has the obligation to ensure that "[e]very rate made, demanded or received by any public utility [is] just and reasonable." NMSA 1978, § 62-8-1 (1941). In meeting this obligation, the "Commission is vested with considerable discretion." Hobbs, 1980-NMSC-005, ¶ 4. The utility seeking an increase in rates bears the burden of demonstrating that the increased rate is just and reasonable. NMSA 1978, § 62-8-7(A) (2011).

         {¶ 10} "The Commission [is] not bound to the use of any single formula or combination of formulae in determining rates. The rate-making function involves the making of pragmatic adjustments. It is the result reached, not the method employed, which is controlling." Mountain States Tel. & Tel. Co. v. N.M. State Corp. Comm'n, 1977-NMSC-032, ¶ 70, 90 N.M. 325, 563 P.2d 588. By statute, the Commission must balance

the interest of consumers and the interest of investors . . . to the end that reasonable and proper services shall be available at fair, just and reasonable rates and to the end that capital investment may be encouraged and attracted so as to provide for the construction, development and extension, without unnecessary duplication and economic waste, of proper plants and facilities and demand-side resources for the rendition of service to the general public and to industry.

NMSA 1978, § 62-3-1(B) (2008). This balance between the interests of ratepayers and the interests of investors means that

the Commission must ensure that rates are neither unreasonably high so as to unjustly burden ratepayers with excessive rates nor unreasonably low so as to constitute a taking of property without just compensation or a violation of due process by preventing the utility from earning a reasonable rate of return on its investment.

PNM Gas Servs. v. N.M. Pub. Util. Comm'n (In re PNM Gas Servs.), 2000-NMSC-012, ¶ 8, 129 N.M. 1, 1 P.3d 383. We have recognized that "[t]here is a significant zone of reasonableness" in which rates are neither ratepayer extortion nor utility confiscation. Id. (quoting Behles v. N.M. Pub. Serv. Comm'n (In re Application of Timberon Water Co.), 1992-NMSC-047, 114 N.M. 154, 836 P.2d 73).

         {¶ 11} Despite the Commission's considerable discretion in the setting of just and reasonable rates, "the Commission is not free to disregard its own rules and prior ratemaking decisions or 'to change its position without good cause and prior notice to the affected parties.'" PNM Gas Servs., 2000-NMSC-012, ¶ 9 (quoting Hobbs, 1993-NMSC-032, ¶ 12). We also acknowledge that, despite the discretion and flexibility afforded to the Commission, our review of its decisions is not "superficial in nature" and that we "must review the method employed by the Commission and the Commission's application of its chosen methodology to the evidence in the record in order to determine in a meaningful way whether the result is unreasonable or unlawful." PNM Gas Servs., 2000-NMSC-012, ¶ 103.

         II. STANDARD OF REVIEW

         {¶ 12} We review the Commission's order to determine whether the "[Commission's] decision is arbitrary and capricious, not supported by substantial evidence, outside the scope of the agency's authority, or otherwise inconsistent with law." Doña Ana Mut. Domestic Water Consumers Ass'n v. N.M. Pub. Regulation Comm'n, 2006-NMSC-032, ¶ 9, 140 N.M. 6, 139 P.3d 166; accord NMSA 1978, § 62-11-4 (1965). The party challenging the Commission's order has the burden of making this showing. Section 62-11-4.

         {¶ 13} In reviewing the Commission's decisions, we first consider whether the decision presents a question of fact, a question of law, or a combination of the two. N.M. Indus. Energy Consumers v. N.M. Pub. Regulation Comm'n (NMIEC), 2007-NMSC-053, ¶ 13, 142 N.M. 533, 168 P.3d 105. Both questions of fact and questions of law are implicated in the numerous issues on appeal in this case.

