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BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF A )
DECLARATORY ORDER REGARDING )
THIRD-PARTY ARRANGEMENTS ) Case No. 09-00217-UT
FOR RENEWABLE ENERGY GENERATION )
)

BRIEF OF THE NEW MEXICO

ENERGY, MINERALS, & NATURAL RESOURCES DEPARTMENT

JOANNA PRUKOP, SECRETARY

I. INTRODUCTION

The New Mexico Energy, Minerals & Natural Resources Department (hereinafter

“EMNRD” or the “Department”) submits this Brief as an “interested person” in accordance

with the New Mexico Public Regulation Commission‟s sua sponte Initial Order dated June 16,

2009, and its Supplemental Order of June 23, 2009, in the above-captioned matter.

The development and expansion of consumer/customer based renewable energy

production has been, and continues to be, a public policy priority with EMNRD, Governor Bill

Richardson‟s administration, and the New Mexico Legislature. Third-party financing

arrangements have proven to enhance the expansion of distributed generation of renewable

energy. New Mexico law does not prohibit these kinds of arrangements, and in fact encourages

their use to meet public policy objectives that are memorialized in statute and regulation.
II. PROCEDURAL HISTORY AND THIRD-PARTY FINANCING ARRANGEMENTS

A. Procedural History

On December 23, 2008, the New Mexico Public Regulation Commission (hereinafter the

“PRC” or the “Commission”) issued a Final Order in each of the following renewable portfolio

standards plans, collectively referred to as the 2008 RPS Plan cases:

1. Case No. 08-00219-UT, In the Matter of El Paso Electric Company’s 2008 Procurement Plan
Pursuant to The Renewable Energy Act and NMAC 17.9.572.16;

2. Case No. 08-000221-UT, Public Service Company of New Mexico’s Notice of Filing of
“Renewable Energy Portfolio Procurement Plan For 2009; and

3. Case No. 08-000222-UT, In the Matter of Southwest Public Service Company’s Annual
Renewable Portfolio Report for 2007 and its Application for Approval of its 2008 Annual
Renewable Energy Portfolio Plan, Modifications to its Existing Rate Making Treatment for
Renewable Energy Certificates and Modifications to the Windsource Program.

In each of these cases, a number of issues were raised that the PRC found were not appropriate

for ruling during the review of the portfolio plans. As a result, the PRC issued its Notice of

Inquiry on January 8, 2009 (Case No. 08-00388-UT) enumerating those unresolved issues and

scheduling a workshop for January 28, 2009 “for the purpose of facilitating informal exploration

of the issues” arising out of the RPS Plan cases. (See Page 4, ¶F, Notice of Inquiry, Case No. 08-

00388-UT, January 8, 2009.)

A number of renewable energy developers, along with the referenced utilities and their

representatives, attended the PRC‟s January 28, 2009 workshop. Further questions arose during

this workshop with respect to whether third-party arrangements for renewable energy

generation are prohibited by New Mexico law, specifically the Public Utilities Act, NMSA 1978,

§62-3-1, et seq., The Renewable Energy Act, §62-16-1, et seq., and PRC Commission Rule 572,

codified at 17.9.572 NMAC. This question remained open at the end of the workshop.

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As a result, the PRC issued its June 16, 2009 sua sponte Initial Order (Case No. 09-00217-

UT), in which the PRC initiated a “declaratory proceeding” to address the general question as to

whether third-party arrangements for renewable energy generation are prohibited by New

Mexico law. Included in this Order were two issues:

1. “The permissibility of arrangements that – are entered into primarily as a financing


mechanism for distributed renewable energy generation systems whereby a third party
owns the renewable generation equipment, which is installed on the utility customer‟s
premises, there is a long-term contract with the customer to supply a portion of that
customer‟s electricity use, and payments are based on kilowatt-hours (kWh);

2. Is the permissibility of such arrangements affected by whether (i) there is a single


relationship between the third-party owner of the generation and a customer or (ii) there
are multiple customers taking power from the same third party?”

