NMAG v. NMPRC ( 2013 )

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
Opinion Number: ___________
Filing Date: August 29, 2013
Docket No. 33,393
NEW MEXICO ATTORNEY GENERAL
and NEW MEXICO INDUSTRIAL ENERGY
CONSUMERS,
Appellants,
v.
NEW MEXICO PUBLIC REGULATION COMMISSION,
Appellee,
and
PUBLIC SERVICE COMPANY OF NEW MEXICO,
COALITION FOR CLEAN AFFORDABLE ENERGY,
and WESTERN RESOURCE ADVOCATES,
Real Parties in Interest.
APPEAL FROM THE NEW MEXICO PUBLIC REGULATION COMMISSION
Gary K. King, Attorney General
Jeffery S. Taylor, Assistant Attorney General
Santa Fe, NM
for Appellant New Mexico Attorney General
Peter Jude Gould
Santa Fe, NM
for Appellant New Mexico Industrial Energy Consumers
Margaret Kendall Caffey-Moquin
Santa Fe, NM
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for Appellee
Benjamin Phillips
Albuquerque, NM
Cuddy & McCarthy, L.L.P.
Patrick T. Ortiz
Rebecca D. Dempsey
Santa Fe, NM
for Real Party in Interest Public Service Company of New Mexico
Charles F. Noble
Sante Fe, NM
for Real Party in Interest Coalition for Clean Affordable Energy
Steven S. Michel
Santa Fe, NM
for Real Party in Interest Western Resource Advocates
Hinkle, Hensley, Shanor & Martin, L.L.P.
Jeffrey L. Fornaciari
Dulcinea Z. Hanuschak
Santa Fe, NM
for Amicus Curiae Southwestern Public Service Company
OPINION
DANIELS, Justice.
{1} This case addresses whether in determining public utility electricity rates the New
Mexico Public Regulation Commission (PRC) has authority to consider expenses incurred
by a public utility for energy efficiency programs. Appellants, the New Mexico Attorney
General and New Mexico Industrial Energy Consumers, ask us to vacate and annul the final
order in PRC Case No. 11-00308-UT (Case 308 Final Order) because it permits Public
Service Company of New Mexico (PNM) to earn returns on the operating expenses incurred
from energy efficiency programs. Appellants argue that such returns are inconsistent with
New Mexico law. We hold that the Case 308 Final Order is consistent with the PRC’s
ratemaking authority under the New Mexico Public Utility Act, NMSA 1978, §§ 62-3-1 to
-5 (1967, as amended through 2009) (PUA), and the New Mexico Efficient Use of Energy
Act, NMSA 1978, §§ 62-17-1 to -11 (2005, as amended through 2013) (EUEA), and with
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our holding in Attorney General v. New Mexico Public Regulation Commission (AG v. PRC
2011), 2011-NMSC-034, 150 N.M. 174, 258 P.3d 453. We also hold that the Case 308 Final
Order is supported by substantial evidence and is neither arbitrary nor capricious.
Accordingly, we affirm the Case 308 Final Order.
I. BACKGROUND
A. Statutory and Regulatory Background
{2} Enacted in 2005, the EUEA calls for the PRC to identify and eliminate regulatory
disincentives or barriers for public utility expenditures on energy efficiency and load
management measures “in a manner that balances the public interest, consumers’ interests
and investors’ interests.” See §§ 62-17-2(E), -3, & -5(F); see also § 62-17-4(F) & (H)
(defining “energy efficiency” to include “energy conservation measures, or programs that
target consumer behavior, equipment or devices to result in a decrease in consumption of
electricity and natural gas without reducing the amount or quality of energy services” and
describing “load management” as “measures or programs that target equipment or devices
to result in decreased peak electricity demand . . .”). To implement the EUEA, the PRC
promulgated its energy efficiency regulations, 17.7.2 NMAC (03/01/2007, replaced
05/03/2010). In relevant part, the regulations require utilities to file proposals with the PRC
to remove disincentives or barriers to energy efficiency programs that utilities believe exist.
See 17.7.2.9(K) NMAC (03/01/2007).
{3} The Legislature amended the EUEA in 2008 to specifically require the PRC to give
utilities an opportunity to earn a profit on cost-effective energy efficiency and load
management resource development. See § 62-17-5(F) (2008). After the 2008 amendments
to the EUEA, the PRC issued an order to conduct a rulemaking proceeding to revise 17.7.2
NMAC through a series of workshops with interested parties. See AG v. PRC 2011, 2011-
NMSC-034, ¶ 4. The workshops produced a proposed amendment to the regulations known
as Alternative A. See id. ¶ 5.
