Exhibit No. PNM-6 Docket No. ER-13___-000 Page 1 of 85
UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
Public Service Company of New Mexico ) Docket No. ER-13___-000
PREPARED INITIAL TESTIMONY OF MICHAEL L. EDWARDS ON BEHALF OF PUBLIC SERVICE COMPANY OF NEW MEXICO
December 31, 2012
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 2 of 85
TABLE OF CONTENTS
I. INTRODUCTION AND QUALIFICATIONS ...... 4
II. DESCRIPTION OF PNM’S FORMULA RATE ...... 9
III. TRANSMISSION SERVICES PROVIDED BY PNM UNDER THE OATT, THE COORDINATION TARIFF, THE GFAS, AND OTHER TRANSMISION SERVICES PROVIDED BY PNM ...... 13
A. TRANSMISSION SERVICE PROVIDED UNDER PNM’S OATT ...... 13
1. NITS PROVIDED UNDER PNM’S OATT ...... 13
2. PTP SERVICE UNDER THE OATT ...... 22
B. SERVICE UNDER THE COORDINATION TARIFF ...... 24
C. SERVICE UNDER THE GFAs ...... 25
D. OTHER TRANSMISSION SERVICES ...... 34
IV. TRANSMISSION SERVICE RECEIVED BY PNM ...... 35
V. DETERMINATION AND ALLOCATION OF REVENUE CREDITS ...... 42
VI. DIRECTLY-ASSIGNED COSTS ...... 46
A. RADIAL LINES ...... 46
1. SOUTHERN NEW MEXICO ...... 51
2. ALBUQUERQUE NETWORK ...... 51
3. SOUTH OF ALBUQUERQUE ...... 52
4. NORTH AND WEST OF ALBUQUERQUE ...... 53
5. SANTA FE TO LAS VEGAS ...... 54
B. TRANSMISSION PLANT RELATED TO SERVICE PROVIDED UNDER INCREMENTAL RATES ...... 56
C. FACILITIES ASSOCIATED WITH LGIAs ...... 58
D. FACILITIES ASSOCIATED WITH GSUs ...... 59
VII. NETWORK SERVICE CREDITS ...... 59
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 3 of 85
VIII. RECOVERY OF COSTS ASSOCIATED WITH AQUISITION ADJUSTMENT RELATED TO THE EASTERN INTERCONECTION PROJECT (“EIP”) ...... 61
IX. RATE DESIGN ...... 71
X. AMENDED TARIFFS AND AGREEMENTS ...... 83
XI. CONCLUSION ...... 85
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 4 of 85
UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
Public Service Company of New Mexico ) Docket No. ER 13-___-000
PREPARED INITIAL TESTIMONY OF MICHAEL L. EDWARDS ON BEHALF OF PUBLIC SERVICE COMPANY OF NEW MEXICO
1 I. INTRODUCTION AND QUALIFICATIONS
2 Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS
3 A. My name is Michael L. Edwards. My business address is 414 Silver Avenue SW,
4 Albuquerque NM 87102.
5 Q. BY WHO ARE YOU EMPLOYED AND FOR HOW LONG HAVE YOU BEEN
6 EMPLOYED?
7 A. I am employed by PNM Resources (“PNM Resources” or “PNMR”). I have been
8 employed by PNMR or Public Service Company of New Mexico (“PNM”) since August
9 1977. PNM is a subsidiary of PNMR. Based in Albuquerque, New Mexico, PNMR is an
10 energy holding company and through its regulated utilities – PNM and Texas-New
11 Mexico Power Company – serves electricity and provides an array of services to
12 customers in New Mexico and Texas.
13 Q. ON WHOSE BEHALF ARE YOU SUBMITTING THIS TESTIMONY?
14 A. I am testifying on behalf of PNM.
15 Q. PLEASE DESCRIBE YOUR EDUCATIONAL AND PROFESSIONAL
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 5 of 85
1 BACKGROUND.
2 A. In 1975, I completed a Bachelor of Arts Degree with majors in Accounting, Business
3 Administration and Journalism from New Mexico Highlands University, and in 1977 I
4 completed a Masters of Business Administration Degree with a concentration in Finance
5 from the University of New Mexico. I started my employment with Public Service
6 Company of New Mexico in 1977 and have held various positions in the regulatory and
7 transmission planning and contracts departments.
8 Q. WHAT IS YOUR CURRENT TITLE AND THE NATURE OF YOUR PRESENT
9 EMPLOYMENT?
10 A. I currently hold the position of Director of Federal Regulatory Policy. In my role as
11 Director of Federal Regulatory Policy, I oversee and manage the following activities for
12 PNM and PNMR:
13 • Compliance with the Federal Energy Regulatory Commission (“FERC” or
14 “Commission”) Standards of Conduct program;
15 • Preparation of filings related to rate change applications and other approval
16 actions at the FERC;
17 • PNM and PNM Resources participation in FERC rulemaking and notice of
18 inquiry dockets; and
19 • Compliance with and preparation of the eTarriff and Electric Quarterly
20 Reports programs.
21 Q. PLEASE SUMMARIZE YOUR EXPERIENCE TESTIFYING BEFORE
22 REGULATORY BODIES AND COURTS ON UTILITY-RELATED MATTERS.
23 A. My experience testifying is described in Exhibit No. PNM-7, attached to this testimony.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 6 of 85
1 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY AND HOW IS IT
2 ORGANIZED?
3 A. The purpose of my testimony is to: 1) describe the formula rate that PNM is proposing
4 (“PNM Formula Rate”) including certain benefits associated with moving from a stated
5 rate to the PNM Formula Rate; 2) describe the transmission services PNM currently
6 provides under its Open Access Transmission Tariff (“OATT”), PNM’s Coordination
7 Tariff, certain grandfathered agreements (“GFAs”) and other transmission services PNM
8 provides; 3) describe the transmission services PNM receives from other transmission
9 providers to meet its retail and wholesale service commitments, certain transmission
10 service exchanges PNM has with other utilities, and the mechanism by which PNM has
11 measured the value of those exchanges; 4) describe PNM’s basis for determining and
12 allocating revenue credits; 5) describe PNM’s directly-assigned costs including radial
13 transmission lines that are not integrated in the PNM transmission system operation,
14 transmission plant related to service provided under incremental rates, interconnection
15 facilities related to Large Generator Interconnection Agreements (“LGIA”) and generator
16 step-up transformers (“GSUs”); 6) describe PNM’s assessment of network service
17 credits; 7) describe PNM’s proposed acquisition adjustment; 8) describe the rate design
18 of PNM’s proposed transmission service rates under the PNM Formula Rate; and 9)
19 describe the changes to the OATT, the Coordination Tariff, and certain GFAs to
20 implement the PNM Formula Rate.
21 Q. ARE YOU SPONSORING ANY EXHIBITS TO YOUR TESTIMONY?
22 A. Yes. I am sponsoring the following exhibits to my testimony:
23 • Exhibit No. PNM-7 Curriculum Vitae
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 7 of 85
1 • Exhibit No. PNM-8 Coversheet and Table of Contents to PNM's
2 “Determination and Posting of Total Transfer
3 Capability (TTC) & Available Transfer Capability
4 (ATC) Capacity” demonstrating transmission paths
5 posted by PNM;
6 • Exhibit No. PNM-9 Comparison of lease versus ownership scenario for
7 EIP facilities;
8 • Exhibit No. PNM-10 Revenue comparison of Stated Rates, Filed Rates,
9 and the PNM Formula Rate;
10 • Exhibit No. PNM-11 Clean Revised OATT Sheets for Schedule 7 –
11 Long-Term Firm and Short Term Firm Point-To-
12 Point Transmission Service; Schedule 8 – Non-Firm
13 Point-To-Point Transmission Service; and
14 modifying Attachment H to include Attachments H-
15 1 through H-3;
16 • Exhibit No. PNM-12 Redlined Revised OATT Sheets for Schedule 7 –
17 Long-Term Firm and Short Term Firm Point-To-
18 Point Transmission Service; Schedule 8 – Non-Firm
19 Point-To-Point Transmission Service; and
20 modifying Attachment H to include Attachments H-
21 1 through H-3;
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 8 of 85
1 • Exhibit No. PNM-13 Clean Revised Coordination Tariff Sheets reflecting
2 the addition of the PNM Formula Rate and
3 Implementation Protocols;
4 • Exhibit No. PNM-14 Redlined Revised Coordination Tariff Sheets
5 reflecting the addition of the PNM Formula Rate
6 and Implementation Protocols;
7 • Exhibit No. PNM-15 Clean Revised GFA Sheets in Contract P0695
8 reflecting the addition of the PNM Formula Rate
9 and Implementation Protocols;
10 • Exhibit No. PNM-16 Redlined Revised GFA Sheets in Contract P0695
11 reflecting the addition of the PNM Formula Rate
12 and Implementation Protocols;
13 • Exhibit No. PNM-17 Clean Revised GFA Sheets in Service Schedule I to
14 EPE GFA reflecting the addition of the PNM
15 Formula Rate and Implementation Protocols; and
16 • Exhibit No. PNM-18 Redlined Revised GFA Sheets in Service Schedule I
17 to EPE GFA reflecting the addition of the PNM
18 Formula Rate and Implementation Protocols.
19 Q. WAS THE INFORMATION IN YOUR TESTIMONY PREPARED BY YOU OR
20 UNDER YOUR DIRECT SUPERVISION?
21 A. Yes. The information in my testimony was prepared by me or under my direct
22 supervision.
23
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 9 of 85
1 II. DESCRIPTION OF THE PNM FORMULA RATE
2 Q. BEFORE INTRODUCING THE PNM FORMULA RATE, PLEASE DESCRIBE
3 THE CURRENT STATUS OF PNM’S TRANSMISSION SERVICE RATES.
4 A. On October 27, 2010, pursuant to Section 205 of the Federal Power Act, PNM submitted
5 an application in Docket Nos. ER11-1915-000, et al. (“Stated Rate Proceeding”) to
6 change its stated transmission service rates in the OATT and certain grandfathered
7 service agreements as well as to change the Real Power Loss factor in Parts II and III of
8 the OATT. On July 3, 2012, PNM submitted a settlement agreement (“Settlement
9 Agreement”) in the Stated Rate Proceeding settling all issues related to the transmission
10 service rates, the annual transmission revenue requirement, and the process through
11 which the Real Power Loss Factor is to be established in Parts II and III of the OATT.
12 On August 1, 2012, the judge certified the Settlement Agreement to the Commission. As
13 of the date of the filing, the Commission has not acted on the Settlement Agreement.
14 Q. PLEASE PROVIDE A BROAD OVERVIEW OF THE PNM FORMULA RATE.
15 A. The PNM Formula Rate has three main components, the Current Year Formula Rate, the
16 Formula Rate Implementation Protocols (“Implementation Protocols”), and the PNM
17 criteria (“PNM Criteria”). The Current Year Formula Rate is attached to PNM’s OATT
18 as Attachment H-1 and calculates the Annual Transmission Revenue Requirement
19 (“ATRR”) for each June 1 to May 31 rate year. The Implementation Protocols are
20 attached to PNM’s OATT as Attachment H-2 and provide for, among other things, the
21 Annual Update filing to update the rates and the true-up process whereby overages or
22 underages are reconciled. The PNM Criteria are attached to PNM's OATT as Attachment
23 H-3 and provide the process through which PNM will determine whether a facility is
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 10 of 85
1 integrated into the PNM Transmission System. The Current Year Formula Rate and
2 Implementation Protocols are described more fully in Mr. Monroy’s testimony.
3 Q. HAS THE COMMISSION APPROVED A FORMULA SIMILAR TO THE PNM
4 FORMULA RATE PROPOSED IN THIS FILING?
5 A. Yes. While the Commission has approved numerous transmission rate formula filings,
6 the two cases most similar to the formula proposed by PNM are those submitted by
7 Arizona Public Service Company (“APS”) in Docket No. ER07-1142-000 and by
8 Southwest Public Service Company (“SPS”) in Docket No. ER08-313-000, both of which
9 were accepted by the Commission.
10 Q. IS THE PNM FORMULA RATE SUBSTANTIALLY DIFFERENT FROM
11 THOSE FILED BY APS AND SPS?
12 A. No. In general, each of the APS and SPS formula rate templates determine a rate base
13 and then determine the various expense components to arrive at an ATRR. In the case of
14 APS, SPS, and PNM, each will have portions of the ATRR that reflect specific
15 transactions or regulatory actions that differ from the others. With respect to PNM, Mr.
16 Monroy describes the process by which PNM will determine an ATRR. Based on that
17 ATRR, which reflects investment and expenses that are allocable to all transmission
18 voltage customers, certain investment or expense items are directly allocated to specific
19 customers or customer classes. Later in my testimony, I describe how, in the process of
20 rate design, PNM has implemented certain adjustments to allocate costs or investments to
21 ascertain costs that are assigned directly to the customer’s categories benefiting directly
22 from those costs or investments.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 11 of 85
1 Q. PLEASE DESCRIBE THE BENEFITS THAT WILL BE REALIZED BY THE
2 CHANGE FROM A STATED RATE APPROACH TO AN ANNUAL FORMULA-
3 BASED TRANSMISSION RATE CALCULATION.
4 A. In addition to the benefits that Mr. Horn described in his testimony, there are several
5 benefits that will accrue both to PNM and to PNM’s retail and wholesale native load
6 customers in moving to a formula rate.
7 First, moving to a formula rate will permit PNM to harmonize the rate making processes
8 between rates subject to the jurisdiction of FERC and those subject to the jurisdiction of
9 the New Mexico Public Regulation Commission (“NMPRC”). As described later in my
10 testimony, PNM is a substantial provider of third party long-term firm (“LT Firm”) point-
11 to-point transmission service (“PTP Service”) and network integration transmission
12 service (“NITS”). Over the course of any 12 month period, approximately 45% of
13 PNM’s transmission system usage is for wholesale customers. Hence, roughly half of
14 PNM’s transmission investment and costs is overseen by the NMPRC for bundled
15 electric service for retail load and the other half is overseen by FERC for PNM’s
16 wholesale transmission service. The timing of the instant filing is, in part, due to PNM’s
17 desire to conform as much of the ratemaking process between the NMPRC and FERC to
18 insure that as few differences in regulatory policy or cost recovery result from this filing
19 and PNM’s next retail rate case filing so that both regulatory authorities will review a
20 consistent cost recovery approach from PNM. To insure that the assignment of costs and
21 investment are conformed between the two jurisdictions, PNM has reviewed each cost
22 category and has made certain changes to its cost assignments between retail and
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 12 of 85
1 wholesale customers in this filing from PNM’s previous two rate change applications
2 filed with FERC in Docket No. ER05-741-000 and the Stated Rate Proceeding.
3 Second, moving to a formula rate permits the timely recovery of costs associated with
4 transmission investment. As described by Mr. Mechenbier in his testimony, PNM has the
5 obligation to expand the PNM transmission system to ensure reliable and adequate
6 delivery capability to its customers for both retail native load and NITS customers.
7 Third, moving to a formula rate will reduce the “rate shock” associated with the filing of
8 stated rates and will potentially eliminate the issues that have arisen in each of PNM’s
9 transmission rate change applications. In many cases, PNM’s NITS customers are
10 relatively small governmental agencies or municipal corporations. Resolution of a rate
11 change application can take multiple years, necessitating the collection of revenues
12 subject to refund that can accumulate to fairly significant levels for a small customer.
13 While the revenues subject to refund are ultimately returned, the NITS customer must
14 pay the monthly invoices for the duration of the case, necessitating the diversion of cash
15 from other uses or increasing the collection from the NITS customer’s own customers.
16 To the extent transmission service is charged under an annual adjustment process as
17 contemplated in the PNM Formula Rate, NITS customers can more easily budget and
18 project their own transmission service costs and reduce the resources that are diverted to
19 occasional major regulatory efforts in a rate change application.
20 Fourth, moving to a formula rate will conserve resources. At the time of the instant
21 filing, PNM still has the Settlement Agreement pending before FERC in the Stated Rate
22 Proceeding. PNM’s experience in filing, and ultimately settling, such cases is that rate
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 13 of 85
1 change applications for stated rates are an enormous drain on resources both for PNM
2 and its customers.
3 III. TRANSMISSION SERVICES PROVIDED BY PNM UNDER THE OATT, THE 4 COORDINATION TARIFF, THE GFAS, AND OTHER TRANSMISSION 5 SERVICES PROVIDED BY PNM
6 Q. PLEASE PROVIDE AN OVERVIEW OF THE WHOLESALE TRANSMISSION
7 SERVICES PROVIDED BY PNM.
8 A. PNM is a substantial provider of transmission service to wholesale customers. In
9 addition to providing for its own retail native load requirements, PNM provides the
10 following transmission services pursuant to its OATT: 1) NITS to seven load-serving
11 entities; 2) LT Firm PTP Service to five customers who are moving generation resources
12 through or out of PNM’s Balancing Authority Area (“BAA”); 3) customers with LT Firm
13 PTP Service agreements who are deferring commencement of service under those
14 agreements; and 4) short-term firm (“ST Firm”) and non-firm (“ST Non-Firm”)
15 transmission service to over 100 customers reserving service using PNM’s Open Access
16 Same-Time Information System (“OASIS”). In addition, PNM can provide transmission
17 service to wholesale requirements customers under its Coordination Tariff; provides
18 transmission service to three customers under four separate grandfathered agreements;
19 and provides other transmission services.