On June 23, 2009, the PRC filed its Supplemental Order adding a third issue for briefing:

3. “The permissibility of arrangements that involve leasing of distributed generation


equipment from non-utility lessors to lessees that are also retail customers of utilities.
(One example of such an arrangement would be on-site backup generation at a hospital
that also buys power on a retail basis from a public utility.)”

In order for any third-party arrangement to fall within the statutory and regulatory

framework of the PRC, the “third party” must fall under the PRC‟s jurisdiction as a “public

utility.”

Thus, the determinative question before the PRC is whether or not the generator in

third-party arrangements (also known as third party power purchase agreements, or PPAs), as

described in question number one above, constitutes a “public utility” subject to the regulatory

authority of the PRC.

The first step in answering this determinative question is to examine the nature and

evolution of these third party agreements since they were initially introduced during the 1970s

as a mechanism for public utilities to meet renewable energy mandates by purchasing

renewable energy from third-party generators. As discussed below, these agreements have

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evolved and are now being used in a number of states by non-utility energy developers, who

have identified a niche market for the distributed generation of photovoltaic solar power on

residential, commercial, governmental and other sites.

B. Evolution of Purchase Power Agreements

Historically the purchase power agreement was a mechanism for a utility to purchase

renewable energy from a facility that generated renewable energy, and arose out of the Public

Utility Regulatory Policy Act (PURPA, Sect. 16 U.S.C. 2601 et seq., 1978) requirement that

utilities purchase all of the power from renewable generating facilities under 80 MW, known as

qualifying facilities (QFs). The PPA was the mechanism by which utilities purchased renewable

energy from independent generators in a long-term pricing agreement.

Recently, however, a number of businesses have emerged adopting a new model of PPA

which caters to the distributed generation (DG) market involving predominantly (although not

exclusively) non-residential commercial customers and government entities. DG encompasses a

variety of sizes of renewable energy generating equipment/facilities located on the customer

side of the electric meter and sized to meet the customers‟ needs. A residential owner might

want a unit between 2 kW and 10 kW and a commercial or industrial customer might want a

unit between 1 and 2 MW.

In this new model, third party energy developers build and operate renewable energy

generation facilities (typically solar photovoltaic, or “PV”) on premises belonging to utility

customers. The third party provider typically finances the cost of the generating facility, owns

and maintains the facility, and takes advantage of subsidies under federal and state law to the

extent available. The third party energy developer sells the electricity generated from the solar

facility to the customer who owns or occupies the premises. This arrangement is especially

beneficial for entities that cannot take advantage of tax credits, such as governmental entities,

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schools, churches and other non-profit organizations, and other entities that do not have

significant tax liability.

In the PPA contract, a non-utility energy developer receives a combination of revenues

and incentives that include electricity sales to the host as well as to the servicing utility,

ownership of renewable energy credits (RECs), cash incentives, and state and federal tax

incentives in return for financing, constructing and maintaining a DG facility. Moreover, there is

enough flexibility in these PPAs that the developer and host can customize the mix of financing,

incentives and other costs, so that the rate paid for the life of the PPA can (and will) vary among

different hosts.

As further discussed below, such third-party energy developers do not fit within the

definition of a “public utility” as defined by New Mexico law. Consequently, such developers

are not subject to oversight by the PRC, and thus PPA arrangements entered into between third

party developers and host customers are not prohibited under the New Mexico Public Utilities

Act, and in fact are encouraged by the New Mexico Renewable Energy Act (§62-16-1 et seq.) and

Public Regulation Commission Rule 572 as codified (NMAC 19.9.572). In addition, such

arrangements are fully contemplated by net metering regulations (Title 17 Chapter 9, Part

570.2(B)). PPA arrangements are independent bilateral contracts between two parties who

knowingly and willingly enter into them. They are legal unless prohibited by law. Suggesting

that the referenced provisions of law prohibit third-party PPAs is inconsistent with, and

antithetical to, the public policy delineated by statute, and it would be an insurmountable

barrier to growth of the distributed generation of renewable energy in New Mexico if third

party providers are found to be subject to the complexity and cost of PRC regulation and

requirements.