{4} Alternative A would (1) temporarily allow utilities to recover an Interim Adder at
rates of $0.01 for each kilowatt hour saved and $10.00 for each kilowatt reduced from the
annual demand due to approved energy efficiency programs, (2) require utilities and
interested parties to file proposals for a permanent solution to eliminate disincentives to
energy efficiency programs, and (3) after the temporary Interim Adder expired, allow
utilities to continue receiving a Reduced Adder at rates of $0.005 for every kilowatt hour
saved and $10.00 for each kilowatt reduced from the annual demand due to approved energy
efficiency programs. See id.
{5} On April 8, 2010, the PRC adopted the proposed Alternative A in a final order. See
N.M. Pub. Regulation Comm’n, Final Order Repealing and Replacing 17.7.2 NMAC, Case
No. 08-00024-UT (April 8, 2010) (Case 024 Final Order), available at
http://www.nmprc.state.nm.us/ (follow hyperlinks: “Case Lookup Edocket” under QUICK
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LINKS and then “Documents Search” under Search). The revised energy efficiency
regulations became effective on May 3, 2010. See 17.7.2.5 NMAC (05/03/2010).
B. Factual and Procedural Background
{6} On June 23, 2011, the PRC issued a final order further reducing the Reduced Adder
rates by sixty percent to accomplish the requirements of the EUEA and 17.7.2 NMAC with
respect to PNM. See N.M. Pub. Regulation Comm’n, Final Order Partially Adopting
Recommended Decision, Case No. 10-00280-UT (June 23, 2011) (Case 280 Final Order),
available at http://www.nmprc.state.nm.us/ (follow hyperlinks: “Case Lookup Edocket”
under QUICK LINKS and then “Documents Search” under Search). On July 27, 2011, we
issued AG v. PRC 2011, vacating the PRC’s Case 024 Final Order adopting the revisions to
17.7.2 NMAC because in its rulemaking the PRC had not “adequately balance[d] the
investors’ interests against the ratepayers’ interests when adopting Alternative A.” AG v.
PRC 2011, 2011-NMSC-034, ¶¶ 1, 18-19.
{7} Subsequently, on August 16, 2011, the PRC docketed a case to investigate whether
PNM’s adder rates approved in Case 280 were consistent with our ruling in AG v. PRC 2011.
The PRC issued the Case 308 Final Order on November 3, 2011, N.M. Pub. Regulation
Comm’n, Final Order, Case No. 11-00308-UT (November 3, 2011), available at
http://www.nmprc.state.nm.us/ (follow hyperlinks: “Case Lookup Edocket” under QUICK
LINKS and then “Documents Search” under Search), wherein it found that PNM’s approved
adder rates were not based on the PRC’s vacated Case 024 Final Order replacing 17.7.2
NMAC and were consistent with our holding in AG v. PRC 2011. See Final Order, Case
308, ¶¶ 30, 36. On January 19, 2012, Appellants filed a notice of direct appeal of the Case
308 Final Order to this Court. See NMSA 1978, § 62-11-1 (1993) (“Any party to any
proceeding before the [PRC] may file a notice of appeal in the supreme court asking for a
review of the [PRC’s] final orders.”).
II. DISCUSSION
{8} Appellants argue that the Case 308 Final Order is inconsistent with New Mexico law
because it is contrary to our opinion in AG v. PRC 2011. Appellants read our holding in that
case as a mandate to the PRC to use only traditional ratemaking principles, specifically the
so-called return-on-rate-base method—which establishes a utility’s revenue requirements
by determining operation costs, net value of the utility’s capital investment (“rate base”), and
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the rate of return—for setting utility rates.1 See 2011-NMSC-034, ¶ 17. Because Appellants
interpret AG v. PRC 2011 as a specific mandate limiting the methods the PRC may use for
determining just and reasonable utility rates, they necessarily conclude that the PRC acted
outside the scope of its authority in approving adder rates that were not determined using a
traditional return-on-rate-base method. Further, Appellants argue that the Case 308 Final
Order is unsupported by substantial evidence because, rather than conducting additional fact-
finding hearings, the PRC relied on the factual determinations in the record from Case 280
to support its legal determination in Case 308. Finally, Appellants argue that the rationale
articulated by the PRC to justify its Case 308 Final Order is inappropriate and unreasonable
and therefore arbitrary and capricious. For the reasons stated in this opinion, we disagree.