20 A. TRANSMISSION SERVICE PROVIDED UNDER PNM’S OATT
21 1. NITS PROVIDED UNDER PNM’S OATT
22 Q. PLEASE PROVIDE AN OVERVIEW OF THE NITS THAT PNM PROVIDES
23 UNDER ITS OATT.
24 A. Table 1 below provides a summary of the NITS that PNM provides under its OATT.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 14 of 85
Table 1 - Summary of NITS that PNM provides under its OATT FERC Service Name of Customer Approximate Peak Load Agreement No. Tri State Generation and Original Service 400 MW Transmission Association Agreement No. 150 First Revised Service City of Gallup, New Mexico 37 MW Agreement No. 193 Original Service City of Aztec, New Mexico 6 MW Agreement No. 254 Incorporated County of Los Original Service 80 MW Alamos, NM Agreement No. 195 Western Area Power First Revised Service 75 MW Administration Agreement No. 205 Original Service Navajo Tribal Utility Authority 45 MW Agreement No. 257 Original Service Navopache Electric Cooperative 75 MW Agreement No. 384
1 Q. WHO ARE PNM’S NITS CUSTOMERS?
2 A. In calendar year 2012, PNM provided NITS to the following customers: 1) Tri-State
3 Generation and Transmission Association (“Tri-State”); 2) the Incorporated County of
4 Los Alamos, New Mexico (“Los Alamos County”); 3) PNM’s merchant function (“PNM
5 Merchant”) on behalf of the City of Gallup, New Mexico (“Gallup”); 4) Navopache
6 Electric Cooperative (“Navopache”); 5) Western Area Power Administration (“WAPA”)
7 for Kirtland Air Force Base (“Kirtland”); 6) Navajo Tribal Utility Authority (“NTUA”);
8 and 7) PNM Merchant on behalf of City of Aztec, New Mexico (“Aztec”).
9 Q. WHAT IS “PNM MERCHANT” AND IS IT A NITS CUSTOMER OF PNM?
10 A. PNM Merchant refers to PNM’s merchant function that operates and markets PNM’s
11 generation resources, buys and sells generation in the wholesale market, and supplies
12 power and energy to PNM’s retail customers under the jurisdiction of the NMPRC. PNM
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 15 of 85
1 Merchant is not a NITS customer for purposes of providing transmission service for
2 PNM’s retail native load customers. At the request of two wholesale requirements
3 customers, Gallup and Aztec, PNM Merchant takes NITS to serve the Gallup and Aztec
4 loads.
5 Q. PLEASE DESCRIBE THE NITS PROVIDED TO TRI-STATE.
6 A. PNM provides NITS to Tri-State for its New Mexico electric distribution cooperatives.
7 Tri-State member cooperative loads are located both in northern New Mexico and
8 southern New Mexico.
9 Q. DOES PNM PROVIDE ANY SERVICE OR LOAD REDUCTION CREDITS TO
10 TRI-STATE? IF SO, PLEASE DESCRIBE THE CREDITS PROVIDED TO TRI-
11 STATE.
12 A. Yes. Under the terms of Original Service Agreement No. 150 between PNM and Tri-
13 State, PNM provides two credits to Tri-State’s monthly transmission peak hour load ratio
14 share measurement on which it is billed for NITS.
15 The first credit reflects Tri-State’s use of the El Paso Electric Company (“EPE”)
16 transmission system to deliver 50 MW from Tri-State’s generating facilities at the
17 Springerville Generating Station to the Luna 345 kV Station (“Luna 345 kV”) in southern
18 New Mexico near Deming. Tri-State has contractual rights to use third party systems
19 emanating from Luna 345 kV and under normal system operating conditions is able to
20 deliver power and energy from its designated network resource at Springerville to its
21 network load by use of the EPE transmission system instead of the PNM transmission
22 system. PNM thus applies a credit to its measurement of Tri-State’s monthly load ratio
23 share equivalent to 50 percent of Tri-State’s actual Springerville point of receipt (“POR”)
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 16 of 85
1 schedule during the PNM monthly transmission system peak hour as Tri-State does not
2 use PNM’s transmission network to deliver to its southern New Mexico loads which are
3 measured at various points in southern New Mexico. If the Springerville to Luna path is
4 not available and scheduled during the PNM monthly transmission peak hour, Tri-State
5 does not receive the credit for delivering on the EPE transmission system instead of the
6 PNM transmission system.
7 The second credit is for 20 MW and reflects value from Tri-State’s 230 kV Walsenburg
8 to Gladstone transmission line that went into commercial service in 2006. PNM and Tri-
9 State have agreed to reflect a credit to Tri-State’s monthly load ratio share calculation of
10 20 MW based upon the first 20 MW scheduled use across the northern New Mexico Path
11 48 boundary defined by Western Electricity Coordinating Council (“WECC”). The 20
12 MW credit reflects the value to the PNM transmission system from the Tri-State
13 transmission line.
14 Q. PLEASE DESCRIBE HOW THE TWO LOAD CREDITS PROVIDED TO TRI-
15 STATE IMPACT THE RATE DESIGN AND COST ALLOCATIONS.
16 A. PNM measures the Tri-State load at multiple metering points and sums those metering
17 points to calculate a total system network load. As a result, PNM will measure the Tri-
18 State load at a POR without consideration of the use of either the Tri-State system or a
19 third party system such as EPE’s transmission to deliver to specific load areas. In the
20 case of the use of the EPE transmission system and the use of the Tri-State system
21 upgrades in northeastern New Mexico, Tri-State has reduced its usage of the PNM
22 transmission system. As a result, PNM and Tri-State have agreed to reduce Tri-State’s
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 17 of 85
1 monthly load coincident with the monthly transmission peak hour to reflect the fact that
2 the two transactions reduce Tri-State’s use of the PNM transmission system.
3 Q. PLEASE DESCRIBE THE SERVICE PROVIDED TO PNM MERCHANT ON
4 BEHALF OF GALLUP.
5 A. Under First Revised Service Agreement No. 193, PNM provides NITS to PNM Merchant
6 who, in turn, supplies Gallup full requirements power service above Gallup’s allocation
7 of Federal Power by WAPA. Under this arrangement, PNM Merchant purchases NITS
8 from PNM’s transmission function (“PNM Transmission”) and invoices Gallup for the
9 NITS pursuant to the terms of a power sale agreement (“PSA”) between PNM Merchant
10 and Gallup. The PSA between PNM Merchant and Gallup expires on June 30, 2013.
11 Regardless of whether PNM supplies power to Gallup after June 30, 2013, Gallup will
12 require NITS from PNM Transmission.
13 Q. DOES PNM PROVIDE ANY SERVICE OR LOAD REDUCTION CREDITS TO
14 GALLUP?
15 A. No. PNM does not provide any service or load reduction credits to Gallup.
16 Q. PLEASE DESCRIBE THE NITS PROVIDED TO PNM MERCHANT ON
17 BEHALF OF AZTEC.
18 A. Under Original Service Agreement No. 254, PNM provides NITS to PNM Merchant
19 which, in turn, supplies Aztec full requirements power service, with the exception of a
20 pre-existing WAPA Federal Power allocation to Aztec. PNM and Aztec are not directly
21 interconnected. PNM Transmission provides NITS to PNM Merchant for Aztec at San
22 Juan 345kV and PNM Merchant has separate transmission delivery arrangements with
23 WAPA and the City of Farmington to provide delivery service for Aztec.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 18 of 85
1 Q. DOES PNM PROVIDE ANY SERVICE OR LOAD REDUCTION CREDITS TO
2 AZTEC?
3 A. No. PNM does not provide any service or load reduction credits to Aztec.
4 Q. PLEASE DESCRIBE THE NITS SERVICE PROVIDED TO LOS ALAMOS
5 COUNTY.
6 A. Under Original Service Agreement No. 195, PNM provides NITS to deliver power to the
7 Los Alamos County electric utility, whose load center is located in northern/central New
8 Mexico.
9 Q. DOES PNM PROVIDE ANY SERVICE OR LOAD REDUCTION CREDITS TO
10 LOS ALAMOS COUNTY? IF SO, PLEASE DESCRIBE THE CREDITS
11 PROVIDED TO LOS ALAMOS COUNTY.
12 A. Yes. Original Service Agreement No. 195 contains a provision recognizing certain value
13 that PNM and Los Alamos County have negotiated to reflect the installation and
14 operation of a Static Var Compensator (“SVC”) by the Los Alamos National Laboratories
15 within the Los Alamos County system. In the predecessor agreement to Original Service
16 Agreement No. 195, PNM and Los Alamos County included a provision in the PNM-Los
17 Alamos NITS agreement that provides for PNM to reduce Los Alamos’ measured load
18 for billing purposes by 10 MW each month, based on certain operating parameters for the
19 SVC that are agreed to by PNM and Los Alamos County and based on periodic
20 evaluations by PNM to reflect the benefit to WECC Path 48. PNM and Los Alamos
21 County agreed to extend the SVC credit in the Settlement Agreement. The terms of the
22 credit in Original Service Agreement No. 195 provide that the SVC credit will remain in
23 place until it is determined by PNM and Los Alamos County or by FERC that the Los
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 19 of 85
1 Alamos SVC does not provide PNM operational flexibility benefits to the Accepted
2 Rating defined by WECC or provide other demonstrable benefits to serve PNM’s native
3 load and its NITS customers’ requirements. Pursuant to the Settlement Agreement, PNM
4 agreed to give one-year advance notice to Los Alamos County of the termination of the
5 SVC Credit and shall include in any such notice an explanation of the basis upon which
6 PNM has concluded that the SVC no longer meets the eligibility requirements established
7 to receive the SVC credit.
8 Q. PLEASE DESCRIBE HOW THE SVC CREDIT PROVIDED TO LOS ALAMOS
9 COUNTY IMPACTS THE RATE DESIGN AND COST ALLOCATIONS.
10 A. Similar to the Tri-State credit described above, Los Alamos’ monthly load coincident
11 with the monthly transmission peak hour is reduced to reflect a negotiated value to reflect
12 the benefit to Path 48 as a result of the SVC operating within certain parameters agreed to
13 between PNM and Los Alamos County. The SVC credit is subject to review at specified
14 times pursuant to the Original Service Agreement No. 195. The SVC credit is applied
15 monthly by reducing the Los Alamos County demand coincident with the transmission
16 monthly peak hour by 10 MWs.
17 Q. PLEASE DESCRIBE THE NITS PROVIDED TO WAPA FOR KIRTLAND.
18 A. Under First Revised Service Agreement No. 205, PNM provides network service to
19 WAPA at PNM’s 115kV and 46 kV Sandia Switching Station and the 115 kV Kirtland
20 Substation to enable it to deliver power and energy to serve the remainder of the Kirtland
21 load.
22 Q. DOES PNM PROVIDE ANY SERVICE OR LOAD REDUCTION CREDITS TO
23 WAPA?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 20 of 85
1 A. No. PNM does not provide any service or load reduction credits to WAPA for the
2 Kirtland Load.
3 Q. PLEASE DESCRIBE THE NITS PROVIDED TO NTUA.
4 A. Under Original Service Agreement No. 257, PNM provides NITS to NTUA located in
5 western New Mexico.
6 Q. DOES PNM PROVIDE ANY SERVICE OR LOAD REDUCTION CREDITS TO
7 NTUA?
8 A. No. PNM does not provide any service or load reduction credits to NTUA.
9 Q. PLEASE DESCRIBE THE NITS PROVIDED TO NAVOPACHE.
10 A. Navopache is located in east-central Arizona, near the Arizona-New Mexico border.
11 PNM and Navopache are not directly interconnected. As a result, Original Service
12 Agreement No. 384 provides for PNM to deliver to Navopache over third-party
13 transmission. Specifically, PNM delivers power from PNM’s New Mexico transmission
14 system to APS for delivery to Navopache at PNM’s interconnections with APS at either
15 Four Corners 345 kV or Palo Verde 500 kV. APS then delivers to Navopache at four 69
16 kV substations located near Navopache’s load center and delivers to Salt River Project
17 Agricultural Improvement and Power District (“SRP”) for delivery on the SRP system to
18 Navopache at the Coronado Station in eastern Arizona. PNM also delivers to Navopache
19 via PNM’s ownership interest at the 345 kV switchyard at Springerville Station in east
20 central Arizona. Presently, the designated network resources for this NITS are
21 Navopache’s allocation of WAPA Federal Power (7 MW summer and winter), the White
22 Mountain Apache Tribe’s allocation of (5.822 MW summer/5.999 MW winter), and a
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 21 of 85
1 Power Sale Agreement between PNM Merchant and Navopache (“Navopache Purchased
2 Power Agreement”).
3 Q. DOES PNM PROVIDE ANY SERVICE OR LOAD REDUCTION CREDITS TO
4 NAVOPACHE?
5 A. No. PNM does not provide any service or load reduction credits to Navopache.
6 Q. PLEASE DESCRIBE THE SERVICE PROVIDED TO WAPA FOR NEW
7 MEXICO PUEBLO INDIAN TRIBES.
8 A. WAPA has allocated certain amounts of Federal Power to the following pueblos located
9 within PNM’s retail service territory: Pueblo de Cochiti, Pueblo of San Felipe, Pueblo of
10 Sandia, Pueblo of Santa Ana, Pueblo of Santo Domingo, and Pueblo of Tesuque
11 (collectively, the “Pueblos”). None of the Pueblos currently has a tribal utility. PNM
12 Merchant, WAPA, and the Pueblos have agreed to a mechanism by which the Pueblos
13 will receive the economic benefit of the Federal Power allocation (i.e., the difference
14 between the generation price component the Pueblo would pay for bundled retail energy
15 from PNM and the price of the Federal Power delivered to PNM’s system). Specifically,
16 PNM Merchant, WAPA, and each Pueblo have agreed to enter into and Economic
17 Benefit Contracts pursuant to which: 1) WAPA sells the Federal Power to PNM
18 Merchant; 2) this energy becomes part of PNM’s portfolio of energy to be provided to its
19 customers; 3) PNM delivers bundled retail electric service to individual end-use
20 customers located on the Pueblos pursuant to the current rates and rules approved by the
21 NMPRC; and 4) PNM collects payment for those services from the customers, pays
22 WAPA for the Federal Power, and issues a check to each Pueblo for any difference
23 between the cost of the generation component of PNM Merchant’s charges and the cost
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 22 of 85
1 of the generation component of the Federal Power, thus providing the economic benefit
2 of the Federal Power allocation to the Pueblos.
3 These Economic Benefit Contracts became effective on October 1, 2004, and were filed
4 with the Commission as non-conforming agreements for network service under PNM’s
5 OATT. See Public Service Company of New Mexico, Docket No. ER04-1242-000, (Nov.
6 5, 2004) (unpublished letter order accepting Economic Benefit Contracts for filing).
7 Q. HOW HAS PNM REFLECTED ITS OWN SYSTEM USAGE IN DETERMINING
8 THE TRANSMISSION COST OF SERVICE?
9 A. PNM Merchant provides power and energy to PNM’s retail native load customers under
10 the ratemaking jurisdiction of the NMPRC. PNM Transmission treats this retail native
11 load as a NITS customer for purposes of pricing transmission services in this filing, as
12 well as for calculating the monthly load ratio share (“LRS”) used to allocate the ATRR to
13 its OATT NITS customers. PNM Merchant and PNM Transmission have a
14 memorandum agreement that is updated as appropriate to reflect the network resources
15 designated by PNM Merchant and PNM Transmission posts PNM Merchant’s designated
16 network resources on PNM’s OASIS comparable to other NITS customers’ designated
17 network resources.
18 2. PTP SERVICE UNDER THE OATT
19 Q. WHAT PTP SERVICES DOES PNM PROVIDE UNDER THE OATT?
20 A. PNM provides: 1) LT Firm PTP Service; 2) ST Firm PTP Service; and 3) ST Non-Firm
21 PTP Service under its OATT.
22 Q. WHO ARE PNM’S FIRM LT OATT CUSTOMERS?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 23 of 85
1 A. PNM either provided in 2011, 2012 or will provide in 2013 LT Firm PTP Service to the
2 following customers set forth in Table 2, below.
Table 2 – Summary of LT Firm PTP Service provided under the PNM OATT Name of Customer Reserved Capacity Service Agreement No. Original Service High Lonesome Mesa, LLC* 100 MW Agreement Nos. 301 and 302 First Revised Service PNM Merchant 62 MW Agreement No. 164 Original Service Argonne Mesa, LLC 90 MW Agreement No. 251 First Revised Service El Paso Electric Company 104 MW Agreement No.241 Original Service NextEra 102 MW Agreement No.340 * High Lonesome Mesa is an incremental rate customer subject to a long term levelized rate approved by the Commission in Docket No. ER12-1870-000.
3 Q. HOW DOES A LT FIRM PTP SERVICE CUSTOMER DEFER
4 COMMENCEMENT OF SERVICE?
5 A. Pursuant to Section 17.7 of PNM’s OATT, a customer may elect to defer commencement
6 of service for up to five deferral actions. If a customer defers commencement of LT Firm
7 PTP Service, another customer may elect to purchase such service if the new customer is
8 willing to immediately start paying the full rate for that service under the PNM OATT.