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III. ARGUMENT

A. Third Party Energy Developers Who Own, Finance, Install, or Maintain Customer-
Hosted Renewable Energy Generating Equipment Do Not Serve the “Public” at Large
or a Portion of the “Public” at Large as Defined By New Mexico Law, and the
“Public” Has no Legal Right to Demand and Receive Electric Service From Such
Third Party Energy Developers, and Thus Third Party Energy Developers Who Sell
Electricity to Host Customers Through Power Purchase Agreements Are Not “Public
Utilities” Under New Mexico Law.

An examination of the New Mexico Public Utilities Act, §62-3-1 et seq. (PUA), the New

Mexico Renewable Energy Act, § 62-16-1, et seq. (REA), and related New Mexico case law

indicates that private entities who install, lease, sell, and/or maintain DG renewable energy

systems on the private property of customer-generators for the purpose of supplying electricity

to the customer and/or for the purpose of net metering are not public utilities pursuant to the

laws of the State of New Mexico. They are therefore not subject to regulation by the New

Mexico Public Regulation Commission.

1. Third Party Energy Developers Are Not Public Utilities as Defined by the PUA
and as Interpreted by the New Mexico Supreme Court

In pertinent part, Section 62-3-3(G) NMSA 1978 of the PUA provides that a public utility

is defined as “every person not engaged solely in interstate business… that may own, operate,

lease or control… any plant, property or facility for the generation, transmission or distribution,

sale or furnishing to or for the public of electricity for light, heat or power or other uses….”

(emphasis added).

Notwithstanding certain statutory exceptions to this rule, the determinative question is

whether a third party energy developer‟s sale of electricity to a host customer by means of a

PPA constitutes a sale of electricity “to or for the public.”

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As discussed below, under New Mexico law a sale from a third party to a customer who

controls the property where the power is generated is not a sale to the public, and thus such

third party energy developers are not “public utilities” under New Mexico law.

In a line of cases beginning with Socorro Elec. Coop., Inc. v. Public Service Co., 32 P.U.R 3d

304, 66 N.M. 343, 348 P.2d 88, N.M., December 21, 1959 (overruled by statute), the New Mexico

Supreme Court has set forth a clear test for determining what selling “to the public” means in

the context of a “public utility.” In that case, Socorro Electric Cooperative (“Socorro”) sought to

block the Public Utility Company from installing a transmission line on the basis that the Public

Utility Act prohibited one public utility from encroaching on the territory of another public

utility. The New Mexico Public Service Commission (the precursor to the PRC) held that it

could not grant relief because Socorro did not sell its electricity to the public and therefore was

not a public utility subject to its jurisdiction. The Public Service Commission arrived at this

conclusion on the basis that, as an electric cooperative with limited service area, rights and

benefits, Socorro did not profess to, nor could it under law, serve the public generally.

Moreover, Socorro could not be compelled to serve the public or a specific individual who

might request such service, in contrast to the statutory obligations, rights and benefits of a

public utility.

The New Mexico Supreme Court agreed. In reviewing the Public Service Commission‟s

decision, the Court explained that the test for whether an entity sells to the public is:

[w]hether or not [that] person holds himself out, expressly or


impliedly, as engaged in the business of supplying his product or service
to the public, as a class, or to any limited portion of it, as
contradistinguished from holding himself out as serving or ready to serve
only particular individuals.
The public or private character of the enterprise does not depend,
however, on the number of persons by whom it is used, but on whether
or not it is open to the use and service of all members of the public who
may require it, to the extent of its capacity; and the fact that only a limited

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number of persons may have occasion to use it does not make it a private
undertaking if the public generally has a right to such use.

Socorro, 348 P.2d at 90 (emphasis in original)(citing 73 C.J.S. Public Utilities §2, p.992).