A. Standards of Review
{9} We review an administrative order “to determine if it is arbitrary, capricious, or an
abuse of discretion; not supported by substantial evidence in the record; or, otherwise not
in accordance with law.” Rio Grande Chapter of Sierra Club v. N.M. Mining Comm’n, 2003-
NMSC-005, ¶ 17, 133 N.M. 97, 61 P.3d 806; accord Rule 1-075(R) NMRA. “The burden
is on the parties challenging the agency order to make this showing.” AG v. PRC 2011, 2011-
NMSC-034, ¶ 9; accord NMSA 1978, § 62-11-4 (1965). We “have no power to modify the
action or order appealed from, but [must] either affirm or annul and vacate the same.”
NMSA 1978, § 62-11-5 (1982).
{10} “A ruling by an administrative agency is arbitrary and capricious if it is unreasonable
or without a rational basis, when viewed in light of the whole record.” Rio Grande Chapter
of Sierra Club, 2003-NMSC-005, ¶ 17. “In making these determinations, we must remain
mindful that in resolving ambiguities in the statute or regulations which an agency is charged
with administering, the Court generally will defer to the agency’s interpretation if it
implicates agency expertise.” Id. (internal quotation marks and citation omitted). “However,
we will not defer to the [agency’s] or the district court’s statutory interpretation, as this is
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Appellants’ briefing argues that in AG v. PRC 2011 this Court “set[] forth the
traditional elements of the rate setting process that the Commission was required to follow.”
Counsel for the Attorney General asserted at the December 10, 2012, oral argument that
“this specific methodology of providing a profit [to PNM] has to be done according to
traditional ratemaking principles” and explained that the traditional ratemaking concept
requiring “that returns . . . be related to investment goes back to the beginnings of utility
regulation. Rate of return on rate base was suggested or implied by constitutional caselaw.
The central pillar in the administration of just and reasonable rate standard will be found in
the allowance of regulated companies’ costs of operation plus a reasonable rate of return on
rate base.” Also at oral argument, counsel for New Mexico Industrial Energy Consumers
took the same stance: “So we think basically that the [PRC] simply chose the wrong
methodology in this case.”
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a matter of law that we review de novo.” Id.B. The Case 308 Final Order Is Reasonable and Lawful
{11} In reviewing the Case 308 Final Order “we begin by looking at two interconnected
factors: whether the decision presents a question of law, a question of fact, or some
combination of the two; and whether the matter is within the agency’s specialized field of
expertise.” AG v. PRC 2011, 2011-NMSC-034, ¶ 9 (internal quotation marks and citation
omitted). The case before us involves a question of law—whether the public utility
electricity rates established by the PRC in Case 280 satisfy the legal requirements we
outlined in AG v. PRC 2011. Utility ratemaking is undoubtedly a matter within the PRC’s
specialized field of expertise. See NMSA 1978, § 62-6-4(A) (2003) (“The [PRC] shall have
general and exclusive power and jurisdiction to regulate and supervise every public utility
in respect to its rates and service regulations . . . in accordance with the provisions and
subject to the reservations of the [PUA], and to do all things necessary and convenient in the
exercise of its power and jurisdiction.”); Plains Elec. Generation & Transmission Coop.,
Inc. v. N.M. Pub. Util. Comm’n, 1998-NMSC-038, ¶ 7, 126 N.M. 152, 967 P.2d 827 (“[W]e
defer to [PRC] decisions requiring expertise in highly technical areas, such as utility rate
determinations.” (internal quotation marks and citation omitted)).
{12} “‘When an agency that is governed by a particular statute construes or applies that
statute, the court will begin by according some deference to the agency’s interpretation.’”