9 To defer LT Firm PTP Service, the customer must have entered into a transmission
10 service agreement with PNM and pay a non-refundable one month service payment for
11 each deferral action the customer takes.
12 Q. HAVE ANY CUSTOMER DEFERRED THE COMMENCEMENT OF LT FIRM
13 PTP SERVICE PURSUANT TO THE OATT?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 24 of 85
1 A. Yes. Four customers that have signed LT Firm PTP Service agreements with PNM and
2 have exercised, or may exercise, the option to defer commencement of service pursuant
3 to the terms of Section 17.7 of PNM’s OATT. These customers are set forth in Table 3,
4 below. Each of the customers listed in Table 3 elected to defer commencement of service
5 in 2011.
Table 3 – Summary of Customers that have Deferred Commencement of LT Firm PTP Service Customer Reservation FERC Service Agreement No. Third Planet Original Service Agreement Nos. 338 80 MW + 20 MW Windpower, LLC and 352 Original Service Agreement 284 and Cargill Power Marketing 37 MW + 50 MW First Revised Service Agreement 320 Terra-Gen 300 MW Original Service Agreement 372 5 MW + 5MW + Original Service Agreements Nos. 365, GA Solar 5MW +5 MW 366, 367 and 368
6 Q. DOES PNM HAVE ANY CONDITIONAL FIRM TRANSMISSION SERVICE
7 CUSTOMERS?
8 A. Yes. Under First Revised Service Agreement No. 317, SPS has a total of 100 MW of
9 conditional firm transmission service and planning redispatch generation service for a
10 period from June 1, 2009 to June 1, 2014. Pursuant to the terms of PNM’s OATT, SPS
11 elected the “hours” option for transmission-related curtailments and PNM and SPS have
12 established terms for PNM providing planning redispatch generation service during
13 certain system conditions that result in partial or full curtailment of the delivery between
14 Four Corners and Albuquerque.
15 B. SERVICE UNDER THE COORDINATION TARIFF
16 Q. WHAT IS THE COORDINATION TARIFF?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 25 of 85
1 A. PNM’s Coordination Tariff provides for the sale of electric capacity and energy at “up
2 to” cost-based rates. The Commission originally accepted the Coordination Tariff for
3 filing on November 7, 1997 by unpublished letter order in Docket No. ER97-2585-000.
4 At the time it was originally filed, the Coordination Tariff included rates for both
5 generation and transmission service and provided that PNM Merchant would obtain
6 transmission service on behalf of the coordination service customer on a pass-through
7 basis. PNM sought to modify the Coordination Tariff in the Stated Rate Proceeding.
8 Q. DOES PNM PROVIDE ANY SERVICES CURRENTLY UNDER THE PNM
9 COORDINATION TARIFF?
10 A. No. PNM does not provide service to any customer under its Coordination Tariff.
11 Q. SINCE PNM DOES NOT PROVIDE ANY SERVICE UNDER ITS
12 COORDINATION TARIFF, HOW IS THE COORDINATION TARIFF
13 GERMANE TO THIS FILING?
14 A. As mentioned above, the Coordination Tariff contains references to transmission service
15 rates. As I explain later in my testimony, PNM is proposing to modify the Coordination
16 Tariff to remove any references to transmission service rates.
17 C. SERVICE UNDER THE GFAs
18 Q. PLEASE DESCRIBE THE GFAS.
19 A. The GFAs consist of four agreements that predate PNM’s OATT, under which PNM
20 provides transmission service to: 1) WAPA pursuant to two agreements; 2) EPE; and 3)
21 Navajo Agricultural Products Industries (“NAPI”). The following Table 4 summarizes
22 the service PNM provides under the GFAs:
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 26 of 85
Table 4 - PTP Transmission Services Provided Pursuant to GFAs Customer Approximate Capacity Contract Identifier Western Area Power FERC Electric Rate 140 MW (maximum) Administration-2425 Schedule No. 87 Western Area Power FERC Electric Rate 107 MW (maximum) Administration-P0695 Schedule No. 86 FERC Rate Schedule No. El Paso Electric Company 20 MW 9 Supp No. 12 Navajo Agricultural Products FERC Electric Rate 8 MW Industries Schedule No. 85
1 Q. WHAT PORTIONS OF THE FOUR GFAS IS PNM PROPOSING TO MODIFY
2 THROUGH THE INSTANT FILING?
3 A. Through the instant filing, PNM proposes to modify only the transmission service rates in
4 Contract P0695 with WAPA and in Service Schedule I of the GFA with EPE.
5 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICE PROVIDED BY PNM
6 UNDER EACH OF THE WAPA GFAS.
7 A. PNM provides transmission service to WAPA under two GFAs: Contract 2425 and
8 Contract P0695.
9 (a) Contract 2425
10 Contract 2425 is entitled “Western Area Power Administration Amended Original
11 Contract Between PNM and the United States Department of Energy (“US-DOE”)
12 Western, Salt Lake City Integrated Projects for System Interconnections and
13 Transmission Service, Contract No. 14-06-400-2425.”
14 Under Contract 2425, PNM provides WAPA with 140 MW of firm point-to-point
15 transmission service between the 345 kV Switchyard at the Four Corners Generating
16 Station (“Four Corners 345 kV”) and PNM’s West Mesa 115 kV Switching Station
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 27 of 85
1 (“West Mesa 115 kV”) near Albuquerque. Also under Contract 2425, WAPA has the
2 right to deliver up to 50 MW of power and energy (out of the total 140 MW) at PNM’s
3 Ambrosia 230 kV Switching Station in western New Mexico.
4 In exchange for PNM providing WAPA transmission service on the PNM transmission
5 system, WAPA provides PNM 84 MW of firm point-to-point transmission service
6 between the Westwing 230 kV Switching Station (“Westwing 230 kV”) in central
7 Arizona, and Four Corners 345 kV to provide a path for PNM to deliver a portion of its
8 ownership entitlement in the Palo Verde Nuclear Generating Station (“Palo Verde”), near
9 Phoenix, to its New Mexico transmission system. PNM cannot deliver its network
10 resources at Palo Verde to its retail native load and wholesale requirements customers
11 without this transmission service from WAPA.
12 Contract 2425 is strictly an exchange of services resulting in PNM neither accruing an
13 expense for transmission services received or revenue for transmission services provided.
14 (b) Contract P0695
15 Contract P0695 is entitled “First Revised Amended and Restated Contract No. 8-07-40-
16 P0695 For Transmission Service With Public Service Company of New Mexico.” Under
17 Contract P0695, PNM provides WAPA with up to 107 MW of firm point-to-point
18 transmission service between the Four Corners 345 kV switchyard and certain points on
19 PNM’s transmission system for delivery of Federal Power to WAPA customers in PNM’s
20 BAA as shown in Table 5, below.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 28 of 85
Table 5 – Transmission Service Under Contract P0695 Max Summer Max Winter Winter MW Summer MW Schedule Allocation Schedule Allocation MW MW Holloman AFB 1.920 2 1.790 2 Kirtland AFB 3.341 4 3.306 4 County of Los Alamos 35.057 36 33.423 34 City of Gallup 3.341 4 3.198 4 Blackwater 230 kV Substation (for Cannon 1.320 2 1.290 2 AFB) Blackwater 230 kV Substation (for Eastern 9.566 10 9.883 10 Coops) Sub Total 89.4 74.7 West Mesa 115kV Switching Station (Excess) 17.6 21.817 Total 107.000 91.000
1 WAPA awards federal power allocations based on a maximum delivery rate stated in
2 partial MWs and awards a maximum capacity for the summer season (April through
3 September) and the winter season (October through March). Therefore, for each
4 customer in Table 5 I have listed both the summer and winter maximum delivery levels
5 which correspond to that customers Designated Network Resource level if they are a
6 PNM NITS customers. Because PNM must schedule in whole MW, both the summer
7 and winter columns have the corresponding amount of the Contract P0695 capacity that
8 must be reserved, which is rounded up to the next whole MW.
9 First, Kirtland, Los Alamos County, and Gallup are all Federal Power customers of
10 WAPA and NITS loads or NITS customers of PNM. Second, Holloman Air Force Base
11 (“Holloman”) takes electric service from EPE. WAPA has allocated Federal Power to
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 29 of 85
1 Holloman and PNM delivers that Federal Power to EPE at PNM’s interconnection with
2 EPE at West Mesa 345kV. Third, WAPA has allocated Federal Power to the following
3 customers who are not directly connected to PNM’s transmission system and require
4 transmission service from a third party: 1) Cannon Air Force Base in Clovis, New
5 Mexico; and 2) three electric cooperatives whose delivery is made through the
6 Blackwater HVDC converter station (“Blackwater Station”) on the eastern
7 interconnection of the PNM transmission system with Xcel: Farmer’s Electric
8 Cooperative, Lea County Electric Cooperative, and Central Valley Electric Cooperative
9 (collectively, the “Eastern Cooperatives”). To deliver to those Federal Power customers,
10 all of whom are on the eastern United States transmission grid, delivery must be made by
11 PNM to Xcel through Blackwater Station and delivered on Xcel’s transmission system to
12 the Eastern Cooperatives and Cannon. Third, WAPA has allocated Federal Power to
13 certain Native American tribes in New Mexico and a portion of the capacity under the
14 “West Mesa 115kV Switching Station” line in the table outlining the capacity
15 assignments under Contract P0695 is reserved for delivery to PNM and Tri-State for
16 delivery to those tribal entities.
17 In exchange for PNM providing WAPA transmission service on the PNM transmission
18 system under Contract P0695, WAPA pays a discounted transmission service rate, as I
19 discuss further below, and provides PNM 50 MW of firm point-to-point transmission
20 service between Westwing 230 kV and Four Corners 345 kV to enable PNM to deliver an
21 additional portion of its ownership entitlement in the Palo Verde to its New Mexico
22 transmission system. PNM cannot deliver its network resources at Palo Verde to its retail
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 30 of 85
1 native load and wholesale requirements customers without this transmission service from
2 WAPA.
3 Q. DO ANY OF THE TRANSMISSION SERVICES PROVIDED BY PNM FOR
4 RECIPIENTS OF WAPA FEDERAL POWER IMPACT CONTRACT P0695
5 BETWEEN PNM AND WAPA?
6 A. Yes. PNM and WAPA have amended Exhibit B to Contract P0695 to: 1) reduce the
7 reserved transmission delivery capacity amounts for each of the above-referenced Pueblo
8 tribal entities; and 2) then add corresponding reserved transmission delivery capacity
9 amounts for the Pueblo tribal entities. As a result, the Pueblo tribal loads are not
10 separately forecast or allocated and, instead, are included in PNM’s or Tri-State’s retail
11 native load measurement.
12 Q. PLEASE EXPLAIN THE PROCESS BY WHICH THE TRANSMISSION
13 SERVICE RATE PNM CHARGES WAPA UNDER CONTRACT P0695 IS
14 CALCULATED.
15 A. Contract P0695 has several provisions that provide a reduction to the transmission service
16 rate under the contract. Under Contract P0695, transmission service initially starts at the
17 same rate as PNM’s system rate included in Schedule 7 of the OATT for monthly firm
18 PTP transmission service. PNM provides two credits to WAPA that reduce the
19 transmission service charge that WAPA pays to PNM under Contract P0695.
20 The first credit (the “Diversity Credit”) reflects the mutual agreement to reduce the
21 monthly service charge WAPA pays so long as WAPA agrees to reduce its summer
22 season loads (April through September) to no greater than its maximum winter loads. At
23 the time that Contract P0695 was executed, PNM and WAPA agreed that such a
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 31 of 85
1 Diversity Credit would provide value to PNM as PNM’s system peak load occurs during
2 summer months. As a result, PNM and WAPA agree that so long as WAPA reduces its
3 summer peaks loads to 85% of its winter peak loads, PNM will apply the Diversity Credit
4 to reduce the WAPA transmission service rate charged under Contract P0695 to 85% of
5 PNM’s system transmission rate, which currently is the monthly transmission service rate
6 in Schedule 7 of PNM’s OATT.
7 The second credit (the “WAPA Transmission Credit”) reflects value for the reciprocal
8 transmission service WAPA provides PNM under Contract P0695. As I indicated earlier
9 in my testimony, under Contract P0695 WAPA provides PNM with 50 of firm point-to-
10 point transmission service from Westwing Station to Four Corners. PNM uses the 50
11 MW transmission path to deliver a portion of its generation entitlement in Palo Verde
12 Nuclear Generating Station to its New Mexico transmission system. Per Section
13 (8)(b)(ii) of Contract P0695, the WAPA Transmission Credit is calculated as the
14 transmission service rate times 50 MW divided by the 107 MW maximum transmission
15 capacity provided under Contract P0695. Because PNM proposes to include the Contract
16 P0695 rate in the Current Year Formula Rate calculation, the provisions of Contract
17 P0695 allow WAPA and PNM to review annually the WAPA Transmission Credit and
18 value of it to each Party to Contract P0695. If PNM and WAPA cannot agree on the
19 value of the WAPA Transmission Credit, the WAPA Transmission Credit will end and
20 WAPA will no longer provide PNM the transmission service provided for under Contract
21 P0695.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 32 of 85
1 Q. DOES THE APPLICATION OF THE DIVERSITY CREDIT OR THE WAPA
2 TRANSMISSION CREDIT IMPACT ANY OTHER TRANSMISSION SERVICE
3 CUSTOMERS OR THE OATT SERVICE RATE?
4 A. No. PNM allocates a proportional share of the ATRR to WAPA for the Contract P0695
5 service similar to any other transmission service customer. The reduction in the rate for
6 the Diversity Credit and the WAPA Transmission Credit are both absorbed by PNM
7 pursuant to the bargain struck prior to the requirement by the Commission that all
8 transmission providers provide open access transmission service under the OATT. To
9 the extent that the WAPA Transmission Credit is incorporated into PNM’s rates, it is
10 incorporated for the services provided to PNM retail native load and wholesale
11 requirements customers who use PNM’s generation resources. Neither credit has any
12 impact on the monthly load ratio share calculation for purposes of determining the billing
13 for NITS customers.
14 Q. DOES PNM PROPOSE TO INCLUDE WAPA CONTRACT P0695 IN THE
15 ANNUAL RATE CHANGE PROCESS?
16 A. Yes, PNM proposes to include Contract P0695 in its formula rate process.
17 Q. DOES PNM PROPOSE TO INCLUDE THE CONTRACT 2425 IN THE ANNUAL
18 RATE CHANGE PROCESS?
19 A. No, PNM does not propose to include Contract 2425 in its formula rate process. Costs
20 are allocated to Contract 2425 in the rate design process but PNM does not propose to
21 reestablish a service rate for Contract 2425 annually under the formula rate process.
22 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICE PROVIDED BY PNM
23 UNDER SERVICE SCHEDULE I.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 33 of 85
1 A. PNM provides EPE with firm PTP Service under the terms of a bilateral interconnection
2 agreement entered into between PNM and EPE initially in 1966. Under Service
3 Schedule I to this GFA, entered into on September 8, 1995, PNM provides EPE up to 20
4 MW of firm point-to-point transmission service. The rates charged by PNM are presently
5 the same as those in PNM’s OATT.
6 Q. DOES PNM PROPOSE TO INCLUDE SERVICE SCHEDULE I IN THE
7 ANNUAL RATE CHANGE PROCESS?
8 A. Yes, PNM has included Service Schedule I in the formula rate process.
9 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICE PROVIDED BY PNM
10 UNDER THE NAPI GFA.
11 A. PNM provides transmission service to NAPI under the terms of a 1977 Construction and
12 Transmission Service Agreement Number 7-07-52-P0975 among PNM, NAPI, the US
13 Bureau of Reclamation (“USBR”), and the United States Bureau of Indian Affairs (the
14 “NAPI Contract”). The NAPI Contract provided funding for PNM to construct certain
15 transmission facilities to interconnect NAPI load to PNM’s 230 kV Four Corners to
16 Ambrosia line and to provide transmission service for a period up to 50 years. The NAPI
17 load is approximately 10 MW at its maximum usage. PNM is compensated for the
18 service by amortizing the original prepayment made by USBR at the time of the NAPI
19 Contract’s execution. As a result, all rate base and amortization accounts are allocated
20 directly to NAPI.
21 Q. DOES PNM PROPOSE TO INCLUDE THE NAPI CONTRACT IN THE
22 ANNUAL RATE CHANGE PROCESS?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 34 of 85
1 A. No, PNM has not included the NAPI Contract in the formula rate process. Costs are
2 allocated to the NAPI Contract in the rate design process but PNM does not propose to
3 reestablish the NAPI Contract service rate annually under the formula rate process.
4 D. OTHER TRANSMISSION SERVICES
5 Q. WHAT OTHER TRANSMISSION SERVICES DOES PNM PROVIDE?
6 A. PNM provides “facilities” service (“Facilities Service”) to several utilities resulting from
7 PNM’s sale of ownership portions in the San Juan Generating Station to others.
8 Q. PLEASE EXPLAIN.
9 A. The San Juan Generating Station went into commercial service in the 1970s and 1980s.
10 Since that time, PNM has sold a portion of San Juan Unit 4 to three other utilities, the
11 City of Farmington, New Mexico (“Farmington”), the City of Anaheim, California
12 (“Anaheim”), and Utah Associated Municipal Power Systems (“UAMPS”). None of the
13 San Juan Unit 4 ownership sales included the sale of the San Juan 345 kV switchyard.
14 To enable Farmington, Anaheim, and UAMPS to access third party transmission
15 providers for delivery of their San Juan Unit 4 ownership entitlement to their load
16 centers, PNM provides access to the San Juan 345 kV switchyard (and facilities
17 extending to the Four Corners 345 kV switchyard) to the three (3) San Juan Unit 4
18 owners for a facility charge involving the two (2) switchyards and the line connecting the
19 two (2) switchyards.