The Supreme Court further explained that:

As its name indicates, the term „public utility‟ implies a public use
and service to the public; and indeed, the principal determinative
characteristic of a public utility is that of service to or readiness to serve,
an indefinite public (or portion of the public as such) which has a legal
right to demand and receive its services or commodities.

Id. (emphasis in original) (citing the definition of “public utility” in 43 Am.Jur. 571,

Public Utilities and Services).

Despite the fact that Socorro possessed many of the trappings of a “public utility,” the

Supreme Court nevertheless concluded that because it was statutorily limited from serving the

public at large, its electric sales to its limited customer base did not constitute sales to the public

and therefore Socorro was not a public utility.

The New Mexico Supreme Court arrived at a similar conclusion in Llano, Inc., v. Southern

Union Gas Co., 75 NM 7, 399 P.2d 646, December 21, 1964 (rehearing denied March 26, 1965), in

which Llano Inc., entered into a contract to sell natural gas to International Minerals and

Chemical Corporation. Concerned that Llano, Inc. was intruding on its monopoly franchise to

sell natural gas, the Southern Union Gas Co., a public utility, filed a complaint with the New

Mexico Public Service Commission asserting that Llano would be a public utility if it carried out

its contract with International Minerals and Chemical Corporation. The Commission agreed

and ordered Llano to comply with the Public Utility Act. On appeal, the Supreme Court

reversed the Commission‟s decision, citing the test it had set forth in Socorro.

Llano at no time held itself out as engaged in supplying natural


gas „to or for the public,‟ or to any limited portion of the public which
might require natural gas, to the extent of Llano‟s capacity. It is now
legally committed to serve but one private industry, and has held itself

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out as willing to serve only such other private industrial users as it
selects, if and when additional natural gas reverses are available to it.

Id. at 653. The Court concluded that Llano‟s sale of natural gas through a bilateral

agreement with International did not constitute a sale to or for the public, and thus Llano was

not a public utility.

Applying the Court‟s rationale to this declaratory action, a third party energy

developer‟s sale of electricity to a single user by virtue of a bilateral agreement (the PPA) is not

a sale of electricity to the public, and thus does not constitute a transaction subject to PRC

oversight.1

In a more recent case, El Vadito de Los Cerrillos Water Association v. New Mexico Public

Service Commission, 115 N.M. 784, 858 P.2d 1263 (1993), the Supreme Court examined a situation

where a water association provided water service to a limited number of individuals who were

members of the association, as well as to a number of individuals outside of the association‟s

membership. El Vadito de Los Cerrillos Water Association (“El Vadito”) purchased and

upgraded an existing water supply system from an existing water utility. After its purchase of

additional distribution capacity, El Vadito continued to serve a mixed customer base, including

members and non-members of the association. Because El Vadito served non-members, the

Public Service Commission concluded that it was selling to the public, and thus was a public

utility subject to regulation.

The New Mexico Supreme Court disagreed and reversed the Commission‟s ruling,

stating that public utilities are characterized by an interest in serving the public at large. Citing

1It is worth noting here that PRC staff seems to agree with this conclusion as indicated by their brief filed
on July 15, 2009 in this matter: “If the third-party owner of the generation only produces power for one
customer and the third-party did not attempt to sale (sic) power to the public or limited portion thereof, it
arguably would not be considered a public utility under applicable law.” (emphasis added) Staff’s Brief
at 7, In the Matter of a Declaratory Order Regarding Third-Party Arrangements for Renewable Energy Generation,
Case No. 09-00217-UT, July 15, 2009.