         {¶ 14} For questions of fact, this Court "look[s] to the whole record to determine whether substantial evidence supports the Commission's decision." Id. ¶ 24. Substantial evidence requires that there is evidence "that is credible in light of the whole record and that is sufficient for a reasonable mind to accept as adequate to support the conclusion reached by the agency." Id. (quoting Att'y Gen. of N.M. v. N.M. Pub. Util. Comm'n (In re Comm'n's Investigation of the Rates for Gas Serv. of PNM's Gas Servs.), 2000-NMSC-008, ¶ 4, 128 N.M. 747, 998 P.2d 1198). "We view the evidence in the light most favorable to the Commission's decision, and draw every inference in support of the Commission's decision, but we will not uphold the decision if it is not supported by substantial evidence." NMIEC, 2007-NMSC-053, ¶ 24 (citations omitted). "The [Commission's] decisions requiring expertise in highly technical areas, such as utility rate determinations, are accorded considerable deference." Albuquerque Bernalillo Cty. Water Util. Auth. v. N.M. Pub. Regulation Comm'n (ABCWUA), 2010-NMSC-013, ¶ 50, 148 N.M. 21, 229 P.3d 494 (internal quotation marks and citation omitted)).

         {¶ 15} On questions of law, "[w]e will reverse the agency's interpretation of a law if it is unreasonable or unlawful" and generally give little deference to the Commission's construction of statutes. NMIEC, 2007-NMSC-053, ¶ 19. However, we accord some deference to the Commission's interpretation of its own governing statutes and

will confer a heightened degree of deference to legal questions that implicate special agency expertise or the determination of fundamental policies within the scope of the agency's statutory function. However, the court is not bound by the agency's interpretation and may substitute its own independent judgment for that of the agency because it is the function of the courts to interpret the law.

Id. (quoting Morningstar Water Users Ass'n v. N.M. Pub. Util. Comm'n, 1995-NMSC-062, ¶ 11, 120 N.M. 579, 904 P.2d 28).

         {¶ 16} Several parties also argue that various decisions of the Commission are arbitrary and capricious. "A ruling by an administrative agency is arbitrary and capricious if it is unreasonable or without a rational basis, when viewed in the light of the whole record." Rio Grande Chapter of Sierra Club v. N.M. Mining Comm'n, 2003-NMSC-005, ¶ 17, 133 N.M. 97, 61 P.3d 806. We consider the issues raised on appeal under the overarching legal principles governing rate cases by applying the foregoing standards of review depending on whether a particular argument challenges the facts, the law, or both.

         III. PALO VERDE NUCLEAR GENERATING STATION

         {¶ 17} We first address the challenges made to the Commission's determination to allow PNM to recover part, but not all, of its costs associated with Palo Verde Nuclear Generating Station. We begin with a brief factual background of PNM's involvement at Palo Verde, setting forth the facts relevant to PNM's request to recover its costs in retail electric rates.

         {¶ 18} PNM's participation at Palo Verde began in 1977 when the Commission granted PNM a certificate of public convenience and necessity to own, operate, and maintain an interest in each of the plant's three units. See NMSA 1978, § 62-9-1(A) (2005) ("No public utility shall begin the construction or operation of any public utility plant or system . . . without first obtaining from the commission a certificate that public convenience and necessity require or will require such construction or operation."). In 1985 and 1986, in Case Nos. 1995 and 2019, the Commission authorized PNM to sell its ownership interests in Palo Verde Units 1 and 2 and then lease those interests back for approximately twenty-nine and twenty-nine and a half years, respectively.

         {¶ 19} Under the terms of the leases, PNM had three choices when the leases expired: (1) allow the lease to expire; (2) renew the lease at fifty percent the cost of the original lease; or (3) purchase the lease asset at a fair market value. In Case Nos. 1995 and 2019, the Commission granted PNM authority to exercise its options to renew the leases or repurchase the capacity in accordance with these lease terms. Although it authorized PNM to retain the Palo Verde interests at the expiration of the original leases, the Commission retained full ratemaking authority over Palo Verde, including "the authority to disallow any or all of the lease expenses and transaction costs on a used-and-useful basis, on the basis of imprudency in the cost of the Facilities, or on any other lawful basis[.]"