Rodriguez v. Permian Drilling Corp., 2011-NMSC-032, ¶ 8, 150 N.M. 164, 258 P.3d 443(quoting Morningstar Water Users Ass’n v. N.M. Pub. Util. Comm’n, 1995-NMSC-062, ¶
11, 120 N.M. 579, 904 P.2d 28). “[T]he court will confer a heightened degree of deference
to the agency on legal questions that determine fundamental policies within the scope of the
agency’s statutory function.” Marbob Energy Corp. v. N.M. Oil Conservation Comm’n,
2009-NMSC-013, ¶ 6, 146 N.M. 24, 206 P.3d 135. However, the court “‘is not bound by the
agency’s interpretation and may substitute its own independent judgment for that of the
agency because it is the function of the courts to interpret the law.’” Rodriguez, 2011-
NMSC-032, ¶ 8 (quoting Morningstar, 1995-NMSC-062, ¶ 11). “The court should reverse
if the agency’s interpretation of a law is unreasonable or unlawful.” Morningstar, 1995-
NMSC-062, ¶ 11.
1. The PRC’s Interpretation of the EUEA and the PUA Is Consistent with Our
Holding in AG v. PRC 2011
{13} Appellants argue that in AG v. PRC 2011 this Court “rejected the notion that utilities
should be allowed to earn a profit on program expenses without making any capital
investment,” mandated that the PRC use only the traditional return-on-rate-base method for
setting just and reasonable utility rates, and established a single regulatory paradigm for
determining utility rates under both the EUEA and the PUA. Based on their interpretation
of AG v. PRC 2011, they argue that in the Case 308 Final Order the PRC failed to properly
balance the relevant investor and ratepayer interests, failed to apply the traditional elements
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of utility ratemaking in establishing PNM’s Reduced Adder rates, and failed to follow this
Court’s interpretation of the controlling ratemaking principles. Appellants misread our
previous holding.
{14} AG v. PRC 2011 involved a challenge to the PRC’s rulemaking pursuant to the 2008
amendments to the EUEA requiring the PRC to identify and remove barriers to public utility
expenditures on resource development for energy efficiency and load management. See
2011-NMSC-034, ¶¶ 2-4, 8. The PRC set an adder rate applicable uniformly to the public
utilities and designed to remove such barriers and incentivize such expenditures. See id. ¶¶
4-5, 7-8. On appeal, we held that “[t]he PRC’s adoption of the [uniform] adder rates was
arbitrary and unlawful in that they were not evidence-based, cost-based, []or utility specific.”
Id. ¶ 18. Although the PRC heard evidence from the utility companies about the expected
impact of the uniform adder rates, it did not conduct an adequate inquiry to “balance the
investors’ interests against the ratepayers’ interests.” Id. We observed that the PUA requires
such balancing to assure that the rate the PRC sets is “‘just and reasonable.’” Id. ¶ 13
(quoting NMSA 1978, § 62-8-1 (1941)). We noted that the Legislature intended the same
balancing method to assure that the rate created under the EUEA is “‘just and reasonable.’”
AG v. PRC 2011, 2011-NMSC-034, ¶ 14 (citing §§ 62-17-2(E) & -3). “Both [the PUA and
the EUEA] require the PRC to balance the public interest, consumers’ interests, and
investors’ interests.” AG v. PRC 2011, 2011-NMSC-034, ¶ 15. Because the PRC failed to
apply this balancing test, we held that the PRC had no basis for determining that the uniform
adder rates were “‘just and reasonable.’” Id. ¶ 18.
{15} With respect to the required balancing test, we stated that “[w]hen determining the
investor’s interest, the PRC takes into account the utility’s interest in recovering its
prudently incurred costs and earning a reasonable return on its capital investments.” Id. ¶ 16.
“The ratepayer’s interest, on the other hand, is to be protected from excessive rates that
unjustly burden ratepayers while receiving steady and quality service from the utility.” Id.
We recognized that “[t]here is a significant zone of reasonableness . . . between utility
confiscation and ratepayer extortion,” id. (omission in original) (internal quotation marks
and citation omitted), and that “[t]he PRC is vested with considerable discretion in
determining whether a rate to be received and charged falls within [that] zone,” id. ¶ 17
(internal quotation marks and citation omitted). “The factors the PRC uses to determine
whether a proposed rate falls within the zone of reasonableness are based on [the utility’s]
revenue requirements: the costs of supplying the fuel and profit for the utility in an amount
sufficient to encourage investment.” Id. ¶ 17 (alteration in original) (internal quotation marks
and citation omitted).
