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.
Docket No. 33,393
IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
August 29, 2013
Opinion Number: ___________
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
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,
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
{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
{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
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 оf 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), availаble 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
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
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
{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 thе 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
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
{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 thе 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
{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
{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 rеceiving 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.
{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 bеcause 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 investmеnt. 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
{21} In 2005—nearly forty years after the PUA was enacted—our Legislature enacted the EUEA, which recognizes energy conservation as an important principle оf New Mexico public policy. See
{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
{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 traditiоnal 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
{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 multiplе 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
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. Appellаnts 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 mаy 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. Pub. Regulation Commission, 2011-NMSC-029, ¶¶ 7, 20-21, 150 N.M. 12, 256 P.3d 24, we reversed a final order from the PRC regarding telephone rates because the PRC violated the appellаnt‘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. 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 сase 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.
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,
{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
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