20 PNM provides Facilities Service to Anaheim and UAMPS that allows them to access to
21 the Four Corners 345 kV switchyard and thus each owner’s transmission service provider
22 for delivery of their respective San Juan ownership portions to their respective load
23 centers. The costs of the services provided by PNM to Anaheim and UAMPS are based
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 35 of 85
1 on the depreciated cost of the San Juan 345 kV switchyard, the Four Corners 345 kV
2 switchyard, and the Four Corners Line connecting those switchyards at the time both
3 Anaheim and UAMPS purchased San Juan ownership portions.
4 PNM provides Facilities Service to Farmington that is based on the cost of certain
5 facilities in the San Juan 345 kV switchyard interconnecting to the San Juan to Shiprock
6 line, in which line Farmington holds an ownership share.
7 Q. HOW DOES PNM TREAT THE REVENUES RECEIVED FROM ANAHEIM,
8 UAMPS, AND FARMINGTON?
9 A. The revenues from the Facilities Service are revenue credited against the ATRR and
10 allocated to all transmission service customers.
11 IV. TRANSMISSION SERVICE RECEIVED BY PNM
12 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICES PNM PURCHASES
13 FROM OTHER TRANSMISSION PROVIDERS TO SERVE NATIVE LOAD
14 AND REQUIREMENTS WHOLESALE CUSTOMERS.
15 A. PNM purchases the transmission services to serve retail native load and requirements
16 wholesale customers from: APS, Tri-State, EPE, and Tucson Electric. PNM also has
17 transmission exchange agreements with WAPA under which PNM and WAPA provide
18 transmission service to each other under a single contract.
19 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICES PNM PURCHASES
20 FROM APS.
21 A. PNM has two transmission service agreements with APS for delivery of PNM’s Palo
22 Verde resources to New Mexico. The first purchase is a non-OATT bilateral contract for
23 a 130 MW path utilizing the Westwing to Four Corners path. PNM uses this
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 36 of 85
1 transmission path to deliver 130 MW of its Palo Verde generation entitlement to its New
2 Mexico transmission system as a network resource for service to PNM’s native load
3 customers. As the Palo Verde owners have undertaken certain upgrades to the generating
4 units, the net generation capacity related to PNM’s ownership share has increased by 10
5 MW. Hence, PNM has purchased an additional 10 MW of transmission service from
6 APS under APS’ OATT on the utilizing Kyrene to Four Corners path. As stated earlier,
7 PNM cannot deliver its ownership share of Palo Verde generation to its retail native and
8 wholesale requirements customers without the two APS transmission service agreements.
9 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICES PNM PURCHASES
10 FROM TRI-STATE.
11 A. PNM purchases NITS from Tri-State under Tri-State’s comparability OATT for two
12 loads on PNM’s network.
13 The first load is City of Gallup’s Fort Wingate and Mendoza loads served by PNM
14 Merchant’s power sale agreement with Gallup. Per the provisions of the PNM
15 Reliability-PNM Merchant network service agreement, PNM bills the City of Gallup for
16 the portion of the Tri-State NITS invoice applicable to the Fort Wingate load and pays
17 PNM Merchant directly for that service. As a result, that service effectively is netted out
18 of PNM’s cost of service and assigned directly to Gallup.
19 The second load is PNM’s retail load in the Town of Clayton, New Mexico. PNM has
20 interconnections with Tri-State at Ojo Station north of Santa Fe, New Mexico and at
21 Storrie Lake, north of Las Vegas, New Mexico. PNM delivers power and energy to Tri-
22 State at these interconnections for service to Clayton on Tri-State’s transmission system.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 37 of 85
1 The Clayton load is approximately 3.5 MW. The service is directly assigned to PNM’s
2 retail native load jurisdiction.
3 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICES PNM PURCHASES
4 FROM EPE.
5 A. PNM purchases firm PTP service under EPE’s OATT as indicated in Table 6, below.
Table 6 – Transmission Services Provided to PNM by EPE Receipt Delivery Reservation West Mesa 345 kV Amrad 345 kV 25 MW Afton Generating Station West Mesa 345 kV 30 MW Afton Generating Station Springerville 345 kV 94 MW Afton Generating Station West Mesa 345 kV 111 MW Luna Generating Station Springerville 345 kV 60 MW 6 7 PNM purchases 25 MW of firm PTP transmission service from EPE to deliver PNM
8 network resources from PNM’s interconnection with EPE at West Mesa 345kV to the
9 Amrad station 115kV interconnection to serve PNM’s southeastern New Mexico retail
10 loads. PNM purchases 30 MW of firm PTP transmission service from EPE to deliver a
11 portion of Afton Generating Station from the EPE system to PNM’s system at West
12 Mesa. PNM purchases an additional 111 MW of non-OATT transmission service from
13 EPE also to deliver Afton Generating station to West Mesa under certain system
14 conditions that include the operation of Afton Generation Station. The non-OATT
15 service is provided pursuant to a settlement agreement between EPE and PNM related to
16 a 2002 transmission service request for transmission service between Afton Station on the
17 EPE transmission system and EPE’s interconnection with PNM and West Mesa 345 kV.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 38 of 85
1 See El Paso Electric Company, 106 FERC ¶ 61,114 (2004) (order approving uncontested
2 settlement).
3 PNM makes short-term firm purchases under EPE’s OATT during the summer months to
4 support system deliveries to Amrad from PNM’s southern New Mexico system.
5 PNM cannot deliver its generation resources at Afton and Luna to its retail native load
6 and wholesale requirements customers without the use of the EPE long-term transmission
7 service agreements from Afton and Luna Generating Stations described above. PNM
8 uses the 25 MW of firm transmission service from West Mesa to Amrad to serve retail
9 native load customers and PNM directly assigns the costs from the 25 MW long term
10 firm transmission service and short-term firm purchases from EPE to its retail native
11 load.
12 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICES PNM PURCHASES
13 FROM TUCSON ELECTRIC.
14 A. PNM purchases 14 MW of firm PTP transmission service under Tucson Electric’s OATT
15 from San Juan to Greenlee to support system deliveries in southern New Mexico.
16 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICE EXCHANGE
17 AGREEMENTS BETWEEN PNM AND WAPA.
18 A. The transmission service exchange agreements are Contract 2425 and Contract P0695
19 described above.
20 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICE PNM RECEIVES FROM
21 WAPA UNDER CONTRACT 2425.
22 A. Under Contract 2425, PNM provides WAPA 140 MW of transmission service from Four
23 Corners to West Mesa. In exchange, PNM receives from WAPA 84 MW of transmission
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 39 of 85
1 service from Westwing to Four Corners. No money is exchanged between PNM and
2 WAPA for either service and PNM does not enter any amount for transmission service
3 sold to WAPA or transmission service purchased from WAPA on PNM’s books and
4 records. Each side of the exchange transaction reflects real value to both WAPA and
5 PNM for each utility to deliver network resources on PNM's part and Federal Power on
6 WAPA’s part to its customers. Essentially, PNM sells WAPA up to 140 MW of
7 transmission service every month and purchases 84 MW of transmission service every
8 month. Contract 2425 impacts the monthly load ratio share calculation as the
9 transmission service scheduled by WAPA every hour includes transmission service rights
10 obtained pursuant to the exchange in Contract 2425. Contract 2425 also provides PNM a
11 transmission path to deliver its network resources from Palo Verde to its retail native load
12 and wholesale requirements customers.
13 Q. PLEASE DESCRIBE THE TRANSMISSION SERVICE PNM RECEIVES FROM
14 WAPA UNDER CONTRACT P0695.
15 A. Under Contract P0695, PNM provides WAPA up to 107 MW of transmission service
16 between Four Corners and various points of delivery on PNM’s transmission system (see
17 Table 5) at a transmission service rate that is reduced by a Diversity Credit and a WAPA
18 Transmission Credit. Unlike Contract 2425, Contract P0695 includes both a provision
19 for PNM to receive a partial service payment each month and a fixed capacity level of
20 PTP transmission service from WAPA every month. In return, WAPA provides PNM 50
21 MW of transmission service from Westwing to Four Corners.
22 Q. WHAT IS THE NET EFFECT OF CONTRACT 2425 AND CONTRACT P0695
23 BETWEEN PNM AND WAPA?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 40 of 85
1 A. The net effect of the two contracts is that PNM sells WAPA up to 247 MW of
2 transmission service and in exchange, receives some revenue and 134 MW of
3 transmission service from WAPA on the Westwing to Four Corners transmission path.
4 Q. PLEASE EXPLAIN THE MECHANISM USED TO VALUE THE
5 TRANSMISSION SERVICE PROVIDED TO PNM BY WAPA UNDER
6 CONTRACT P0695.
7 A. PNM has imputed value to the Contract P0695 transmission exchange using the same
8 methodology approved by the NMPRC in its final order in Docket No. UT-07-00077.
9 See Application of Public Service Company of New Mexico for Revision of its Electric
10 Rate, Pursuant to Advice Notice No. 334, NMPRC Case 07-00077-UT.
11 Because the transaction is an exchange of services, PNM does not explicitly recognize
12 revenue or expenses in its accounting books and records for the 140 MW sale or 84 MW
13 purchase under Contract 2425. Because no cash changes hands between PNM and
14 WAPA under Contract 2425, and because Contract P0695 is a partial exchange of
15 services, for ratemaking purposes PNM has to develop a mechanism to value each side of
16 the transaction. The approach accepted by the NMPRC was based on the theory that two
17 separate transactions were at issue.
18 First, PNM calculated the transmission service PNM would have received if PNM had
19 sold WAPA transmission service without any exchange involved. Specifically, PNM
20 determined the revenue it would have received from WAPA based on the coincident
21 demand of WAPA’s combined scheduled peak hour demand times PNM monthly
22 transmission service rate. Under Contract P0695, PNM receives some cash
23 compensation from WAPA, so PNM reduced the revenue determined under the
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 41 of 85
1 coincident demand measurement by the revenue actually received. The difference
2 between the revenue PNM would receive under the coincident demand measurement and
3 the revenue PNM actually received is the imputed value of the transmission service PNM
4 purchases from WAPA, as the exchange of services basically establishes the price PNM
5 “pays” WAPA as the price of transmission service PNM provides rather than the
6 transmission service rate that WAPA would charge PNM if PNM actually purchased
7 transmission service from WAPA outside of the exchange agreements.
8 Second, PNM increased transmission operating and maintenance expenses Account 565
9 to reflect the additional expense for the transmission service it obtains from WAPA under
10 Contract 2425 and Contract P0695.
11 Q. HOW DOES PNM PROPOSE TO TREAT THIRD-PARTY TRANSMISSION
12 SERVICES IN THE CURRENT YEAR FORMULA RATE CALCULATION?
13 A. PNM proposes to directly assign the costs of certain third-party transmission services
14 directly to PNM’s retail jurisdiction as those services are used solely to serve retail loads.
15 Specifically, PNM proposes to directly assign the costs associated with the following
16 third-party services:
17 • EPE 25 MW West Mesa to Amrad to retail load;
18 • Tri-State network service for Clayton to Gallup;
19 • EPE short term firm service southern New Mexico to Amrad to retail load;
20 and
21 • TEP 14 MW San Juan to Greenlee to retail load.
22 The remaining third party transmission services are for the purpose of delivering Palo
23 Verde Nuclear Generating Station energy from Palo Verde to PNM’s system at Four
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 42 of 85
1 Corners and for delivering PNM’s Luna and Afton generating resources from southern
2 New Mexico to PNM’s northern New Mexico system. The transmission service is
3 obtained to deliver network resources and should be directly assigned to the customers
4 who benefit from the services and based on that usage. Those customers are PNM’s
5 retail and wholesale native load customers. PNM’s wholesale native load customers are
6 Navopache, Gallup and Aztec.
7 In the case of the southern New Mexico to northern New Mexico transmission service
8 obtained from EPE, PNM proposes to allocate the costs to retail and wholesale native
9 load customers based on the generation demand allocator developed using the average of
10 twelve coincident peak demands with this calculation including the Navopache load and
11 an allocation to Navopache.
12 V. DETERMINATION AND ALLOCATION OF REVENUE CREDITS
13 Q. PLEASE DESCRIBE THE NATURE OF ANY REVENUES PNM RECEIVES
14 THAT IT WILL CREDIT AGAINST THE ATRR ESTABLISHED THROUGH
15 OPERATION OF THE PNM FORMULA RATE.
16 A. As detailed the Rate Design worksheet in Attachment H-1, PNM has credited against the
17 ATRR the revenues or benefits received for the ST Firm PTP Service. As detailed in the
18 Rate Design Worksheet in Attachment H-1, PNM has credited against its ATRR the
19 revenues or benefits received for: 1) ST Non-Firm PTP Service; 2) conditional firm
20 service and planning redispatch service provided to SPS; 3) the facilities services
21 provided at the San Juan 345 kV switchyard; 4) the deferral fees received from
22 transmission service customers extending the commencement of LT Firm PTP Service
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 43 of 85
1 pursuant to Section 17.7 of PNM’s OATT; and 5) the value of transmission service that
2 WAPA provides to PNM.
3 Q. PLEASE EXPLAIN THE CREDITS FOR ST FIRM AND ST NON-FIRM
4 SERVICE.
5 A. PNM provides ST Firm PTP Service pursuant to Schedule 7 of PNM’s OATT and ST
6 Non-Firm PTP Service pursuant to Schedule 8 of PNM’s OATT.
7 Q. HOW WERE THESE REVENUE CREDITS ALLOCATED?
8 A. Credits associated with ST Firm PTP Service were allocated proportionally to PNM retail
9 native load, GFAs, and LT Firm PTP Service customers based on the transmission
10 demand allocator of each respective category of service. Credits associated with ST Non-
11 Firm PTP Service were allocated to PNM retail native load, NITS, GFAs and LT Firm
12 PTP Service customers.
13 Q. WHY WERE CREDITS ASSOCIATED WITH ST FIRM PTP SERVICE NOT
14 ALLOCATED TO NITS SERVICE CUSTOMERS AS WELL?
15 A. Credits associated with ST Firm PTP Service were not allocated to NITS customers
16 because these customers’ load ratio shares – on which they are billed for NITS – already,
17 take into account PNM’s sales of ST Firm service. The monthly transmission service
18 bills reflect the inclusion of the ST Firm loads in the calculation of each NITS customer’s
19 load for ratemaking purposes. Hence, the NITS customers received the benefit of the ST
20 Firm sales each month as those sales are made.
21 Q. PLEASE EXPLAIN FURTHER.
22 A. Section 34.2 of the PNM OATT provides the following description of a Network
23 Customer’s Monthly Network Load:
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 44 of 85
1 Determination of Network Customer’s Monthly Network Load: The 2 Network Customer’s Monthly Network Load is its hourly load (including 3 its designated Network Load not physically interconnected with the 4 Transmission Provider under Section 31.3) coincident with the 5 Transmission Provider’s Monthly Transmission System Peak.
6 Section 1.46 of the PNM OATT defines the Transmission Provider’s Monthly
7 Transmission System Peak in turn as the maximum firm usage of the Transmission
8 Provider’s Transmission System in a calendar month.
9 Section 34.3 of the PNM OATT provides for the following with regards to the
10 determination of the Transmission Provider’s Monthly Transmission Load (emphasis
11 added):
12 The Transmission Provider’s Monthly Transmission System Load is the 13 Transmission Provider’s Monthly Transmission system Peak minus the 14 coincident peak usage of all Firm Point-to-point Transmission Service 15 customers pursuant to Part II of this Tariff, plus the Reserved Capacity of 16 all Firm Point-to-Point Transmission Service Customers.
17 Therefore, in computing the monthly load ratio share allocations for the NITS customers,
18 PNM includes in the denominator all firm PTP transmission transactions, both short-term
19 and long-term, as well as the coincident demands of all network service customers, GFAs
20 and PNM’s native load. As a result, the reduced load ratio share of each NITS customer
21 will already reflect the additional transmission demand (and revenues) from PNM sales
22 of ST Firm service. PNM retains the revenues allocable to the NITS customers for the
23 ST Firm service provided to compensate PNM for the allocation of ATRR to that service
24 each month. The remaining ST Firm service revenue is allocated to retail native load, LT
25 Firm and the GFAs as their demand allocation has not been adjusted to reflect the ST
26 Firm service.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 45 of 85
1 Q. PLEASE EXPLAIN THE CREDITS FOR CONDITIONAL FIRM SERVICE AND
2 PLANNING REDISPATCH SERVICE.
3 A. PNM and SPS currently have a transmission service agreement for 100 MW for the
4 period from June 1, 2009 through May 31, 2014, under which PNM and SPS agreed to
5 both the terms of conditional firm service pursuant to OATT Section 15.4(c) and the
6 provision of planning redispatch service pursuant to OATT Section 15.4(b). The terms of
7 the OATT provide for a biennial reassessment of the provision of planning redispatch and
8 conditional firm service. PNM and SPS have agreed to continue the 100 MW of
9 conditional firm service and planning redispatch service for the period of the TSA. The
10 original service provided by PNM starting June 1, 2009, was 150 MW and has since been
11 reduced pursuant to the biennial reassessment.