{16} AG v. PRC 2011 requires the PRC to set utility rates that are evidence based, cost
based, and utility specific. See id. ¶ 18. It also clarifies that under the PUA and the EUEA
the PRC must balance investors’ interests against ratepayers’ interests when determining
whether a utility rate is just and reasonable. Id. However, it does not prescribe the use of any
particular ratemaking method—or restrict the use of others—as Appellants argue. The Case
308 Final Order is consistent with this reading of AG v. PRC 2011.
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{17} In the Case 308 Final Order, the PRC found that PNM’s Reduced Adder rates
approved in Case 280 were cost based, evidence based, and utility specific. See Final Order,
Case 308, ¶¶ 29-30, 36. In Case 280 the PRC gave due consideration to PNM’s revenue
requirements in balancing the ratepayers’ interests with the investors’ interests. The PRC
determined PNM’s revenue requirements by using an “operating ratio approach” it deemed
appropriate for “situation[s] in which investor-provided capital and the related capital costs
have not been a significant factor in the total cost of providing services.” Id. ¶ 25 (internal
quotation marks and citation omitted). The operating ratio approach establishes a regulated
entity’s revenue requirements “by dividing operating expenses by a target operating ratio
deemed necessary to produce revenues adequate to cover operating expenses plus
depreciation, taxes and capital costs.” Id. (emphasis added) (internal quotation marks and
citation omitted). Unlike the return-on-rate-base method, the operating ratio approach does
not use the net value of capital investment in determining the regulated company’s revenue
requirement. Based on the evidence regarding program costs and PNM’s revenue
requirements, the PRC rejected PNM’s proposed Reduced Adder rates of $0.005 per kilowatt
hour of lifetime energy savings and $10 per kilowatt of demand savings, and
instead—balancing the public interest, consumers’ interests, and investors’
interests—approved a lesser rate of $0.002 per kilowatt hour of lifetime energy savings and
$4 per kilowatt of demand savings. See Final Order, Case 280, ¶ 51; see also Final Order,
Case 308, ¶ 29 (noting that the information in the Case 308 Final Order concerning PNM’s
Reduced Adder rates is the same as in the Case 280 Final Order except for a typographical
error in the lifetime energy savings rate in the Case 308 Final Order).
{18} The PRC’s interpretation of the ratemaking requirements in the EUEA and the PUA
is consistent with our holding in AG v. PRC 2011 because the PRC determined that the rates
approved in Case 280 were cost based, evidence based, and utility specific, and because the
PRC balanced the investors’ interests with the ratepayers’ interests in determining just and
reasonable rates—instead of simply adopting the rates proposed by PNM. See Final Order,
Case 280, ¶ 51; see also Final Order, Case 308, ¶ 29.
2. The EUEA Gives the PRC Authority to Eliminate Financial Disincentives to
Energy Efficiency and Load Management Measures
{19} Appellants also argue that the PRC acted outside the scope of its authority in
permitting PNM to earn a profit on energy efficiency program expenses without making any
capital investment. Appellants overlook the authority the EUEA gives the PRC to identify
and remove regulatory disincentives or barriers to public utility expenditures on energy
efficiency and load management measures, including specifically the authority to allow
utilities to earn a profit on energy efficiency and load management resource development.
{20} The PUA, which sets forth the requirements for determining utility rates in New
Mexico, requires rates set by the PRC to be just and reasonable. See § 62-8-1. A just and
reasonable rate is one that balances the public interest, the interests of consumers, and the
interests of investors in public utility companies. See, e.g., AG v. PRC 2011, 2011-NMSC-
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034, ¶ 13 (“Under the PUA, a rate is ‘just and reasonable’ when it balances the investor’s
interest against the ratepayer’s interest.”); PNM Gas Servs. v. N.M. Pub. Util. Comm’n,
2000-NMSC-012, ¶ 8, 129 N.M. 1, 1 P.3d 383 (“Ultimately, the [PRC] must ensure that rates
are neither unreasonably high so as to unjustly burden ratepayers with excessive rates nor
unreasonably low so as to constitute a taking of property without just compensation or a
violation of due process by preventing the utility from earning a reasonable rate of return on
its investment.”).