         {¶ 20} At the expiration of the leases on Palo Verde Units 1 and 2, PNM elected to repurchase 64.1 MW of Palo Verde Unit 2 capacity at a negotiated price of $2, 550/kW and to renew the five leases on the remaining capacity for eight years at fifty percent of the original cost. In this case, PNM sought to include the repurchased 64.1 MW in its rate base at a valuation of $2, 550/kW. As the full purchase price for the 64.1 MW, the $2, 550/kW represented both the net book value of Palo Verde Unit 2 and an acquisition adjustment for the amount paid over that net book value. See Hobbs, 1980-NMSC-005, ¶ 8 (defining an acquisition adjustment as "the amount paid for a plant in excess of original cost less accrued depreciation"). PNM also sought to include in its cost of service the $19.8 million in annual lease expenses for the five renewed leases. Finally, PNM sought to include an additional $49 million in its rate base for leasehold and common plant improvements to the 64.1 MW incurred under the original leases.

         {¶ 21} Existing utility jurisprudence grants wide latitude to the Commission's choice of methodology used to determine a utility's rate base. Hobbs, 1980-NMSC-005, ¶ 6 ("Neither New Mexico case law nor the Public Utility Act imposes any one particular method of valuation upon the Commission in ascertaining the rate base of a utility."); see NMSA 1978, § 62-6-14(A) (2009). However, the Commission "is bound by, and limited to . . . previously established methods of ratemaking, absent a change in circumstances peculiar to the company and the pending case, making it necessary that there be a departure from established method." Hobbs, 1993-NMSC-032, ¶ 8 (quoting Gen. Tel. Co. of the Sw. v. Corp. Comm'n (In re Gen. Tel. Co. of the Sw.), 1982-NMSC-106, ¶ 29, 98 N.M. 749, 652 P.2d 1200). In prior cases, the Commission has considered whether expenditures were prudently incurred and whether the asset is used-and-useful in providing service when determining the ratemaking treatment of expenditures on utility plants. Pub Serv. Co. of N.M. (PNM), 101 P.U.R. 4th 126, 149-53 (N.M. Pub. Serv. Comm'n 1989). "The prudent investment theory provides that ratepayers are not to be charged for negligent, wasteful or improvident expenditures, or for the cost of management decisions which are not made in good faith." Id. at 151. "To be considered 'used and useful,' [a] property must either be used, or its use must be forthcoming and reasonably certain; and it must be useful in the sense that its use is reasonable and beneficial to the public." Id. at 162.

         {¶ 22} After considering the evidence in this case, the hearing examiner concluded that PNM's decisions to renew the five leases and repurchase the 64.1 MW were imprudent because, inter alia, PNM failed to demonstrate that it "reasonably examined alternative courses of action." Finding PNM's decisions imprudent, the hearing examiner recommended that the Commission fully deny PNM recovery for all the costs attributed to renewing the five leases and repurchasing the 64.1 MW.

         {¶ 23} The Commission adopted the hearing examiner's conclusion that PNM's decisions were imprudent on the basis that PNM had failed to demonstrate that it considered alternative courses of action. The Commission further adopted the hearing examiner's separate finding that PNM had failed to establish that it paid fair market value for the repurchased 64.1 MW, as required by the prior authorizations in Case Nos. 1995 and 2019. However, the Commission rejected the total cost disallowance recommended by the hearing examiner and instead imposed alternative remedies for PNM's imprudence.

         {¶ 24} With regard to PNM's repurchase of the 64.1 MW, the Commission denied PNM's request to recover for that capacity at $2, 550/kW and instead allowed PNM to "bring the [64.1 MW] into the rate base at a reasonable value based on [its] net book value" of $1, 306/kW. For the renewed leases, the Commission allowed PNM to fully recover its costs because "the amount of those lease renewals was known to the Commission at the time it approved the lease transaction in that the terms of the leases expressly stated that the leases would be renewed at [fifty percent of the original cost]." The Commission further concluded that because PNM's decisions in "renewing and reacquiring the leases . . . exposed ratepayers to costs associated with [nuclear] decommissioning responsibilities that likely would not have been incurred had an alternative resource other than nuclear been selected . . . the appropriate remedy to protect ratepayers from the effect of PNM's imprudence is to shift the future burden of [nuclear] decommissioning related costs from the ratepayers to PNM." Finally, the Commission denied PNM separate recovery of the $49 million for leasehold and common plant improvements because the recovery of the $1, 306/kW net book value included the value of those improvements.