12 As a result, PNM has not included the 100 MW combined planning redispatch service
13 and conditional firm service provided to Xcel in the Transmission Demand worksheet in
14 Attachment H-1. Rather, PNM has credited the transmission service revenues received
15 from SPS, net of generation-related revenues related to the provision of planning
16 redispatch service, to all LT Firm and NITS customers – i.e., just as PNM has allocated
17 credits for Non-Firm service.
18 Q. PLEASE EXPLAIN THE CREDITS FOR THE FACILITIES SERVICES
19 PROVIDED AT THE SAN JUAN SWITCHYARD.
20 A. PNM provides access to the San Juan and Four Corners switchyards for UAMPS,
21 Anaheim, and Farmington to enable them to deliver the output of the San Juan generation
22 ownership that each utility owns. In its cost of service study, PNM has credited those
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 46 of 85
1 revenues to PNM retail native load, NITS, LT Firm service, and ST Firm service
2 customers.
3 VI. DIRECTLY-ASSIGNED COSTS
4 Q. HAS PNM DIRECTLY ASSIGNED ANY COSTS AS PART OF ITS COST OF
5 SERVICE STUDY?
6 A. Yes, PNM has directly assigned the costs associated with certain transmission facilities in
7 the following categories: 1) radial transmission lines; 2) transmission plant related to
8 service provided under incremental rates; 3) interconnection facilities related to LGIA;
9 and 4) GSUs.
10 A. RADIAL LINES
11 Q. WHY IS PNM PROPOSING TO DIRECTLY ASSIGN THE COSTS
12 ASSOCIATED WITH CERTAIN “RADIAL” TRANSMISSION FACILITIES
13 NOT INTEGRATED IN THE PNM TRANSMISSION SYSTEM?
14 A. PNM’s proposal to directly assign the costs associated with certain radial facilities in this
15 filing is based on its analysis of the PNM Transmission System performed in accordance
16 with Section 4.5 of the Settlement Agreement in the Stated Rate Proceeding.
17 Q. HOW IS PNM PROPOSING TO DIRECTLY ASSIGN THE COSTS
18 ASSOCIATED WITH RADIAL FACILITIES IN THIS FILING?
19 A. Consistent with Section 4.5 of the Settlement Agreement, PNM developed a set of
20 criteria to determine whether the costs of certain transmission facilities should be directly
21 assigned to the customers for whom such radial lines are serving (“PNM Criteria”). The
22 PNM Criteria is being filed as Attachment H-3 in the PNM OATT.
23 Q. PLEASE DESCRIBE HOW AND ON WHAT BASIS PNM DEVELOPED THE
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 47 of 85
1 CRITERIA TO DETERMINE WHETHER TRANSMISSION FACILITIES ARE
2 RADIAL FACILITIES.
3 A. As I understand from counsel, the test as to whether a facility is to be directly assigned or
4 rolled-in to rates is whether there is “any degree of integration” between the subject
5 facility and the network. See Northeast Texas Electric Cooperative, Inc., et al., 108
6 FERC ¶ 61,084 (2004), order denying reh’g, 111 FERC ¶ 61,189 (2005). I also
7 understand from counsel that in determining whether facilities demonstrate any degree of
8 integration, the Commission has applied a five-factor test established in Mansfield
9 Municipal Electric Department v. New England Power Co., 97 FERC ¶ 61,134 (2001),
10 reh’g denied, 98 FERC ¶ 61,115 (2002) (“Mansfield”). The five factors set out in
11 Mansfield include:
12 1. Whether the facilities are radial, or whether they loop back into the 13 transmission system;
14 2. Whether energy flows only in one direction, from the transmission 15 system to the customer over the facilities, or in both directions, from the 16 transmission system to the customer, and from the customer to the 17 transmission system;
18 3. Whether the transmission provider is able to provide transmission 19 service to itself or other transmission customers . . . over the facilities in 20 question;
21 4. Whether the facilities provide benefits to the transmission grid in terms 22 of capability or reliability, and whether the facilities can be relied on for 23 coordinated operation of the grid; and
24 5. Whether an outage on the facilities would affect the transmission 25 system.
26 PNM proposes to adopt the five factors set out in Mansfield as the PNM Criteria for
27 evaluating PNM’s transmission facilities to determine if they are integrated in the PNM
28 transmission network. If a transmission facility fails to meet all five PNM Criteria, then it
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 48 of 85
1 will be deemed to be not integrated into the PNM Transmission System and the costs
2 associated with that facility will be directly assigned.
3 Q. PLEASE DESCRIBE PNM’S MAJOR TRANSMISSION FACILITIES AND HOW
4 THEY MEET THE PNM CRITERIA AS BEING INTEGRATED IN THE PNM
5 TRANSMISSION NETWORK.
6 A. As I will describe in more detail below, almost all of PNM’s transmission facilities that
7 are owned and operated by PNM and PNM’s third party transmission services purchased
8 from other utilities meet the PNM Criteria for integration.
9 I have attached as Exhibit No. PNM-8 the cover sheet and table of contents to PNM’s
10 “Determination and Posting of Total Transmission Capacity and Available Transmission
11 Capacity” currently posted on the PNM OASIS to demonstrate that power flows on a bi-
12 directional basis on PNM’s high voltage transmission system including facilities
13 operating at 115 kV and higher.
14 Q. PLEASE EXPLAIN THE ANALYSIS TO DETERMINE IF THE 500 KV LINES
15 FAIL TO SATISFY ANY OF THE PNM CRITERIA.
16 A. In the case of the three 500kV transmission lines emanating from Palo Verde, each
17 interconnects with multiple utility systems at Westwing and Kyrene. PNM uses third
18 party transmission service from APS and WAPA to integrate the Palo Verde to Westwing
19 lines into the PNM transmission system and transmission service from APS to integrate
20 the Palo Verde to Kyrene line into the PNM transmission system. Energy flows in both
21 directions on all three lines and PNM provides open access transmission service on all
22 three lines in addition to the transmission capacity reserved by PNM in order to deliver
23 Palo Verde to the PNM transmission system for PNM’s retail and wholesale native load
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 49 of 85
1 customers. PNM also calls on the path to both provide and obtain operating reserves
2 pursuant to PNM’s participation in the Southwest Reserve Sharing Group (“SRSG”).
3 Because of the substantial use of the paths by PNM and other transmission owners, an
4 outage of any of the three lines has an impact on the southwestern grid.
5 PNM’s 500kV facilities and third party transmission service deliver Palo Verde to Four
6 Corners.
7 Q. PLEASE EXPLAIN THE ANALYSIS TO DETERMINE THE 345 KV AND 230
8 KV LINES FAIL TO SATISFY ANY OF THE PNM CRITERIA.
9 A. PNM’s 345kV and 230kV lines deliver the Palo Verde, San Juan and Four Corners
10 generation into central New Mexico on three lines that emanate from Four Corners and
11 San Juan, initially terminating at Ojo, West Mesa and Rio Puerco, extending on to
12 Sandia, Norton, and BA. From BA, PNM has a 345kV transmission line that extends to
13 Blackwater station, enabling PNM to deliver two wind generation facilities to the west
14 and to conduct business with the Southwest Power Pool. These northern New Mexico
15 transmission facilities meet the PNM Criteria for integration in that they all loop back
16 into the transmission system, power flows both directions, as PNM delivers several
17 merchant generation projects from central and eastern New Mexico to Four Corners using
18 these facilities. In general, an outage off any of these facilities will affect northern New
19 Mexico grid and require the use of loadside generating resources.
20 Further, from San Juan, PNM and TEP jointly own two transmission lines. One 345kV
21 transmission line interconnects PNM with TEP and Salt River Project at Springerville
22 and Coronado Stations respectively. Energy flows both directions on this path since
23 PNM uses the path for transmission service exchanges with TEP and also uses the path to
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 50 of 85
1 supply requirements power and energy to Navopache at Springerville. PNM and TEP
2 jointly own a second 345kV transmission line that interconnects PNM from San Juan to
3 Greenlee. At Greenlee, PNM and EPE jointly own a 345kV transmission line running
4 from Greenlee through Hidalgo to Luna. This line also meets the PNM Criteria, as
5 energy flows in both directions as PNM uses the path to deliver power and energy to its
6 retail and wholesale native loads both using its northern New Mexico and Palo Verde
7 baseload resources on the San Juan to Hidalgo and Luna path. In addition, PNM can use
8 southern New Mexico resources (Lordsburg, Luna, Afton) to serve both southern New
9 Mexico loads and northern New Mexico via the Luna to Hidalgo to Greenlee to San Juan
10 path, as well as using third party transmission service purchased from EPE to deliver
11 from Luna Station to Springerville station. In southern New Mexico, PNM is also an
12 owner with EPE of the Eddy County to Amrad transmission line and station facilities that
13 provides an interconnection to the SPP on the eastern terminus and to Tri State and EPE
14 on the western end. Energy flows in both directions on the Eddy to Amrad line.
15 Q. IN ADDITION TO THE 500 KV, 345 KV AND 230 KV FACILITIES, DOES PNM
16 OWN ANY 115 KV FACILITIES? IF SO, PLEASE DESCRIBE THEM.
17 A. Yes. PNM has a substantial network of 115 kV transmission facilities looping
18 Albuquerque and emanating from Albuquerque to Santa Fe, Belen, Gallup, NTUA at
19 Window Rock, and Los Alamos, and from Santa Fe on to Las Vegas. In his testimony,
20 Mr. Jeff R. Mechenbier describes PNM’s various interconnections at the 115 kV level.
21 PNM’s 115 kV network provides delivery service to PNM retail customers as well as
22 interconnecting at numerous locations with Tri-State, at several stations with Kirtland Air
23 Force Base, served under a NITS agreement with Western, at five stations with Gallup,
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 51 of 85
1 with NTUA at two locations and with Los Alamos at two locations. PNM’s 115kV
2 system also interconnects with Tri-State at Storrie Lake, near Las Vegas, at which point
3 Tri-State provides delivery service north and east to PNM's retail load center in Clayton
4 New Mexico.
5 Because of the various lines and segments, I will describe the PNM 115kV transmission
6 network by its location and purpose and how it was evaluated.
7 1. Southern New Mexico
8 In southwestern New Mexico, PNM has 115kV transmission lines from Hidalgo Station
9 to Silver City and from Silver City to Mimbres Station, adjacent to the Luna 345kV
10 Station, and a line emanating from Mimbres Station to Picacho Station near Las Cruces.
11 This series of transmission lines is a looped facility, as 345kV interconnections are
12 located at Hidalgo and Luna and the Picacho Station termination interconnects with EPE.
13 In southeastern New Mexico, PNM has a 115kV transmission line emanating from
14 Amrad Station north to Ruidoso and Alamogordo that is interconnected with EPE and
15 Tri-State.
16 The southern New Mexico lines meet the criteria of being looped facilities, providing
17 service to others, increasing system capability or reliability and outage conditions
18 affecting system capability. Through the PNM transmission system and EPE’s
19 transmission system, the 115kV transmission lines in southern New Mexico provide
20 bidirectional flow.
21 2. Albuquerque network
22 PNM owns and operates a 115kV transmission loop surrounding the Albuquerque
23 metropolitan area that generally originates at West Mesa station. Within the network,
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 52 of 85
1 numerous 115kV lines provide redundant delivery support and bidirectional power flow,
2 as well as enhancing reliability and delivery capability, both as tied to other 115kV
3 transmission stations as well as being looped through distribution station feeders. A
4 significant outage can result in PNM being required to operate load side resources to
5 maintain delivery capability rather than curtailing load. Within the Albuquerque network
6 is the Kirtland Air Force Base load served under a NITS agreement with WAPA, thus
7 providing delivery service to PNM and others. PNM also currently has four transmission
8 service agreements expected to use the Albuquerque network for delivery to Four
9 Corners with four interconnections anticipated at PNM’s Sandia Station for GA Solar, all
10 of which are currently deferring commencement of service as I discussed earlier in my
11 testimony.
12 A larger network around the Albuquerque area is created by the West Mesa to Algodones
13 to Moriarty to Willard to Belen to West Mesa loop. This path includes the High
14 Lonesome Mesa wind farm and also a transmission service agreement with Cargill Power
15 Marketing at Willard 115kV, which service is currently deferring commencement as I
16 discussed earlier in my testimony.
17 The two looped systems around the Albuquerque Metropolitan area meet all of the PNM
18 Criteria by providing a looped system, bidirectional flow, service both to PNM and other
19 customers, enhanced capability and an outage of a facility will affect the system
20 capability.
21 3. South of Albuquerque
22 As I described above, PNM provides transmission service to PNM retail native load south
23 of Albuquerque in Los Lunas and Belen, as well as delivering to Tri-State for NITS at
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 53 of 85
1 Belen, Willard, Moriarty, Estancia, and Algodones. In order to provide delivery
2 capability, PNM employs the second looped system I described in the Albuquerque
3 metropolitan area from West Mesa to Algodones to Moriarty to Willard to Belen and
4 back to West Mesa. In addition to that looped system, PNM has parallel 115kV
5 transmission lines from West Mesa and Person Stations to Belen Station in order to
6 provide delivery to PNM retail load at Los Lunas and Belen, and Tri State loads south of
7 Belen. The 115kV transmission facilities between West Mesa and Person Stations and
8 Belen meet the PNM Criteria by providing a looped system, bidirectional flow, service to
9 PNM and other customers, increased delivery capability and an outage on either facility
10 can result in PNM requiring load side generation depending on system conditions.
11 4. North and West of Albuquerque
12 PNM provides delivery service to PNM retail customers, the NextEra wind generation
13 facility at Red Mesa Station, Tri-State cooperatives, Gallup and NTUA with two 115kV
14 transmission lines between Yah-Ta-Hey Station, adjacent to the San Juan to Springerville
15 transmission line, and PNM’s 230Kv transmission line at Ambrosia and West Mesa
16 Stations. PNM owns and operates two 115kV transmission lines to serve its western
17 New Mexico loads, one from Yah-Ta-Hey station to Ambrosia to West Mesa, and one
18 from West Mesa to Ambrosia. Both lines meet the PNM Criteria as they are both looped
19 facilities, have bidirectional flow, provide service to PNM and other customers, increased
20 delivery capability and an outage of either affects the PNM system reliability.
21 PNM provides delivery service from Albuquerque to Santa Fe, Los Alamos County, and
22 Tri-State loads north of Albuquerque with a 345kV transmission line running from BA
23 Station to Norton and several 115kV transmission lines. The BA Station to STA Station
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 54 of 85
1 115kV transmission line provides delivery service to Los Alamos County. PNM has
2 115kV transmission lines running from Reeves Station to Zia Station and from West
3 Mesa to Norton and Reeves to Norton. PNM also has a line from Norton 115kV to an
4 interconnection point with Los Alamos County that serves both Los Alamos County load
5 and PNM retail native load. The 115kV system between Albuquerque and Santa Fe and
6 Los Alamos meets most of the PNM Criteria for integration as they are looped facilities,
7 provide bidirectional flow, provide service to PNM, Los Alamos County and Tri-State,
8 increase the transmission system capability. In addition, an outage on any can affect
9 system delivery capability.
10 5. Santa Fe to Las Vegas
11 PNM has a 115kV transmission line emanating from a station in Santa Fe to PNM’s load
12 center in Las Vegas. The Santa Fe to Las Vegas line is also interconnected to the Tri-
13 State system at the Storrie Lake interconnection north of Las Vegas. The Santa Fe to Las
14 Vegas line meets the PNM Criteria as a looped facility with bidirectional flows that
15 increases system capability. Also, an outage will impact the transmission system. PNM
16 has had numerous transmission service requests on the Santa Fe to Las Vegas line
17 seeking to interconnect south of Las Vegas and deliver the output of a wind farm from
18 near Las Vegas to four corners. While PNM has entered into an interconnection
19 agreement with a customer seeking interconnection service, the project has not yet
20 resulted in development and securing transmission service.