{21} In 2005—nearly forty years after the PUA was enacted—our Legislature enacted the
EUEA, which recognizes energy conservation as an important principle of New Mexico
public policy. See § 62-17-3 (2005). The EUEA acknowledges that there are regulatory
disincentives that prevent public utilities from including cost-effective energy efficiency and
load management programs in their energy resource portfolios. See id. For example, the
traditional ratemaking formulas provide incentives for utilities to invest in supply-side
resources such as generating plants or transmission lines because that is how utilities
traditionally make money: the larger the rate base—or capital investment—the greater the
energy supply and the larger the profit. The more energy utilities sell, the more money they
make. On the other hand, when a utility implements the statutory energy efficiency program
to reduce the amount of energy consumed by its customers, “[t]his necessarily results in a
reduction in the utility’s revenue.” AG v. PRC 2011, 2011-NMSC-034, ¶ 11. The EUEA
calls for the removal of such regulatory disincentives “in a manner that balances the public
interest, consumers’ interests and investors’ interests.” Sections 62-17-2(E), -3, & -5(F).
{22} In 2008, our Legislature amended the EUEA specifically to allow utilities to earn a
profit on energy efficiency development and provide incentives for implementing energy
efficiency programs. See § 62-17-5(F) (2008) (requiring the PRC to provide “utilities an
opportunity to earn a profit on cost-effective energy efficiency and load management
resource development that . . . is financially more attractive to the utility than supply-side
utility resources”); § 62-17-6(A) (2008) (allowing public utilities to recover their prudent
and reasonable costs along with PRC-approved incentives for implementing demand-side
resources and load management programs through either a tariff rider or in base rates or
through a combination of both). Through the EUEA, the Legislature has given the PRC
authority to allow utilities to earn a profit on energy efficiency expenditures. Nothing in the
language of the EUEA requires the profit incentive to be tied to capital investments.
{23} The parties disagree as to what is meant by the word profit in the EUEA. Appellants
urge this Court to interpret “profit” as a term of art in the regulatory context that equates to
a utility’s rate of return on its invested, at-risk capital. Thus, in Appellants’ view, a profit
approved by the PRC must be tied to a utility’s invested, at-risk capital. If “profit” is
necessarily tied to a utility’s capital investment, then a determination of the utility’s revenue
requirement (for purposes of balancing the ratepayers’ interests against the investors’
interests) obliges the PRC to adhere to traditional ratemaking principles for setting just and
reasonable utility rates under the PUA and the EUEA. Appellants argue that PNM’s Reduced
Adder rates for energy efficiency programs upsets the PUA and the EUEA balancing
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interests by requiring ratepayers to compensate PNM shareholders for risk they have not
taken.
{24} PNM urges us to apply the broader ordinary meaning of “profit.” Interpreting “profit”
as any earning above (expense or capital) costs, PNM argues that the balancing requirement
in the PUA can be harmonized with the same requirement in the EUEA in a way that does
not require the use of a return-on-rate-base method to achieve just and reasonable utility
rates.
{25} While the PUA and the EUEA both require the PRC to establish just and reasonable
rates by balancing investors’ interests against ratepayers’ interests, there is no indication that
“profit” in the EUEA was intended to mean a utility’s return on its invested capital, and thus
there is no need to require the PRC to accomplish the balancing test by applying a return-on-
rate-base method for setting public utility rates. We apply our principles of statutory
construction to interpret the meaning of “profit” in the EUEA to discern whether the
Legislature intended to impose such a requirement.
{26} Under the rules of statutory construction, we first turn to the plain meaning of the
words at issue, often using the dictionary for guidance. See State v. Nick R., 2009-NMSC-
050, ¶ 18, 147 N.M. 182, 218 P.3d 868 (recognizing that our courts interpret the intended
meaning of statutory language by consulting the dictionary to ascertain the words’ ordinary
meaning). The plain meaning rule requires that statutes “be given effect as written without
room for construction unless the language is doubtful, ambiguous, or an adherence to the
literal use of the words would lead to injustice, absurdity or contradiction, in which case the
statute is to be construed according to its obvious spirit or reason.” State v. Maestas,
2007-NMSC-001, ¶ 9, 140 N.M. 836, 149 P.3d 933 (internal quotation marks and citation
omitted).
{27} A“ratio . . . to the amount of capital invested” is just one of multiple definitions for
the word profit and is the only definition that specifically refers to the invested “capital.”
