Opinion ID: 2551972
Heading Depth: 3
Heading Rank: 1

Heading: Rate Rider 12

Text: {90} PNMGS incurs a normal operating expense known as reliability costs, which a PNMGS expert defined as those costs which are incurred by PNMGS in the course of acquiring and delivering gas supplies to its system for the purpose of meeting the swing and peak winter requirements of the end users on its system. Reliability costs include reservation fees, premium prices for peak period gas supplies, facility costs associated with peak demands, and demand charges paid to interstate pipelines. As mentioned above, PNMGS has both transportation customers and sales customers. Under the rate structure existing at the time PNMGS petitioned for an increase in rates, PNMGS collected reliability costs only from sales customers, either through PNMGS's PGAC or, for facility-related reliability costs, in the rate base. PNMGS sought to modify the rate structure to allocate reliability costs between transportation and sales customers. [9] Specifically, PNMGS proposed to recover reliability costs through a reliability volumetric surcharge labeled Rate Rider 12. {91} The Attorney General and Staff supported PNMGS's proposal to allocate reliability costs between transportation customers and sales customers through the Rate Rider 12 mechanism. However, Staff's expert, Estevan Lopez, testified that PNMGS had not quantitatively proven that transportation customers actually cause specific reliability related costs to be incurred or rely on system supply for reliability. [N]otwithstanding the difficulty of proving or quantifying the level of service and the extent of that cost, Mr. Lopez nonetheless supported Rate Rider 12 because of several highly persuasive indicators, such as transportation customers' weather-sensitive loads resulting in peak demand and the lack of daily balancing on the part of transportation customers, which suggest that transportation customers relied on reliability service without incurring any reliability costs. Staff concluded that PNMGS's proposal represented a reasonable attempt to address this problem. {92} Various intervening transportation customers strenuously opposed the Rate Rider 12 proposal. USEA's expert, Mr. Kumar, testified that, while daily imbalances do occur for transportation customers, [t]here is no evidence that transportation customer imbalances are increasing PNMGS' gas supply costs or the costs recovered from sales customers. In fact, there is evidence that transportation customer imbalances result in a net benefit to sales customers. Mr. Kumar concluded that PNMGS incurred no increased costs from transportation customer imbalancing and advocated that PNMGS's Rate Rider 12 proposal be rejected. {93} The Commission determined: While we recognize that transportation customers might receive benefits or incur costs for system reliability from time to time, ... [w]e believe that Rate Rider 12... should not be implemented without more comprehensive analysis in conjunction with a wide array of transportation service issues .... As a result, the Commission denied any reallocation of reliability costs between transportation customers and sales customers. On appeal, PNMGS and the Attorney General argue that there was substantial evidence in the record for the Commission to determine an appropriate methodology for recovering reliability costs from transportation customers and that the Commission, by deferring resolution of this issue until a future proceeding, failed to fulfill its statutory obligation of setting just and reasonable rates. See § 62-8-7(D). {94} Rate structure is a matter of public policy, Mountain States, 90 N.M. at 333, 563 P.2d at 596, and it is based upon extremely complex and elusive information. Id. at 338, 563 P.2d at 601. As stated above, PNMGS bore the burden to prove the reasonableness of its proposed rate structure. There was a great deal of conflicting expert testimony in this case on the issue of transportation customers' responsibility for PNMGS's reliability costs. As Staff's expert, Mr. Lopez, stated, PNMGS and the Attorney General clearly established that some transportation customers likely benefit from reliability costs as a theoretical matter; however, PNMGS and the Attorney General did not establish that transportation customers, as a class, are responsible to any particular degree for PNMGS's reliability costs. Further, the evidence did not clearly establish that the Rate Rider 12 mechanism would fairly allocate reliability costs among the different classes of customers. See generally § 62-8-6 (No public utility shall, as to rates or services, ... subject any corporation or person within any classification to any unreasonable prejudice or disadvantage.). Although PNMGS introduced rebuttal testimony to counter the evidence provided by intervening transportation customers, we do not believe that the expert testimony in favor of Rate Rider 12 rendered incredible the expert testimony in opposition. See Otero County Elec. Coop., 108 N.M. at 465, 774 P.2d at 1053. Thus, while PNMGS and the Attorney General demonstrated that transportation customers' possible responsibility for reliability costs is a noteworthy ratemaking issue that deserves attention by the Commission, we are unable to conclude that the Commission lacked substantial evidence to defer a change in rate structure on reliability costs until this issue could be more thoroughly examined. {95} It is within the Commission's discretion to resolve a utility's petition for a rate increase by establishing just and reasonable rates, while also deferring resolution of ambiguous questions concerning rate structure. See id. Unlike Mountain States, in which the Corporation Commission improperly failed to exercise its affirmative obligation of setting rates after determining that the utility was entitled to an increase in revenue and having substantial evidence from which to establish just and reasonable rates, 90 N.M. at 333, 563 P.2d at 596, the Commission in this case fulfilled its statutory obligation of setting just and reasonable rates. See id. at 338, 563 P.2d at 601 (Relating each customer's rate to the actual cost of the service rendered to him [or her], even if such cost were susceptible of ascertainment, would be highly impractical for it would lead to a multitude of varying rates.). The Commission's decision to defer resolution of the Rate Rider 12 issue for another proceeding allowed [the Commission] to leave the utility's income stream intact, while preserving its mandate under Section 62-8-1 to determine the reasonableness of [the utility's] rate structure. Otero County Elec. Coop., 108 N.M. at 465, 774 P.2d at 1053.