21 Q. DID APPLYING THE PNM CRITERIA TO PNM’S 115 kV FACILITIES
22 REVEAL ANY LINES THAT COULD BE CONSIDERED AS RADIAL
23 TRANSMISSION LINES?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 55 of 85
1 A. Yes. In applying the PNM Criteria to the PNM’s 115 kV facilities, PNM identified
2 several transmission facilities listed in Table 7 that are currently not integrated into the
3 PNM system and should therefore be directly assigned.
4 Q. WHICH 115 kV TRANSMISSION FACILITIES MET THE PNM CRITERIA.
5 A. Through application of the PNM Criteria to the PNM’s transmission system, PNM has
6 identified the following line segments that are radial facilities, the costs of which should
7 be directly assigned:
Table 7 – Radial Transmission Lines 2011 Line Terminal Description Voltage Circuit SD Miles Miles Sara 1&2 Corrales Bluffs 115 CS 22 0.21 0.21 Sara 3&4 Corrales Bluffs 115 CT 22 0.16 0.16 Jefferson AB Line Tap 115 JT 2 0.38 0.38 Cuchilla RS Line Tap 115 RC 14 2.44 2.44 San Lucas MA Line tap 115 LS 4 8.29 8.29 UNM North UT Line Tap 115 1 0.92 0.92 Marquez KM Line Tap 115 KC 4 3.7 3.7 Turquois PD Tyrone 115 TY 18 4 4 Church Rock AY Line tap 115 CM 4 4.74 4.74
8 Q. PLEASE ELABORATE ON THIS TABLE.
9 A. Each of the lines listed are radial, do not loop back into the PNM transmission system
10 and do not meet any of the five PNM Criteria. The Cuchilla, San Lucas, Marquez,
11 Turquoise and Church Rock lines are all related to mining loads, many of which existed
12 in the 1970s and 1980s and no longer take service. The Church Rock facility has a minor
13 amount of load for NTUA. Cuchilla, San Lucas, Marquez and Turquoise all are related
14 to loads that are or were PNM retail loads and should be directly assigned to PNM's retail
15 native load. Recovery of those costs is an issue for PNM to address at the NMPRC, not
16 at the FERC.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 56 of 85
1 The Sara, Jefferson, and UNM North facilities are located in the Albuquerque and Rio
2 Rancho population centers and are also used to provide service to PNM retail native load.
3 Recovery of those costs is also an issue for PNM to address at the NMPRC, not at the
4 FERC.
5 In total compared to PNM’s 3,189 miles of transmission voltage lines at December 31,
6 2011, the nine radial lines identified above are an insignificant component. The cost of
7 net plant and annual depreciation expense related to the nine radial line facilities listed in
8 Table 7 are contained in Worksheet 13 in Attachment H-1.
9 Q. BASED ON YOUR ANALYSIS, WHAT IS THE TOTAL AMOUNT OF
10 DOLLARS THAT PNM PROPOSES TO DIRECTLY ASSIGN?
11 A. The total amount of net plant, based on an average beginning and yearend balance for
12 2011, is $934,000.
13 Q. WHAT IS THE EFFECT ON RATES OF DIRECTLY ASSIGNING THE COSTS
14 OF RADIAL LINE FACILITIES?
15 A. The effect is to reduce the ATRR for purposes of the rates determined in the annual
16 formula rate process. With one exception, the Church Rock line, the net plant and annual
17 depreciation expense related to the nine radial line facilities resides with the provision of
18 retail electric service so recovery of the costs of the eight remaining facilities is for PNM
19 to resolve with the NMPRC or specific retail customers. The Church Rock line currently
20 only serves load for NTUA. Given the insignificant amount of plant investment, PNM
21 will address the issue directly with NTUA outside of this proceeding.
22 B. TRANSMISSION PLANT RELATED TO SERVICE PROVIDED UNDER 23 INCREMENTAL RATES
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 57 of 85
1 Q. PLEASE DESCRIBE THE DIRECTLY ASSIGNED TRANSMISSION
2 FACILITIES RELATED TO TRANSMISSION SERVICES THAT ARE PRICED
3 ON AN INCREMENTAL BASIS.
4 A. In 2010, PNM and High Lonesome Mesa, LLC (“HLM”), entered into two transmission
5 service agreements for 90 and 10 MW respectively (“HLM TSAs”) providing for delivery
6 of 100 MW of power and energy from the HLM wind facility located near Willard, New
7 Mexico, to PNM’s interconnection with APS at Four Corners 345 kV switchyard. To
8 accommodate the delivery, PNM was required to replace a 115 kV transmission line, a
9 second reactor station at Belen, New Mexico, and complete various other station and 115
10 kV line upgrades. The total investment in network upgrades pursuant to the HLM TSAs is
11 $22 million. The HLM TSAs provided for a levelized transmission service rate based on
12 the incremental costs related to expanding the PNM transmission system. As a result,
13 HLM’s transmission service rate is set for the term of the transmission service
14 (approximately 25 years) and the $22 million of transmission upgrades, on completion, are
15 directly assigned to HLM for ratemaking purposes.
16 Q. AS RELATED TO THE DEVELOPMENT OF THE ATRR, ARE THERE ANY
17 ISSUES SPECIFIC TO HLM THAT SHOULD BE ADDRESSED?
18 A. Yes. Prior to completion of the HLM network upgrades, PNM provided HLM with
19 OATT transmission service subject to the terms of an operating procedure. In early 2012,
20 the final network upgrades for HLM were completed and PNM and HLM revised the
21 transmission service agreements establishing final, levelized transmission service rates
22 based on incremental pricing terms agreed to between PNM and HLM. As a result, for the
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 58 of 85
1 2011 data populating the initial formula rate, HLM is included as an OATT customer
2 under rolled-in pricing.
3 In the 2013 filing populating the formula with 2012 historical financial and load
4 information, PNM will remove both the HLM load (100 MW) and the investment ($22
5 million) from the net transmission plant and associated costs (depreciation, ad valorem
6 tax, incremental transmission O&M and property insurance) from the transmission
7 formula rate in Attachment H-1– Direct Assignments worksheet.
8 C. FACILITIES ASSOCIATED WITH LGIAs
9 Q. PLEASE DESCRIBE THE INTERCONNECTION FACILITIES RELATED TO
10 LGIAs.
11 A. PNM has expanded the transmission system to accommodate four customers pursuant to
12 LGIAs:
13 • New Mexico Wind Energy Center, a 100 MW wind farm owned by FPL Energy,
14 LLC, at Taiban Mesa Station, located near Ft. Sumner, New Mexico. FPL Energy,
15 LLC, has since changed its corporate name to NextEra.
16 • Valencia Generating Facility, a 140 MW gas-fired generator owned by Valencia
17 Power, LLC, located near Belen, New Mexico.
18 • Argonne Mesa wind farm at Guadalupe Station, a 90 MW wind farm owned by
19 Infigen Asset Management, LLC, located near Santa Rosa, New Mexico.
20 • Red Mesa wind farm at Red Mesa Station, a 102 MW wind farm owned by FPL
21 Energy, LLC, located near Grants, New Mexico. FPL Energy, LLC, has since
22 changed its corporate name to NextEra.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 59 of 85
1 Each of these generating facilities has line termination facilities at the point of ownership
2 change. The Valencia Energy Facility includes a 4 mile 115 kV transmission line. The
3 net plant and depreciation expense related to the interconnection facilities is included in
4 Attachment H-1 - Direct Assignments worksheet.
5 D. FACILITIES ASSOCIATED WITH GSUs
6 Q. PLEASE DESCRIBE THE GSUS THAT HAVE BEEN REMOVED FROM
7 TRANSMISSION PLANT.
8 A. In accordance with Commission policy, PNM has removed the GSUs at the various
9 generating stations owned or partially owned by PNM, including Palo Verde Nuclear
10 Generating Station, Four Corners Generating Station, San Juan Generating Station,
11 Reeves Generating Station, Afton Generating Station, Lordsburg Generating Station and
12 Luna Generating Station. The net plant and depreciation expenses related to the GSUs is
13 included in Attachment H-1 – Direct Assignments worksheet.
14 VII. NETWORK SERVICE CREDITS
15 Q. DOES PNM HAVE ANY NITS CUSTOMERS WITH TRANSMISSION
16 FACILITIES THAT SHOULD RECEIVE A CREDIT PURSUANT TO THE
17 CRITERIA OUTLINED BY THE COMMISSION IN ORDER NOS. 888 AND 890?
18 A. No. The basis for providing credits to NITS customers has changed from the original
19 criteria in Order No. 888 to the new criteria in Order No. 890. In Order No. 890, the
20 Commission modified Section 30.9 of the pro forma OATT to reflect the following
21 language that PNM has included in its OATT:
22 30.9 Network Customer Owned Transmission Facilities: The Network 23 Customer that owns existing transmission facilities that are integrated with the 24 Transmission Provider's Transmission System may be eligible to receive
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 60 of 85
1 consideration either through a billing credit or some other mechanism. In order to 2 receive such consideration the Network Customer must demonstrate that its 3 transmission facilities are integrated into the plans or operations of the 4 Transmission Provider to serve its power and transmission customers. For 5 facilities added by the Network Customer subsequent to July 13, 2007, the 6 Network Customer shall receive credit for such transmission facilities added if 7 such facilities are integrated into the operations of the Transmission Provider’s 8 facilities; provided however, the Network Customer’s transmission facilities shall 9 be presumed to be integrated if such transmission facilities, if owned by the 10 Transmission Provider, would be eligible for inclusion in the Transmission 11 Provider’s annual transmission revenue requirement as specified in Attachment H. 12 Calculation of any credit under this subsection shall be addressed in either the 13 Network Customer's Service Agreement or any other agreement between the 14 Parties.
15 As I describe earlier in my testimony, PNM provides a service credit to two customers
16 based on facilities owned by those customers.
17 With respect to Los Alamos County, PNM provides a ten MW billing credit based on an
18 SVC operated by Los Alamos county and owned by a LAC customer. PNM recognizes
19 the benefits the SVC provides to PNM’s northern New Mexico system and PNM and Los
20 Alamos County negotiated a billing credit that actually predates the issuance of Order
21 No. 888. PNM and Los Alamos County have provided the terms for the credit and the
22 review of its ongoing benefit to the transmission system in the PNM-Los Alamos County
23 NITS agreement.
24 With respect to Tri-State, PNM and Tri-State agreed to a twenty MW billing credit based
25 on a jointly planned series of system upgrades to both the Tri-State transmission system
26 and the PNM transmission system that increased the delivery capability in the northern
27 New Mexico transmission system. Tri-State built a 230kV transmission line from
28 Walsenberg, Colorado to Gladstone, New Mexico and PNM and Tri-State agreed to
29 funding and other upgrades to accommodate the addition of the 230kV transmission line
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 61 of 85
1 on the Tri-State system. The Tri-State network credit met the criteria of the Order No.
2 888 standard of customer facilities being jointly planned. PNM also provides Tri-State a
3 credit that is not related to a network customer transmission facility, but reflects the fact
4 that Tri-State is able to use transmission service on the EPE transmission system to
5 reduce its usage of the PNM northern New Mexico transmission system to deliver to Tri-
6 State’s southern New Mexico loads.
7 Q. NOTWITHSTANDING THE CREDITS PROVIDED TO LOS ALAMOS
8 COUNTY AND TRI-STATE YOU JUST MENTIONED, DOES PNM HAVE ANY
9 OTHER NITS CUSTOMER THAT QUALIFIES FOR A CREDIT UNDER
10 ORDER NOS. 888 AND 890?
11 A. No.
12 VIII. RECOVERY OF COSTS ASSOCIATED WITH ACQUISITION ADJUSTMENT 13 RELATED TO THE EASTERN INTERCONNECTION PROJECT (“EIP”)
14 Q. PLEASE DESCRIBE THE “EIP” FACILITIES.
15 A. The EIP consists of a 216 mile, 345 kV transmission line between PNM's bulk power
16 switching station north of Bernalillo, New Mexico, and a high voltage DC converter
17 station, called the Blackwater Station, located in the Clovis-Portales area of eastern New
18 Mexico, plus associated switching equipment and the Blackwater Station DC converter
19 facilities. The EIP was constructed in 1984-1985 to interconnect PNM's transmission
20 system to that of SPS. Since 1985, PNM has operated the EIP and treated the EIP as part
21 of its integrated transmission system. PNM currently operates the EIP pursuant to its
22 approved OATT.
23 Q. PLEASE DESCRIBE THE TRANSACTION PNM ENTERED INTO THAT
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 62 of 85
1 CREATED THE ACQUISITION ADJUSTMENT RELATED TO THE EIP
2 FACILITIES.
3 A. To fund the EIP Facilities, PNM entered into two, 30-year sale-leaseback transactions,
4 one for an undivided 60 percent interest in the EIP Facilities (“the “60 Percent Interest”)
5 and the other for an undivided 40 percent interest in the EIP Facilities (the “40 Percent
6 Interest”) (the two leases being referred to as the “60 Percent Lease” and the “40 Percent
7 Lease”, respectively). The lease provisions were identical other than the counterparties
8 involved and both leases provided for their termination on April 1, 2015, unless extended
9 by the parties or PNM exercising an early buyout option provided in the leases.
10 During the period in which the two sale-leaseback arrangements were in place, PNM
11 continued to operate and maintain the EIP Facilities. Pursuant to both leases, PNM made
12 semiannual lease payments to the leaseholders and the lease payments were included in
13 PNM’s transmission operating and maintenance expenses. PNM was responsible for all
14 operating and maintenance expenses related to the EIP Facilities. The leaseholders were
15 responsible for the payment of property taxes as the owners of the property.
16 Both leases provided that, upon termination, the percentage ownership interest in the EIP
17 Facilities would remain with the leaseholder. The leases further provided, however, that
18 PNM had the exclusive option to exercise an early buyout of the ownership interest and
19 terminate the lease prior to its April 1, 2015 termination date.
20 In 2002, PNM petitioned the Commission for approval to exercise the early buyout
21 option for the 60 Percent Interest. Ultimately, the transaction contemplated in the first
22 approval filing did not come to a successful closing and transfer. In early 2003, however,
23 PNM petitioned the Commission again, in Docket No. EC03-45-000, for approval to
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 63 of 85
1 purchase the 60 Percent Interest. The Commission approved the acquisition on the terms
2 outlined in the filing by PNM. Pub. Serv. Co. of New Mexico, 102 FERC ¶ 62,122
3 (2003).
4 As a result of the acquisition, PNM recorded the 60 Percent Interest as part of its utility
5 plant in service. The 2002 transaction resulted in an acquisition adjustment being booked
6 to FERC Account 114. As of December 31, 2011, the unamortized balance of the
7 acquisition adjustment is $8,203,561.
8 Q. HOW WAS THE PURCHASE PRICE FOR THE 60 PERCENT LEASE
9 DETERMINED?
10 A. As I noted earlier, PNM has an exclusive right in the 60 Percent Lease to exercise an
11 early buyout option, detailed in Section 14(a)(2) of the lease at a purchase price equal to
12 the greater of the 60 Percent Interest’s “Fair Market Value” and its “Early Purchase
13 Value.” The Early Purchase Value was defined in the lease as an amount equal to an
14 annual series of agreed to “floor” prices included in Schedule 3 of the lease entitled
15 Schedule of Early Purchase Values. Section 14 of the 60 Percent Lease provides that:
16 Section 14. Purchase Options 17 a) Unless a Default or Event of Default shall have occurred and be 18 continuing, the Lessee shall have the right to exercise one of the 19 following options to purchase the Undivided Interest: 20 2) On the Basic Rent Payment Date designated in a 21 written notice given at least two years prior to such 22 Basic Rent Payment Date (which date may only be 23 a Basic Rent payment Date), at a purchase price 24 equal to the greater of the Early Purchase Value 25 applicable on the date of purchase and the Fair 26 Market Value of the undivided Interest on such 27 date, plus an amount equal to the sum of any Basic 28 Rent then owing and any premium due on 29 prepayment of the Notes.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 64 of 85
1 The 60 Percent Lease provided that if PNM elected to exercise the early buyout option
2 pursuant to Section 14(a)(2) of the lease, then an appraisal process described in the lease
3 would be used to determine the 60 Percent Interest’s “Fair Market Value.” The lease
4 further provided that, regardless of what the Fair Market Value was determined to be, the
5 purchase price for the 60 Percent Interest could not be below the amount contained in the
6 Schedule of Early Purchase Values appended to the lease.
7 In order, however, to avoid the time and expense that would have been required to
8 complete the “Fair Market Value” appraisal process contained in the lease, PNM and the
9 owner of the 60 Percent Interest agreed to forgo the appraisal process and agreed upon a
10 purchase price equal to the then-current value listed in the lease’s Schedule of Early
11 Purchase Values: $35,707,805. Upon consummation of the purchase, PNM entered the
12 60 Percent Interest on PNM’s plant records at original cost less depreciation per the
13 direction of the Commission order approving the transaction and the Commission’s Chart
14 of Accounts. At the time PNM exercised its right to the early buyout of the 60 Percent
15 Interest, the 60 Percent Lease had been in place for 17 years out of its 30 year term. The
16 purchase price was equal to the Early Purchase Value contained in the 60 Percent Lease,
17 $35,707,805, while the net book value of the interest was $21,304,251 at the time of the
18 acquisition, creating a $14 million acquisition adjustment.
19 Q. WHAT IS YOUR UNDERSTANDING OF THE COMMISSION’S POLICY ON
20 THE RECOVERY OF ACQUISITION ADJUSTMENTS IN SERVICE RATES?
21 A. As has been explained to me by counsel, the Commission’s standard was most recently
22 articulated in a series of Commission orders regarding the filings by Startrans IO, LLC,
23 for Commission approval to purchase certain transmission assets owned by the City of
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 65 of 85
1 Vernon, California, and to establish service rates for transmission customers seeking
2 transmission service on those facilities. Startrans IO, L.L.C., 122 FERC ¶ 61,306 (2008);
3 order on reh’g, 130 FERC ¶ 61,209 (2010) (“Startrans”).