See, e.g., Webster’s Third New Int’l Dictionary of the English Language Unabridged 1811
(1976). Other definitions include “an advantage, benefit, accession of good, gain, or valuable
return . . . [;] the excess of returns over expenditure in a transaction or series of transactions
. . . [; and] a benefit or advantage accruing . . . from the conduct of business.” Id. Notably,
there is no indication that our Legislature intended to impose a different meaning to the word
profit other than its ordinary meaning. See § 62-3-3 (containing no definition for the word
profit in the PUA); § 62-17-4 (same in the EUEA). We interpret “profit” in the EUEA
according to its ordinary meaning as any return over expenditure. Applying the plain
meaning of the word in this case incurs no injustice, absurdity, or contradiction. Meanwhile,
the narrower definition of “profit” Appellants promote would have the effect of requiring the
PRC to use a return-on-rate-base method for setting public utility electricity rates. This
requirement would render much (if not all) of the EUEA meaningless. We do not interpret
our statutes so as to deprive them of their intended meaning. See Benavidez v. Sierra Blanca
Motors, 1996-NMSC-045, ¶ 18, 122 N.M. 209, 922 P.2d 1205 (“We presume that the
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Legislature is well informed regarding existing statutory and common law and does not
intend to enact a nullity.”). Therefore, we reject Appellants’ proposed definition of “profit”
and conclude that the EUEA gives the PRC authority to allow utilities to earn a return on
expenditures incurred on energy efficiency and load management resource development.
C. Substantial Evidence Supports the Case 308 Final Order
{28} We address Appellants’ argument that the Case 308 Final Order is not supported by
substantial evidence in the record. Appellants point out that the PRC had to look to the Case
280 record to determine that (1) energy efficiency and load management programs do not
involve much, if any, utility capital investment, and (2) PNM’s Reduced Adder rates were
evidence based, cost based, and utility specific. Appellants argue that the substantial
evidence requirement is specific to each case and that the PRC cannot satisfy the
requirement by relying on evidence presented in other proceedings. Appellants ignore the
purpose of Case 308 and the interrelatedness of this case to Case 280.
{29} “[F]or purposes of reviewing administrative decisions the substantial evidence rule
is expressly modified to include whole record review.” Nat’l Council on Comp. Ins. v. N.M.
State Corp. Comm’n (NCCI), 1988-NMSC-036, ¶ 7, 107 N.M. 278, 756 P.2d 558. “When
applying whole record review, the reviewing court views the evidence in the light most
favorable to the agency decision, but may not view favorable evidence with total disregard
to contravening evidence.” Herman v. Miners’ Hosp., 1991-NMSC-021, ¶ 6, 111 N.M. 550,
807 P.2d 734 (internal quotation marks and citation omitted). “To conclude that an
administrative decision is supported by substantial evidence in the whole record, the court
must be satisfied that the evidence demonstrates the reasonableness of the decision,” and that
“[n]o part of the evidence may be exclusively relied upon if it would be unreasonable to do
so.” NCCI, 1988-NMSC-036, ¶ 8.
{30} In TW Telecom of N.M., L.L.C. v. N.M. Public Regulation Commission, we reversed
a final order from the PRC regarding telephone rates because the PRC violated the
appellant’s constitutional due process rights by relying on evidence in a separate case
without providing the appellant the opportunity to present evidence and cross-examine
witnesses on the impact of the evidence from the separate case on the issues involved in the
case on appeal. See 2011-NMSC-029, ¶¶ 7, 20-21, 150 N.M. 12, 256 P.3d 24. Appellants
rely on TW Telecom in arguing that because the PRC relied on its factual findings from Case
280 to support its legal determinations in Case 308, the Case 308 Final Order is unsupported
by substantial evidence in the record for Case 308. Unlike TW Telecom, this case does not
involve a utility ratemaking decision; rather, this case involves the question of whether the
utility rates established in Case 280 meet the legal requirements we described in AG v. PRC
2011. Accordingly, the PRC’s decision in Case 308 was not dependent on the resolution of
any unsettled factual issues—as it would be in a utility ratemaking case like TW Telecom.
Instead, Case 308 concerned only the resolution of a specific legal issue that did not depend
on a redetermination of the facts already adjudicated in Case 280.
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{31} In determining the legal sufficiency of its Case 280 Final Order, the PRC was not
only justified in looking to the record for Case 280 but was required to do so. See Mountain
States Tel. & Tel. Co. v. State Corp. Comm’n, 1959-NMSC-035, ¶ 9, 65 N.M. 365, 337 P.2d
943 (holding that “the burden is on the [PRC] to produce evidence warranting its action”).
Because the underlying factual matters had already been adjudicated in Case 280, the PRC
did not need to reestablish those facts in Case 308. The Case 280 Final Order was never
appealed, and the factual basis for that order cannot be challenged now. See Cmty. Pub. Serv.