         {¶ 25} The Commission's final order on Palo Verde is challenged by several parties on various grounds, which we address as follows. In Section A, we address PNM's challenges to the Commission's finding that PNM failed to demonstrate that its decisions to retain the Palo Verde assets were prudent. In Section B, we address PNM's, NEE's, and ABCWUA's various challenges to the Commission's chosen remedies for PNM's imprudence. In Section C, we address PNM's arguments regarding the Commission's denial of a separate recovery for the leasehold improvements to the 64.1 MW. Finally, in Section D, we address ABCWUA's argument that the Commission's decisions on Palo Verde were made in violation of its rights to due process of law.

         A. The Commission's Determination of Imprudence Was Lawful and Reasonable

         {¶ 26} PNM challenges the Commission's conclusion that the repurchase of the 64.1 MW and the lease renewals were imprudent on three grounds. First, PNM argues that it was unreasonable for the Commission to even consider the prudence of its decisions regarding Palo Verde. Second, PNM argues that the Commission departed from the established prudence standard by requiring PNM to demonstrate that the repurchased 64.1 MW and the five renewed leases were PNM's "least cost alternatives." Third, PNM asserts that the Commission's finding of imprudence was arbitrary and capricious, contrary to law, and not supported by substantial evidence. We address each argument in turn.

         1. The Commission's review of PNM's prudence was not contrary to its prior orders authorizing PNM to retain the Palo Verde assets

         {¶ 27} PNM argues that it was not required to demonstrate the prudence of its decisions to repurchase the capacity or renew the leases at Palo Verde because these actions were previously authorized by the Commission in Case Nos. 1995 and 2019. Specifically, PNM contends that its decisions were made in reliance on these prior authorizations, which PNM claims the Commission has now disregarded without notice. We disagree.

         {¶ 28} In Case Nos. 1995 and 2019, the Commission granted PNM authority to exercise its options to either renew the leases or repurchase the capacity in accordance with the terms of the leases. We agree with the Commission that these prior authorizations relieved PNM of its obligation to obtain permission to retain the Palo Verde capacity but did not, as PNM contends, relieve PNM from establishing that its decisions to do so were prudent. See NMSA 1978, § 62-6-12(A)(4) (1989) ("With the prior express authorization of the commission, but not otherwise . . . any public utility may sell, lease, rent, purchase or acquire any public utility plant or property constituting an operating unit or system or any substantial part thereof[.]"). In both Case Nos. 1995 and 2019, the Commission retained full ratemaking authority over Palo Verde, including "the authority to disallow any or all of the lease expenses and transaction costs on a used-and-useful basis, on the basis of imprudency in the cost of the Facilities, or on any other lawful basis[.]" Such a clear and unequivocal reservation of authority was sufficient to put PNM on notice that the Commission would indeed consider whether PNM's decisions at Palo Verde were prudent for purposes of ratemaking and that PNM would have the burden of making that showing. We conclude that PNM was required to demonstrate its prudence regarding Palo Verde, regardless of the Commission's prior authorizations in Case Nos. 1995 and 2019.

         2. The Commission did not depart from the established standard of prudence

         {¶ 29} In her recommended decision, the hearing examiner expressed the prudence standard this Court previously recognized in PNM Gas Services, 2000-NMSC-012, ¶ 63. Quoting Case No. 2087, the hearing examiner stated:

Prudence is that standard of care which a reasonable person would be expected to exercise under the same circumstances encountered by utility management at the time decisions had to be made. In determining whether a judgment was prudently made, only those facts available at the time judgment was exercised can be considered. Hindsight review is impermissible.
Imprudence cannot be sustained by substituting one's judgment for that of another. The prudence standard recognizes that reasonable persons can have honest differences of opinion without one or the other necessarily being "imprudent."