4 In its order on rehearing in Startrans, the Commission stated:
5 The Commission has recognized that a purchaser may include the 6 acquisition adjustment in its rate base upon a showing that the 7 excess paid over the depreciated original cost results in specific 8 dollar benefits to the pipeline’s customers. These benefits may 9 include “decreases in rates, improved services or economies in 10 operation which are clearly related and solely the result of the 11 acquisitions.” Further, the benefits must be tangible and 12 nonspeculative.
13 Startrans at P 19 (citing Montana-Dakota, 23 FERC ¶ 61,151 at 61,335 (1983) (internal
14 citations omitted)).
15 Q. DO YOU BELIEVE THAT PNM’S ACQUISITION ADJUSTMENT FOR THE
16 EIP FACILITIES SATISFIES THIS STANDARD?
17 A. Yes. As I describe in detail below, I believe that PNM has met the standard both related
18 to the quantifiable decrease in rates and to the improved economies of operation resulting
19 from the acquisition.
20 Q. DESCRIBE HOW THE ACQUISITION ADJUSTMENT RELATED TO THE EIP
21 MEETS THE COMMISSION’S CRITERIA AS ARTICULATED IN STARTRANS.
22 A. PNM has calculated the revenue requirements related to its operation and maintenance of
23 the 60 Percent Interest under two scenarios: (a) the scenario under which it exercised its
24 early buyout option under the lease and purchased the 60 Percent Interest in 2003 for the
25 “Early Purchase Value” of $35,707,805 (which occurred) (the “Ownership Scenario”)
26 and (b) the alternate scenario under which it allowed the 60 Percent Lease to remain in
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 66 of 85
1 effect through the end of its term (by imputing the costs that PNM would have incurred
2 assuming that the repurchase transaction had not occurred) (the “Lease Scenario”). I
3 have attached that computation as Exhibit No. PNM-9. As shown in that exhibit, the total
4 revenue requirements under the Ownership Scenario, with the acquisition adjustment of
5 approximately $8.5 million, results in an annual decrease in annual total revenue
6 requirements for the 60 Percent Interest of $620,362 for the test year ending December
7 31, 2011. The lease has a term through April 1, 2015, and the Ownership Scenario will
8 continue to result in a lower revenue requirement as the net book value and acquisition
9 adjustment value decrease while under the Lease Scenario, the lease payment will
10 remain the same. This saving represents a “tangible and nonspeculative” decrease in
11 rates that, under the test articulated by the Commission in Startrans, clearly demonstrates
12 specific benefits associated with the acquisition. As such PNM’s requested acquisition
13 adjustment should be granted.
14 Q. ARE THERE ANY OTHER SPECIFIC BENEFITS ASSOCIATED WITH PNM
15 ACQUISITION OF THE 60 PERCENT INTEREST?
16 A. Yes. There are at least three other specific customer benefits resulting from PNM's
17 acquisition of the 60 Percent Lease. While I will discuss these further later, they can be
18 briefly listed as:
19 • First, by reacquiring ownership of the 60 Percent Interest and terminating the
20 lease, PNM has been able to execute, and include in its monthly load ratio share
21 calculation, several interconnection and service agreements with terms extending
22 beyond the 60 Percent Lease’s termination date of April 1, 2015, something that
23 was prohibited under the terms of the 60 Percent Lease.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 67 of 85
1 • Second, two of the customers with whom PNM has entered into such long-term
2 agreements have deferred service and are paying deferred service charges to
3 PNM, providing a revenue credit to PNM’s transmission customers.
4 • Third, by purchasing the 60 Percent Interest and terminating the lease, PNM has
5 avoided incurring litigation expenses regarding the offering of post-lease
6 transmission services utilizing the interest, as have been incurred regarding the
7 provision of such service utilizing the 40 Percent Interest.
8 Q. PLEASE DESCRIBE THE INTERCONNECTION AND TRANSMISSION
9 SERVICE AGREEMENTS THAT WOULD NOT HAVE BEEN POSSIBLE BUT
10 FOR THE 60 PERCENT INTEREST ACQUISITION.
11 A. As I mentioned above, both the 60 Percent Lease and the 40 Percent Lease expired by
12 their terms on April 1, 2015. In addition, pursuant to the provisions of those leases, PNM
13 was prohibited from entering into any transmission service agreements utilizing the
14 leasehold interest that extended beyond the April 1, 2015 term.
15 By exercising its early buyout option and terminating the 60 Percent Lease, PNM has
16 been able to fully commit all of the 60 Percent Capacity (approximately 640 MW) to
17 interconnection service and transmission service.
18 • PNM uses 200 MW for a wind facility whose output PNM purchases.
19 • The remaining 400+ MW are contractually committed to other transmission
20 customers.
21 In addition, as a result of the acquisition, PNM has entered into two transmission service
22 agreements utilizing the 60 Percent Interest beyond April 1, 2015 with customers that
23 have deferred their transmission service.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 68 of 85
1 Service under those agreements would not have been possible absent PNM’s early buyout
2 of the 60 Percent Interest.
3 Q. WHAT EVIDENCE DEMONSTRATES THAT THOSE TRANSMISSION
4 AGREEMENTS UTILIZING THE 60 PERCENT INTEREST BEYOND APRIL 1,
5 2015 WOULD NOT HAVE BEEN ENTERED INTO BUT FOR PNM’S
6 ACQUISITION OF THAT INTEREST?
7 A. The best evidence for this is what has occurred with respect to transmission service
8 utilizing the 40 Percent Interest, for which PNM did not exercise an early buyout option
9 and which is, therefore, still subject to the provisions of the 40 Percent Lease. PNM has
10 been unable to offer transmission service post-April 1, 2015 on the 40 Percent Interest
11 due to that lease’s provision (identical to that contained in the 60 Percent Lease)
12 prohibiting PNM’s offering of such service. This constraint has resulted in PNM being
13 unable to sell any interconnection service or long term firm point to point transmission
14 service utilizing the 40 Percent Interest. No customer has agreed to enter into an
15 agreement for service utilizing the 40 Percent Interest given the uncertainty of what will
16 occur when the lease expires.
17 Q. WHAT ARE THE LITIGATION EXPENSES ASSOCIATED WITH THE 60
18 PERCENT INTEREST THAT HAVE BEEN AVOIDED AS A RESULT OF
19 PNM’S ACQUISITION OF THAT INTEREST?
20 A. PNM’s inability to offer transmission service on the 40 Percent Interest after April 1,
21 2015 has resulted in a complaint being filed with the Commission related to such inability
22 and the non-utility lessor and owner of the 40 Percent Interest being unwilling to commit
23 to providing such service. See Complaint and Request for Declaratory Order or, in the
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 69 of 85
1 Alternative, Request for Waiver of Certain Provisions of PNM’s Open Access
2 Transmission Tariff filed on March 2, 2012 by TGP Granada, LLC and its affiliate
3 Roosevelt Wind Ranch, LLC in Docket Nos. EL12-42-000 and EL12-43-000. To date,
4 PNM has incurred significant litigation expenses in responding to and addressing this
5 compliant, which is still not resolved. Indeed, while PNM recently executed an
6 agreement with the owner of the 40 Percent Interest to purchase that interest upon
7 expiration of the lease in 2015, and has conditionally agreed to provide service thereon,
8 the complaint proceeding is still ongoing and PNM will continue to incur expenses
9 related to it until it is resolved. To date, PNM has incurred $70,245 of legal expenses
10 related to the complaint proceeding, which total does not include PNM’s own resources
11 directed towards dealing with the complaint.
12 Given the fact that the 40 Percent Lease and the 60 Percent Lease are identical in all
13 respects, including term, and relate to the same transmission line, the EIP, it is almost
14 certain that the same issues and litigation would have occurred with respect to the 60
15 Percent Interest had PNM not exercised its early buyout option. As such, it is clear that
16 the savings in litigation costs “would not have occurred but for the purchase transaction,”
17 as was required by the Commission in the Startrans decision. See Startrans at P 26.
18 Q. PLEASE DESCRIBE WHAT ISSUES POTENTIAL 60 PERCENT INTEREST
19 CUSTOMERS WOULD ENCOUNTER POST-APRIL 1, 2015 HAD PNM NOT
20 PURCHASED THE 60 PERCENT INTEREST.
21 A. Upon the 60 Percent Lease’s expiration on April 1, 2015, PNM’s ownership would have
22 ended at the BA Switching Station, the western termination of the EIP Facilities. As a
23 result, in order for a customer to obtain interconnection service utilizing the 60 Percent
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 70 of 85
1 Interest that extended past April 1, 2015, that customer would have had to have entered
2 into two interconnection agreements, one with PNM until April 1, 2015, and a different
3 one with the owner of the 60 Percent Lease beginning April 1, 2015. The PNM
4 interconnection agreement would have been difficult to simply assign because the EIP is
5 not comparable to the entire PNM transmission network. The systems providing
6 interconnection service would be two different systems.
7 Further, assuming the interconnection customer was also the transmission service
8 customer, that customer would have been required to enter into a transmission service
9 agreement with PNM for service from the interconnection station (Guadalupe or a new
10 station) to Four Corners for the period through April 1, 2015. For service post-April 1,
11 2015 the customer would have to then been required to enter into an agreement with the
12 owner of the 60 Percent Interest for service from the interconnection station to BA
13 Station at the interconnection to the PNM transmission system and enter into a second
14 “pancaked” transmission service agreement with PNM in order to continue delivery from
15 BA Station to Four Corners. This would have resulted in significantly high transmission
16 costs for such customers for the exact same service PNM is now able to provide as a
17 result of its acquisition of the 60 Percent Interest.
18 Q. WOULD PNM HAVE PROCEEDED TO EXERCISE THE EARLY BUYOUT IF
19 THE 60 PERCENT INTEREST OWNER HAD NOT AGREED TO COMPLETE
20 THE SALE AT THE “EARLY PURCHASE VALUE” PROVIDED IN THE 60
21 PERCENT LEASE?
22 A. The buyback occurred almost ten years ago, but it would have been extremely unlikely
23 that PNM would have pursued the early buyout at that time under any other
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 71 of 85
1 circumstances. For the past several years, PNM has evaluated the idea of an early buyout
2 of the 40 Percent Interest for purposes of facilitating generator interconnection requests
3 but had been unable to convince the owner of that interest to agree to an early buyout for
4 the Early Purchase Value instead of the higher Fair Market Value, as it was able to do
5 with the 60 Percent Interest. Because of the higher purchase price for the 40 Percent
6 Interest, PNM has not exercised its option because of the exposure to a significant
7 acquisition adjustment brought on by a purchase at Fair Market Value rather than the
8 floor price established in the Early Purchase Value schedule.
9 Q. HAS PNM EVER HAD THE EIP FACILITIES APPRAISED?
10 A. Yes. In 2009, at the request of an interconnection service customer, PNM had an
11 independent appraisal performed to determine the fair market value to assess whether
12 PNM would consider purchasing the 40 Percent Interest under the early buyout option.
13 The appraisal was performed by an outside company and established a fair market value
14 for 100 percent of the EIP facilities of $73 million, resulting in a fair market value for the
15 60 Percent Interest at that time of $43.8 million. As of January 31, 2012, the net book
16 value of 100 percent of the EIP facilities was $52,259,297, resulting in a net book value
17 of $31,355,578.34 for the 60 Percent Interest.
18 Q. DID PNM HAVE ANY APPRAISALS OF THE EIP DONE REGARDING THE
19 2003 BUYBACK?
20 A. No. None were required due to the agreement of the owner to sell the 60 Percent Interest
21 to PNM at the floor Early Purchase Value.
22 IX. RATE DESIGN
23 Q. PLEASE EXPLAIN THE PROCESS THROUGH WHICH PNM USES THE ATRR
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 72 of 85
1 DEVELOPED FROM THE PNM FORMULA DESCRIBED IN MR. MONROY’S
2 TESTIMONY TO DESIGN POINT-TO-POINT TRANSMISSION SERVICE
3 RATES.
4 A. There are four categories of long term firm point-to-point transmission service users to
5 whom PNM allocates the ATRR that is developed from the PNM formula. These
6 categories are: 1) retail native load service that is then incorporated into PNM bundled
7 retail rates subject to the jurisdiction of the NMPRC; 2) NITS customers, whose rate is a
8 monthly allocation of one-twelfth of the ATRR based on each NITS customer’s load ratio
9 share; 3) GFAs, each customer of whom schedules a specific amount of power each hour
10 and is measured in whole MWs; and 4) LT Firm PTP Service customers. For 2011, those
11 categories of customers are allocated costs based on the average of their twelve month
12 peaks coincident with the Monthly Transmission System Peak Hour (retail native load,
13 NITS and GFA) or their contract demand (LT Firm PTP Service customer). In the
14 Transmission Demand worksheet in the Formula Rate calculation, those 2011 peak
15 demand values result in these average twelve month allocations by category:
16 Retail Native Load – 51.43%
17 NITS – 21.03%
18 GFAs – 6.31%
19 LT Firm PTP Service – 21.23%
20 Q. WHY IS IT NECESSARY TO CATEGORIZE CUSTOMERS AND THEIR
21 PROPORTIONATE SHARE OF THE ATRR?
22 A. There are two reasons. First, each customer category should be allocated only the share
23 of costs that reflect the portion of the transmission system that is required to meet that
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 73 of 85
1 category’s peak load. Second, certain categories of customers have directly-assigned
2 costs that impact the rate for that class of customers.
3 Q. WHAT ARE THE DIRECTLY ASSIGNED COSTS FOR EACH OF THE
4 CUSTOMER’S CATEGORIES AND HOW ARE THOSE COSTS ASSIGNED?
5 A. Mr. Monroy describes the process by which the Current Year Formula Rate calculates an
6 ATRR that applies to all users of the PNM transmission system. As described above,
7 there are certain directly assigned costs that then should be added to (additional expenses)
8 or subtracted from (revenue credits) several classifications.
9 Q. WHAT ADJUSTMENTS ARE MADE AFTER THE ATRR IS SPLIT AMONG
10 THE CUSTOMER CATEGORIES?
11 A. Once the ATRR is split among the four customer’s categories, the following adjustments
12 are made to those allocated costs on the Rate Design worksheet:
13 1. FERC jurisdictional rate case and regulatory commission expenses.
14 Each of the FERC jurisdictional and NMPRC jurisdictional customers should
15 only pay the regulatory commission expenses that represent the regulatory
16 commission which oversees transmission-related regulatory activities
17 applicable to that customer. In the case of FERC-jurisdictional regulatory
18 costs, those costs are assigned to NITS, GFA and LTF PTP customers, but not
19 to NMPRC customers. The only costs included in this filing are the
20 amortization costs set forth in the Settlement Agreement in the Stated Rate
21 Proceeding. A similar amount will be included in the 2012 annual update
22 process in 2013. The legal costs associated with this filing will not be
23 included until the litigation related to the case is completed or a definitive
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 74 of 85
1 amount for rate case expenses is agreed to among the parties. Similarly, the
2 NMPRC-related regulatory commission expenses are not allocated to any of
3 the three categories of FERC jurisdictional customers.
4 2. Revenue Credits for ST Firm PTP Service.
5 Each month in computing the load ratio share for NITS customers, PNM
6 includes all LT Firm PTP Service customers, including ST Firm PTP Service
7 customers. As a result, the NITS customers immediately recognize the benefit
8 of ST Firm PTP Service in a reduction of the NITS customer LRS for billing
9 purposes. Hence, the revenue from those ST Firm PTP Services sales is
10 retained by PNM to offset the allocation of portion of the ATRR to ST Firm
11 PTP Service customers in the LRS computation. Retail native load, GFAs and
12 LT Firm PTP Service customers have not received their proportional share of
13 ST Firm PTP Service revenue as their service rates are fixed every month, not
14 based on the LRS calculation. Therefore, PNM incorporates the revenue
15 credit by allocating it to the four categories on LRS but does not reduce the
16 ATRR allocated to NITS customers.
17 3. Third Party Transmission Service Required to Deliver Network Resources
18 used to Serve PNM’s Requirements Customers Taking NITS.
19 Several of the PNM network resources that are used to serve PNM’s
20 requirements customers, i.e., Gallup, Navopache, and Aztec, are
21 interconnected to the transmission systems of other utilities. To deliver to
22 those resources, PNM purchases third party transmission service. PNM has
23 allocated that third party transmission service based on generation demand
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 75 of 85
1 rather than transmission demand. Therefore, approximately 7% of the use of
2 the third party transmission service is based on the loads of Gallup,
3 Navopache, and Aztec. PNM has allocated a portion of the third party
4 transmission service to each of those customers, essentially creating a separate
5 ATRR for purposes of the monthly LRS calculation for those customers to
6 reflect the assignment of those transmission costs to requirements customers
7 but not NITS customers not taking requirements service from PNM. As this
8 cost is not assigned to all NITS customers, PNM proposes to allocate the
9 portion attributable to the average loads of the three requirements customers,
10 Gallup, Navopache, and Aztec, based on their proportional share of the three
11 requirements loads, and divide the resulting value by twelve to develop a
12 monthly charge.
13 Completion of the direct assignment costs then established the “net” ATRR allocated to
14 each of the four categories of customers.
15 Q. WHAT HAPPENS NEXT IN THE RATE DESIGN PROCESS AND ARE THERE
16 OTHER ADJUSTMENTS THAT ARE MADE?
17 A. The next step in the rate design process is to remove the ATRR allocable to Contract
18 2425 and NAPI. As addresses above, PNM is not seeking to modify the rates under
19 either of those two contracts. However, it is nonetheless appropriate to allocate a portion
20 of the ATRR to the services provided under those contracts.