Co. v. N.M. Pub. Serv. Comm’n, 1983-NMSC-026, ¶ 9, 99 N.M. 493, 660 P.2d 583 (holding
that an attack on a rule or regulation is time-barred if it is not brought within the thirty-day
period set out in Section 62-11-1). Therefore, because the factual matters the PRC relied
upon in deciding Case 280 have already been adjudicated, and because Case 308 involves
a legal review of the Case 280 Final Order, it was not unreasonable for the PRC to rely on
the record in Case 280 for factual evidence to support the Case 308 Final Order.
D. The Case 308 Final Order Is Neither Arbitrary nor Capricious
{32} Finally, Appellants challenge the reasonableness of the PRC’s reliance on the New
Mexico Motor Carrier Act, NMSA 1978, §§ 65-2A-1 to -41 (2003, as amended through
2013), and the operating ratio method in the Case 308 Final Order authorizing PNM to earn
a profit on expenses incurred for energy efficiency programs. The record shows that the PRC
offered an explanation for the method it applied to determine PNM’s Reduced Adder rates.
Appellants challenge this method as “inappropriate” because the PRC analogized it to the
ratemaking method it uses for determining rates under the Motor Carrier Act. Appellants
argue that the Legislature did not intend the Motor Carrier Act to apply to the regulation of
New Mexico’s electricity utilities.
{33} Appellants overlook two key points. First, the PRC did not actually apply the Motor
Carrier Act to its ratemaking decision in Case 280. The PRC merely mentioned the Motor
Carrier Act to exemplify circumstances—when investor capital is not significant to the cost
of providing service—that call for an alternative to the return-on-rate-base method (such as
the operating ratio method) for determining just and reasonable rates. Second, the PRC “is
vested with considerable discretion in determining whether a rate to be received and charged
is just and reasonable.” Hobbs Gas Co. v. N.M. Pub. Serv. Comm’n, 1980-NMSC-005, ¶ 4,
94 N.M. 731, 616 P.2d 1116. The PRC’s discretion extends to determining the appropriate
method for establishing just and reasonable rates. See PNM Gas Servs., 2000-NMSC-012,
¶ 7 (“Because of the level of complexity involved in setting rates and the number of
variables at issue in every rate proceeding, the [PRC] is not bound to the use of any single
formula or combination of formulae in determining rates. The ratemaking function involves
the making of pragmatic adjustments. It is the result reached, not the method employed,
which is controlling.” (internal quotation marks and citation omitted)).
{34} While the PRC has considerable discretion to determine just and reasonable rates for
public utilities, “the [PRC] is not free to disregard its own rules and prior ratemaking
decisions or to change its position without good cause and prior notice to the affected
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parties.” Id. ¶ 9 (internal quotation marks and citation omitted). In this case, the legislative
mandates in the EUEA were good cause for the PRC to change its position with respect to
the appropriate method to employ for determining public utility electricity rates based on
expenditures for energy efficiency measures. The PRC did not disregard its own regulations
and prior ratemaking decisions; it simply used a substitute method it has traditionally used
in other situations where investor capital is not a significant factor in the total cost of
providing service. The PRC’s reliance on the Motor Carrier Act to explain its method by
analogy was not unreasonable or inappropriate. The Case 308 Final Order is neither arbitrary
nor capricious.
III. CONCLUSION
{35} The PRC’s Case 308 Final Order is consistent with our holding in AG v. PRC 2011
and with the authority specifically granted to the PRC by the EUEA. Case 308 involved only
the determination of legal sufficiency of the Case 280 Final Order. The underlying facts in
Case 280 were already adjudicated, and no timely appeal was filed in that case, so there was
no need for the PRC to decide additional questions of fact. The PRC has discretion to
determine the appropriate method to apply in establishing just and reasonable utility rates,
and it lawfully exercised its discretion here. Accordingly, we affirm the Case 308 Final
Order.
{36} IT IS SO ORDERED.
____________________________________
CHARLES W. DANIELS, Justice
WE CONCUR:
___________________________________
PETRA JIMENEZ MAES, Chief Justice
___________________________________
RICHARD C. BOSSON, Justice
___________________________________
EDWARD L. CHÁVEZ, Justice
___________________________________
BARBARA J. VIGIL, Justice
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