         {¶ 30} PNM does not disagree with the prudence standard articulated above, but rather contends that the Commission departed from that established prudence standard in its application by focusing entirely on whether PNM demonstrated that the repurchased 64.1 MW and the five renewed leases were PNM's "least cost alternatives." See PNM Gas Servs., 2000-NMSC-012, ¶ 9 ("[T]he Commission is not free to disregard its own rules and prior ratemaking decisions or to change its position without good cause and prior notice to the affected parties." (internal quotations and citation omitted)). PNM's argument is unpersuasive.

         {¶ 31} The hearing examiner concluded that PNM was imprudent because, inter alia, a reasonable person under the circumstances faced by PNM's management would have adequately considered alternatives to retaining the Palo Verde assets. The Commission adopted this conclusion by reference. By requiring PNM to demonstrate that its management adequately considered alternatives when it decided to repurchase the 64.1 MW and renew the five leases, the hearing examiner and Commission reasonably applied the prudence standard to PNM's decisions.

         {¶ 32} We pause, before concluding our analysis of this argument, to note that it was not inappropriate for the Commission to address whether PNM had demonstrated Palo Verde to be cost-effective or the lowest cost alternative. We observe that there is a meaningful relationship from the perspective of the ratepayers between the consideration of alternatives and the cost of the chosen generation resource. The goal of the consideration of alternatives is, of course, to reasonably protect ratepayers from wasteful expenditure. PNM, 101 P.U.R. 4th at 151. The failure to reasonably consider alternatives was a fundamental flaw in PNM's decision-making process. See In re PacifiCorp (PacifiCorp), UE 246, Order No. 12-493 at 26-27, 2012 WL 6644237 (Or. P.U.C. Dec. 20, 2012) (stating, in the context of analyzing a utility's failure to reasonably consider alternatives, that the decision-making process of the utility is properly included in the prudence analysis). However, even if a utility company was imprudent because it failed to prospectively consider alternatives, that imprudence may be mitigated by a demonstration that the decision of the utility nevertheless protected ratepayers from excess cost. See PacifiCorp, UE 246, Order No. 12-493 at 26, 2012 WL 6644237 ("It is possible that the utility may be able to present sufficient information from external sources . . . to establish that its ultimate decision was prudent-regardless of what internal decision-making process was used[.]"). Conversely, even if a utility reasonably considered alternatives but then chose to pursue an unreasonable alternative, the consideration of alternatives may be insufficient. Cf. id. (stating that although the prudent investment standard does not require optimal results, it does require that the utility's action was objectively reasonable). In the context of the case before us, we need not and do not fully address these issues. We therefore conclude that the Commission did not apply a new "least cost alternative" test without notice, as PNM contends, but instead reasonably applied the prudence standard previously established by the Commission and recognized by this Court.

         3. The Commission's finding of imprudence is supported by substantial evidence in the record

         {¶ 33} We next address PNM's argument that the Commission's finding of imprudence is not supported by substantial evidence. In the proceedings before the hearing examiner, PNM called a number of witnesses to testify that its decisions to repurchase 64.1MW of capacity and renew the five leases were prudent. PNM witnesses Gerard Ortiz and Elisabeth Eden both testified that retaining its Palo Verde assets after the termination of the original leases had long been part of PNM's planning and strategy. Regarding the benefits of retaining its Palo Verde capacity, Ortiz testified that Palo Verde is a "zero emission plant" with a "strong performance record" and is "PNM's lowest cost resource from an economic dispatch perspective." Ortiz also testified that PNM's decisions to renew the leases and repurchase the 64.1 MW were consistent with its Integrated Resource Plans (IRPs)[1] filed in 2008 and 2011. However, on cross examination, Ortiz could not recall if the 2008 IRP ...


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