Opinion ID: 891654
Heading Depth: 4
Heading Rank: 3

Heading: Whether the FPPCAC Violates Section 62-8-8

Text: {66} ABCWUA and NMIEC claim that the Emergency FPPCAC improperly permits PNM to treat the costs of the independent audit as a regulatory asset, which may be recovered from the ratepayers through PNM's base rates. Specifically, they claim that Section 62-8-8 already imposes an inspection and supervision fee on utilities, which may be recovered from the ratepayers through their base rates and, therefore, the Emergency FPPCAC forces ratepayers to pay twice for utility regulation. {67} The following additional background is necessary for our review of this claim. In its Final Order, the PRC found that a prudency review of the Emergency FPPCAC was necessary [i]n order to provide the parties and PNM customers assurances that PNM's electric power is generated and purchased at the lowest reasonable cost. However, the PRC had neither the resources nor the expertise to conduct an adequate prudency review of the Emergency FPPCAC. Consequently, the PRC held that the prudency review must be conducted by an auditor or team of auditors to be selected by, and under the direction of, [the PRC]. The PRC ordered PNM to pay for the costs of the prudency review, but permitted PNM to treat those costs as a regulatory asset that may be recovered from its ratepayers through the rates established in PNM's next general rate proceeding. {68} The PRC has an obligation to allow a utility expenses that are necessary in providing utility service, that benefit ratepayers, and that are prudently incurred. In re PNM Gas Servs., 2000-NMSC-012, ¶ 68, 129 N.M. 1, 1 P.3d 383 (internal quotation marks and citation omitted). For example, federal taxes and the expenses associated with a rate case are all legitimate operating costs that a utility may recover from its ratepayers through its base rates. See id. (Because rate proceedings are a part of the normal course of business for a utility and because rate proceedings, by establishing just and reasonable rates, are conducted for the benefit of both ratepayers and shareholders, it is widely accepted that rate case expenses are one aspect of a utility's operating costs and are recoverable in a general rate proceeding.); In re Zia Natural Gas Co., 2000-NMSC-011, ¶ 11, 128 N.M. 728, 998 P.2d 564 ([A] regulatory body cannot arbitrarily disallow federal taxes that a company has paid or is obliged to pay, by assuming a tax savings under a capital structure which does not exist.). Because the independent audit is necessary for the proper administration of the Emergency FPPCAC and is beneficial to consumers by ensuring that PNM's electric power is generated at the lowest reasonable cost, we conclude that the costs of the audit are a legitimate operating expense that PNM may recover from its ratepayers through its base rates. {69} However, ABCWUA and NMIEC claim that PNM's ratepayers will be required to pay twice for utility regulation under Section 62-8-8. Section 62-8-8 imposes an inspection and supervision fee on [e]ach utility doing business in this state and subject to the control and jurisdiction of the commission with respect to its rates or service regulations. [T]he inspection and supervision fees are in fact fees charged for the services of the Public Service Commission in supervising and inspecting these rural electric cooperatives. United Waterworks, Inc. v. N.M. Pub. Util. Comm'n, 2000-NMCA-057, ¶ 11, 129 N.M. 262, 5 P.3d 584 (quoting N.M. Att'y Gen. Op. 62-16 (1962)). However, the amount of the fee is not based on the PRC's actual costs of operation, or on the amount of regulation that a utility receives, but, rather, on a percentage of the utility's gross receipts from business transacted in New Mexico for the preceding calendar year. Section 62-8-8 (providing that the amount of the fee is five hundred six thousandths percent of a utilities annual gross receipts). Additionally, the fee is not paid directly to the PRC, but, rather, is deposited directly into the State general fund, where it may be appropriated by the Legislature as it sees fit. N.M. Att'y Gen. Op. 78-10 (1978); cf. NMSA 1978, § 63-7-21 (1957) (All moneys collected under the provisions of Chapter 194, Laws of 1951 . . ., shall be deposited with the state treasurer and by him credited to the general fund.). {70} The inspection and supervision fee is an administrative fee intended to defray the PRC's costs of operation by levying a tax or tariff on the annual gross receipts of the utilities subject to the PRC's supervision and control. The amount of the fee has nothing to do with a utility's cost of regulation, and the amount of money generated by the fee has nothing to do with the money allocated to the PRC by the Legislature. Thus, the utility and supervision fee does not recover, either directly or indirectly, the PRC's costs of regulation. Although ABCWUA's and NMIEC's claim may be rejected on this basis alone, we note that, in the present case, the prudency review will be conducted by an independent auditor, rather than the PRC. As such, the costs of the prudency review will not be borne by the PRC or recovered by the State through the inspection and supervision fee. Accordingly, we conclude that the Emergency FPPCAC properly permits PNM to treat these costs as a regulatory asset that may be recovered from the ratepayers through PNM's base rates.