21 The ATRR allocation to NAPI can be removed based on the percent of the average
22 annual Transmission Demand represented by NAPI. That amount is removed from the
23 ATRR that is allocated to the GFA customer category. PNM allocated the ATRR to the
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 76 of 85
1 four GFAs, also based on the relative peak demands of these types of customers.
2 PNM also makes an adjustment to remove costs allocable to Contract 2425. Because
3 WAPA does not separately schedule service under Contracts 2425 and P0695, PNM has
4 allocated the 12-CP WAPA load to Contracts 2425 and P0695 based on the reserved
5 capacity for each. Hence, Contract 2425 is 140 MW and Contract P0695 is 99 MW (six
6 months at 107 MW, six months at 91 MW). In total, the two contracts are 239 MW.
7 PNM computes a ratio of 140 MW divided by 239 MW and allocates that amount of the
8 ATRR attributable to the WAPA 12-CP measurement and assumes that amount of ATRR
9 is removed to represents loads under Contract 2425. The remaining ATRR attributable to
10 WAPA is assumed to represent loads served under contract P0695.
11 After the allocation of a portion of the ATRR to NAPI and Contract 2425, the remaining
12 ATRR attributable to LT Firm PTP Service and the remaining two GFAs is used to
13 design firm point-to-point transmission rates.
14 Through these adjustments, the rate design process arrives at a net allocation of the
15 ATRR to the four customer categories.
16 Q. WHY DID PNM NOT ALLOCATE THE ATRR TO ST FIRM OR NON-FIRM
17 CUSTOMERS?
18 A. PNM plans expansion of the transmission system only to serve long-term firm load. To
19 the extent the transmission system has available transmission capacity at any given time,
20 customers under PNM’s OATT are able to use that capacity on a short-term basis but
21 PNM does not plan its system to accommodate such uses. A short-term or non-firm
22 customer makes no commitment to funding of the required network upgrades required to
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 77 of 85
1 meet PNM’s obligations to serve the retail native and network load customers or to
2 provide long-term firm transmission capability.
3 Q. DID PNM ADJUST THE DEMAND ALLOCATORS TO REFLECT THE REAL
4 POWER LOSS FACTOR?
5 A. Yes. To determine the peak load of its retail native load customers, PNM uses a reading
6 from its EASE system (reflecting native load and NITS demand). Because the NITS
7 demand values are at the delivery level, those values must be grossed up to reflect
8 transmission voltage losses. Included in those NITS customer load figures are real power
9 losses as specified in the OATT – currently 3.58 percent. For LT Firm PTP Service and
10 GFA customers, a similar adjustment is made based either on delivered load values from
11 the EASE system or based on contract reservations on PNM’s OASIS.
12 Q. WHERE DOES PNM SHOW THESE ALLOCATORS?
13 A. Attachment H-1, on the Transmission Demand Worksheet.
14 Q. HOW DID PNM THEN ALLOCATE THE ATRR?
15 A. As described above, there are four categories of customers whose transmission costs are
16 considered in the ATRR calculation – Retail Load, NITS customers, GFAs, and LT Firm
17 customers. Of these, only the GFA and LT Firm customers actually pay a fixed
18 transmission service rate. NITS customers pay a proportional share of the ATRR each
19 month based on their LRS on a rolling twelve-month basis, and retail customers have
20 their rates set by the NMPRC. The allocation is shown on the Rate Design Worksheet.
21 Q. WITH THE ALLOCATIONS ESTABLISHED, HOW DID PNM THEN
22 ESTABLISH THE RATES FOR NITS SERVICE CUSTOMERS?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 78 of 85
1 A. It was not necessary for PNM to establish rates for NITS customers because these
2 customers simply pay a share of the NITS revenue requirement based on actual use based
3 on the ATRR approved by the Commission in the Current Year Formula Rate calculation
4 in Attachment H-1 of the OATT. Specifically, in each month, NITS customers pay a
5 proportionate share of the revenue requirement based on their respective load ratio share
6 of the monthly transmission system peak hour adjusted to a rolling twelve month basis.
7 Q. HOW DID PNM ESTABLISH ITS FIRM PTP TRANSMISSION SERVICE
8 RATES?
9 A. PNM established its firm PTP transmission service rates through a multi-step process.
10 First, PNM enters the ATRR from the Revenue Requirement worksheet and the four
11 categories of customers from the Transmission Demand Worksheet into the Rate Design
12 Worksheet.
13 Second, PNM allocates the ATRR to the four customer categories. The amount allocated
14 to retail load and NITS load is not considered further in the rate design for the firm point-
15 to-point rates.
16 Third, as I have noted earlier in my testimony, PNM is not seeking to change the rates for
17 two of the GFAs, the NAPI service and Contract 2425. The ATRR allocation to NAPI
18 can be removed based on the percent of the average annual Transmission Demand
19 represented by NAPI. That amount is removed from the ATRR that is allocated to the
20 GFA customer category. PNM allocated the ATRR to the four GFAs, also based on the
21 relative peak demands of these types of customers.
22 Fourth, PNM summed the ATRR amounts allocated to OATT PTP service and the four
23 GFAs and then subtracted from this amount the ATRR allocated to the two GFAs not
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 79 of 85
1 being changed by this filing – the NAPI GFA and Contract 2425 – effectively removing
2 their costs from the ATRR allocation that forms the basis for the new rates. Because
3 WAPA does not separately schedule service under Contracts 2425 and P0695, PNM has
4 allocated the 12CP WAPA load to Contracts 2425 and P0695 based on the reserved
5 capacity for each. Hence, Contract 2425 is 140 MW and Contract P0695 is 99 MW (6
6 months at 107 MW, 6 months at 91 MW). In total, the two contracts are 239 MW. PNM
7 takes 140 MW divided by 239 MW and allocates that amount of the ATRR attributable to
8 the WAPA 12CP measurement and assumes that amount of ATRR is removed to
9 represents loads under Contract 2425. The remaining ATRR attributable to WAPA is
10 assumed to represent loads served under contract P0695. After the allocation of a portion
11 of the ATRR to NAPI and Contract 2425, the remaining ATRR (the “Net ATRR”)
12 attributable to long term point to point service and the remaining two GFAs is used to
13 design firm point to point rates.
14 Fifth, PNM determined the total kw-months of LT Firm service by summing the point to
15 point transmission service rights for: (i) LT Firm contracts, (ii) Contract P0695, and (iii)
16 Service Schedule I. This sum, referred to as “Total Billing Determinants,” is shown on
17 the Rate Design Worksheet. Those values represent demand levels net of losses, which
18 are the billing units used for monthly invoices of service. Sixth, PNM divided the
19 allocated ATRR by the Total Billing Determinants to arrive at a monthly rate on shown
20 on the Rate Design Worksheet. PNM does not reference a specific line number for the
21 Total Billing Determinants because additional LT Firm transmission service may be
22 provided by PNM from time to time that would need to be accounted for both in the
23 Transmission Demand worksheet as well as the Rate Design Worksheet. Seventh, PNM
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 80 of 85
1 multiplied the monthly PTP rate by twelve to arrive at an annual rate. PNM then divided
2 the annual rate by 52 to arrive at a weekly rate, by 365 to arrive at a daily rate, and by
3 8,760 to derive an hourly rate.
4 Q. HOW DID PNM ESTABLISH ITS NON-FIRM PTP TRANSMISSION SERVICE
5 RATES?
6 A. Consistent with PNM’s practice since it first established its OATT, the non-firm rates (as
7 set forth in OATT Schedule 8), are the same as those for firm service (except that there is
8 no yearly non-firm service available).
9 Q. HOW DID PNM ESTABLISH THE RATES FOR CONTRACT P0695 AND
10 SERVICE SCHEDULE I FOR WHICH IT IS SEEKING CHANGES IN RATES?
11 A. The base rates in these GFAs are the same as the LT Firm rates. In the case of Contact
12 P0695, however, PNM and WAPA have agreed to several additional adjustments, as I
13 addressed earlier in my testimony. I have included the adjustment calculations for
14 Contract P0695 in the Rate Design Worksheet. I would also note that pursuant to the
15 terms of Section 8 (b) of Contract P0695, WAPA annually must advise PNM of the
16 “credit” for the 50 MW delivery. To facilitate timely filing and completion of the annual
17 formula rate filing described by Mr. Monroy, PNM will contact WAPA in writing
18 annually on April 1, pursuant to the terms of Section 8 of Contract P0695, to confirm the
19 value for the credit for the historical year on which PNM is basing its formula update.
20 Q. IN VIEW OF THE TWO WAPA GFAS AND THE FACT THAT NUMEROUS
21 NITS CUSTOMERS HAVE FEDERAL POWER AS A DESIGNATED
22 NETWORK RESOURCE, PLEASE EXPLAIN THE PROCESS PNM USES TO
23 ELIMINATE PANCAKED OR DUPLICATE RATE RECOVERY.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 81 of 85
1 A. As noted above, the WAPA GFAs provide, among other things, for PNM to deliver
2 Federal Power to certain WAPA customers. As also noted above, PNM provides NT
3 service to Tri-State, PNM Merchant for Gallup, WAPA for Kirtland, and Los Alamos
4 County. While Navopache, Aztec, and NTUA also have allocations of Federal Power,
5 the PNM transmission system is not used to deliver those Federal Power allocations and
6 the process described above is not used for those customers. PNM uses the same
7 transmission system to deliver power under the WAPA GFAs as under these NT service
8 agreements. This creates the inherent potential for pancaked or duplicate rate recovery.
9 To prevent such potential duplicate recovery, PNM has entered into crediting
10 mechanisms with each of its network customers who have delivery points under Contract
11 P0695 or Contract 2425 to reflect the WAPA transmission service that each of those
12 network service customers already pays for in its Federal Power rate with WAPA.
13 More specifically, when calculating the monthly load ratio share used to compute NT
14 service bills, PNM reduces the peak load values for Tri-State, PNM Merchant for Gallup,
15 WAPA for Kirtland, and Los Alamos to reflect the deliveries during the peak hour that
16 these customers receive using rights under Contract P0695 and Contract 2425. WAPA
17 and each of the NT service customers have agreed to this approach. The values included
18 for those NITS customers in the Transmission Demand Worksheet are net of the WAPA
19 credit described herein. Hence, there is no double counting of the WAPA loads as the
20 WAPA 12 CP measurement is the only inclusion of the WAPA demand.
21 Q. DOES PNM REDUCE THE CALCULATED NITS DEMAND OF NAVOPACHE,
22 NTUA, OR AZTEC IN THIS SAME MANNER?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 82 of 85
1 A. No, because these entities do not use transmission services from WAPA under Contract
2 P0695 or Contract 2425.
3 Q. PLEASE EXPLAIN THE RESULTING RATES CHANGE THAT PNM IS
4 REQUESTING IN THIS FILING.
5 A. As a result of the rate design outlined above and shown in Worksheet – Rate Design of
6 Attachment H-1, PNM is requesting the rate changes contained in Table 8 below to its
7 OATT to be implemented on March 2, 2013, with associated changes to Contract P0695,
8 and Service Schedule I:
Table 8– OATT Rate Changes Attachment H – ATRR Current ATRR $ 93,328,867 Settled ATRR $ 79,500,000 Filed ATRR $ 82,054,616 Schedule 7 – Long-Term Firm Point-to-Point Transmission Service Current Rate Settled Rate Filed Rate Unit Yearly Delivery $ 31.80 $ 27.77 28.12 Kw-year Monthly Delivery $ 2.65 $ 2.01 2.34 kW-month Weekly Delivery $ 0.612 $ 0.447 $ 0.54 kW-week Daily Delivery $ 0.1020 $ 0.0681 $ 0.0901 kW-day Hourly Delivery $ 6.389 $ 2.84 $ 5.633 MW hour Schedule 8 – Non-Firm Point-to-Point Transmission Service Current Rate Settled Rate Filed Rate Unit Monthly Delivery $ 2.65 $ 2.01 $ 2.34 kW-month Weekly Delivery $ 0.612 $ 0.447 $ 0.54 kW-week Daily Delivery $ 0.1020 $ 0.0681 $ 0.0901 kW-day Hourly Delivery $ 6.389 $ 2.84 $ 5.633 MW hour
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 83 of 85
1 X. AMENDED TARIFFS AND AGREEMENTS
2 Q. HOW DOES THE STATUS OF THE SETTLEMENT AGREEMENT IN THE
3 STATED RATE PROCEEDING AFFECT PNM’S INSTANT FILING?
4 A. Because the Commission has not yet approved the Settlement Agreement, PNM is
5 currently charging the rates that it submitted in the Stated Rate Proceeding, not the rates
6 that are included in the Settlement Agreement. As stated in Mr. Monroy’s testimony,
7 PNM proposes that the rates resulting from implementation of the formula rates become
8 effective March 2, 2013. As a result, there are three sets of rates germane to PNM’s
9 customers. Specifically, there are the currently-effective filed rates (“Filed Rates”), the
10 rates that will become effective when the Commission approves the Settlement
11 Agreement (“Settled Rates”) and the rates that are proposed to become effective on
12 March 2, 2013 (“Rates from the PNM Formula Rate”).
13 Q. HAVE YOU DEVELOPED AN ILLUSTRATIVE EXHIBIT COMPARING THE
14 FILED RATES, THE SETTLED RATES AND THE RATES FROM THE PNM
15 FORMULA RATE?
16 A. Yes. I have prepared revenue comparisons similar to those required in Statements BG
17 and BH of the filing revenue calculations, one for each customer for the Filed Rates, one
18 for each customer based on the Settled Rates, and one for the ATRR and Rates from the
19 PNM Formula Rate developed in this filing. This revenue comparison is attached to my
20 testimony as Exhibit No. PNM-10.
21 Q. WHAT REVISED TARIFFS AND AGREEMENTS IS PNM FILING TO
22 REFLECT THE RATES FROM THE PNM FORMULA RATE?
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 84 of 85
1 A. PNM is filing revised sections of its OATT and revised sheets to Service Schedule I and
2 Contract P0695 to reflect the Rates from the PNM Formula Rate.
3 Q. PLEASE DESCRIBE THE REVISED SECTIONS OF THE OATT.
4 A. With this filing, PNM is 1) revising the ATRR set forth in Attachment H; 2) adding the
5 Current Year Formula Rate in Attachment H-1; 3) adding the Implementation Protocols
6 in Attachment H-2 4) adding the PNM Criteria in Attachment H-3; 5) modifying the firm
7 point-to-point service rates, in Schedule 7; and 6) modifying the non-firm point-to-point
8 service rates in Schedule 8. The revised portions of the OATT are shown in Exhibit No.
9 PNM-11, with a redlined version provided as Exhibit No. PNM-12.
10 Q. PLEASE DESCRIBE THE REVISED SECTIONS OF THE COORDINATION
11 TARIFF.
12 A. Pursuant to a Commission order, the Coordination Tariff must restate the OATT rates in
13 full rather than just referencing the appropriate sections of the OATT. See Pub. Serv. Co.
14 of N.M., 119 FERC ¶ 61,208 (2007) (rejecting amendment to Coordination Tariff to
15 eliminate restatement of OATT rates in lieu of references to such rates). In light of this
16 order, PNM is proposing to modify the Coordination Tariff to remove the language
17 indicating that PNM Merchant will obtain such services at the rates included in
18 Attachments A-1 and B-1 of the Coordination Tariff and revise the language to reflect
19 that PNM Merchant will obtain such services under PNM’s OATT. Since PNM does not
20 provide any service under the Coordination Tariff, PNM is taking the opportunity to
21 remove any references to the OATT rates in the Coordination Tariff, as such change will
22 not impact any current customers. The revised portions of the Coordination Tariff are
23 provided in Exhibit No. PNM-13 with a redlined version as Exhibit No. PNM-14.
Exhibit No. PNM-6 Docket No. ER-13___-000 Page 85 of 85
1 Q. PLEASE DESCRIBE THE REVISIONS BEING MADE TO CONTRACT P0695.
2 A. Parity has existed between the OATT rates and the transmission service rates set forth in
3 Contract P0695 since PNM filed its initial OATT in 1996. Consistent with this historical
4 approach, PNM is thus seeking to amend portions of Contract P0695 to reflect the new
5 point-to-point rates as provided for in Section 8(b) of Contract P0695. The revised
6 portions of Contract P0695 are shown in Exhibit No. PNM-15, with a redlined version
7 provided as Exhibit No. PNM-16.
8 Q. PLEASE DESCRIBE THE REVISIONS BEING MADE TO SERVICE
9 SCHEDULE I.
10 A. Parity has existed between the OATT rates and the rate for firm transmission service in
11 Service Schedule I since 1995. Consistent with this historical approach, PNM is thus
12 seeking to amend portions of Service Schedule I to reflect the new OATT point-to-point
13 rates, as provided in Section 4.0 of Service Schedule I. The revised portions of Service
14 Schedule I am shown in Exhibit No. PNM- 17, with a redlined version provided as
15 Exhibit No. PNM-18.
16 XI. CONCLUSION
17 Q. DOES THIS CONCLUDE YOUR TESTIMONY AT THIS TIME?
18 A. Yes, it does.