Mar. 23—The clock is ticking for New Mexico’s public utilities to switch gears on how they’re generating electricity. The state is heightening clean energy standards every five or 10 years, and the next benchmark is 2025.

And a recent New Mexico Supreme Court ruling limits how the utilities can collect money — including surcharges on consumers’ bills — to pay for increasingly more renewable energy resources over the next couple of decades, something that’s not a cheap ask.

So how can the electricity companies afford to pay for new renewable energy facilities or acquire the clean energy otherwise? A University of New Mexico finance professor thinks the solution will likely be price increases and mergers.

40% renewables by 2025

By 2025, public utilities’ electricity retail sales by law have to be made up of at least 40% renewable energy. It’s an increase from the 20% renewable standard that was required starting in 2020.

And gradually, over the next two decades, utilities will have to eventually be emissions-free. By 2030, the renewable standard increases to 50%. Then, it’s a big jump to 80% renewables by 2040 and, finally, a 100% carbon-free standard by 2045.

To ensure utilities are meeting the goals, the New Mexico Public Regulation Commission approves renewable energy plans for New Mexico’s three investor-owned utilities — Public Service Company of New Mexico, El Paso Electric and Southwestern Public Service Co., which is a subsidiary of Xcel Energy.

With ongoing clean energy plans for all the utilities with commission approval, the companies appear on track to meet the upcoming 2025 benchmark.

PNM expects to exceed PRC-approved renewable portfolio standards in 2024 and 2025, utility spokesperson Ray Sandoval said. PNM didn’t ask for any new resource generation additions for either year the commission hasn’t already approved, he said.

He said PNM’s energy portfolio in 2025 is expected to consist of 68% solar energy, 29% wind energy, 1% geothermal energy and 1% distributed generation. Distributed generation refers to different technologies that generate electricity, such as solar panels, according to the U.S. Environmental Protection Agency.

PNM has committed to be fully emissions-free by 2040, five years ahead of the state deadline.

“PNM is well ahead on achieving the higher (renewable portfolio standard) standard for 2025 as we continue to pursue a carbon-free grid by 2040,” Sandoval said.

SPS spokesperson Wes Reeves said EPE expects to meet the 2025 deadline as well. He said in 2025, the utility anticipates having about 94% wind energy and 7% solar energy in renewable energy certificates, a way to measure utilities’ renewable energy resources.

EPE didn’t respond to inquiries regarding its energy portfolio and progress on the clean energy transition from the Journal.

The court ruling

A New Mexico Supreme Court opinion from this week affects how investor-owned utilities can collect money to comply with the state energy transition rules.

To prove they’re meeting renewable energy standards, public utilities have to annually retire a certain amount of “renewable energy certificates” relative to electricity sold, as a form of proof that the companies are generating electricity from renewable energy sources such as wind or solar.

If the utilities don’t need to use the certificates the same year, the companies can bank them for up to four years and retire them later to meet renewable energy requirements then.

That’s basically what SPS wanted the PRC to approve in 2021 when the utility voiced its intent to meet the 40%-renewables-by-2025 benchmark early through banked certificates. But the utility also wanted commissioners to allow the company to charge customers more as a financial incentive to meet the clean energy goals early.

The PRC can approve incentives if the investor-owned utilities meet the clean energy standards early. SPS ultimately wanted to collect $5.23 million over a three-year period from New Mexicans as an incentive.

State regulators denied SPS’ request to add the surcharge to customers’ bills.

SPS appealed the decision with the New Mexico Supreme Court, and on Monday, the court upheld state regulators’ ruling.

“(A)t this stage, SPS seeks a reward — not an incentive — for renewable resources or energy that it already has produced or acquired beyond the (Renewable Energy Act’s) demands,” the court opinion states.

The PRC also originally rejected the SPS incentive proposal because the utility didn’t put forth any firm plans on how it would exceed the 2025 standard and therefore justify getting a financial incentive. The Supreme Court agreed with the PRC on that as well.

Judges wrote that there’s nothing in the law that suggests lawmakers intended utilities to be awarded under these circumstances.

“SPS’s proposal thus would have done nothing to expand SPS’s renewable energy portfolio or reduce carbon emissions during the three years that its requested incentive would have been in effect,” the court wrote.

Reilly White is an associate professor at the University of New Mexico’s Anderson School of Management. He said the ruling sets a precedent that the investor-owned utilities can’t charge New Mexicans more money for hitting the state’s renewable energy standards early.

“It says you can hit the goal but you can’t raise extra money through a rate rider this way,” he said.

He said renewable energy certificates don’t require the production or acquisition of more renewable resources. So, he said, utilities can’t achieve the goals, meet incentives and then get compensated for it.

“If the ruling had gone the other way, I would expect to see all of our investor-owned utilities to be engaged in a very aggressive use of these banked credits as a way to fulfill these guidelines,” he said. “So it basically shuts the door on doing that sort of thing as a strategy for gaining incentives.”

A costly transition

Meanwhile, utilities still need to invest a lot of money to meet renewable energy goals, White said.

“They have to retire plants that aren’t producing clean energy. They have to build plants that produce clean energy or acquire that electricity from somewhere else,” he said. “All of that costs money.”

He said raising money is more expensive right now, too, because interest rates are higher.

“It is a very, very challenging scenario for utility companies to achieve these targets,” he said.

The investor-owned utilities will likely push harder for price increases in the next decade or more, White said.

He said it’s also likely utility merger proposals will become more common, a way to allow multiple companies to gather resources and capital to meet New Mexico’s renewable energy standards.

State regulators have to approve any plans for billing increases and mergers. In 2021, they denied a request from PNM to combine with Avangrid, a subsidiary of the energy giant Iberdrola, citing risks for customers. The utilities appealed the decision with the New Mexico Supreme Court, but Avangrid pulled out of the merger before judges ruled on the matter.

PNM Resources Chair and CEO Pat Vincent-Collawn said at the time, PNM had been looking forward to the experience Avangrid has in a clean energy transition.

White said if a utility can merge with a company that has clean energy expertise, it’s a method to get the capital and resources needed to meet the state’s renewable energy goals.

“Twenty years is not a lot of time when it comes to fulfilling renewable energy goals that involve a substantial investment,” he said.