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their now well-established line of cases addressing this question, including Socorro and Llano,

infra, the Court noted that

[t]hese cases define a public utility as an individual or entity that


holds itself out “„expressly or impliedly‟ as engaged in the business of
supplying [its] product or service to the public, as a class, or to any
limited portion of it, as contradistinguished from holding [itself] out as
serving or ready to serve only particular individuals.‟” Llano, Inc. 75 N.M.
at 17, 399 P.2d at 653 (quoting 73 C.J.S. Public Utilities Section 2, p.992,
(1951)). In Llano we noted that the principle determinative feature of a
public utility “„is that of service to, or readiness to serve, an indefinite
public (or portion of the public as such) which has a legal right to
demand and receive its service or commodities…‟” Id. at 18, 399 P.2d at
653 (quoting Am. Jur. Public utilities and Services, Section 2 p. 571, (1942)).
Thus, public utilities are clearly characterized by an interest in serving the
public at large, see West Valley land Co. v. Nob Hill Water Ass’n, 107
Wash.2d 359, 729 P.2d 42, 46 (1986), or a willingness to extend service to
an indefinite public, without restricting service to privileged individuals.
Socorro Elec. Coop., 66 N.M. at 348, 348 P.2d at 91 (quoting Thayer v.
California Dev. Bd., 128 P. 21, 25 (1912)).

El Vadito de los Cerrillos Water Ass’n v. N.M. Public Service Commission, 115, N.M. 784, 791,

858 P.2d 1263, 1270 (1993). (See also 64 Am. Jur. 2d Public Utilities, 2nd Edition, Section 3 (2009),

providing that whether an entity constitutes a public utility “does not depend upon the number

of persons by whom it is used, but upon whether or not it is open to use and service of all

members of the public who may require it.”)

The principal defining characteristic of a “public utility” is showing a willingness or

desire to offer service to an indefinite public or a segment of the public that has a legal right to

demand and receive that service.

It is clear that when an entity seeks and is granted a certificate of public convenience and

necessity from a regulatory agency, that entity is holding itself out to serve all members of the

public who require electrical service in exchange for a specified reasonable return on

investment, and exclusive monopoly service with respect to any other public utility within the

franchise area. See generally State of New Mexico, ex rel., Jerry W. Sandel, et al., v. New Mexico Public

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Utility Commission, 127 N.M. 272, 980 P.2d 55 (1999) (rehearing denied April 27, 1999), “…a

utility is said to acquire its exclusive control of the industry in a particular area, as well as a fair

opportunity to secure a reasonable rate of return on approved investments, in exchange for

providing reliable, non-discriminatory service to all rate-payers in that area,” citing Morningstar

Water Users Ass’n v. New Mexico Pub. Util. Comm’n, 120 N.M. 579, 590-591, 904 P.2d 28, 39-40

(1995).

In contrast to this public utility construct, third party providers neither behave like a

“public utility” nor are they granted special legal and operation status like utilities are. None of

these developers possess monopoly rights to serve interested customers within a geographic

area; none are guaranteed a specified reasonable rate of return on investment; and all could find

themselves competing with one another for the same customer.

Third party energy developers establish individual agreements with each host customer.

Unlike public utility electric service obligations to the public, the terms and conditions in these

agreements do not state that the third party energy developers will provide the same PV or

wind system under the same terms and conditions to anyone other than the customer who signs

one of their agreements. This process allows third party energy developers and their customers

to tailor their systems and all the terms and conditions of their agreements to the particular

needs and constraints of each individual customer. As such, rates charged per kWh are not

retail service rates formulated under law and applied uniformly within specified customer

classes, but rather may vary from agreement to agreement and host to host based on a formula

that includes a range of participation options by the customer in the financing scheme. The only

way more than one customer would have a legal right to demand and obtain the identical

“service” that another customer receives would be if that customer negotiated an identical

private contract with the developer. Contractual relationships by their very nature are intended

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to address and allow non-uniform discriminatory terms and conditions, whereas entities

offering to serve the public generally (i.e., “public utilities”) cannot negotiate different terms

and conditions between similarly situated customers.

In sum, the contractual agreement establishes the right of service between the third

party energy developer and the customer. That relationship is specifically not governed by the

same structural principles that underlie the relationship between monopoly public utilities

regulated by the PRC and the public they serve.

2. Reading the PUA and REA Together, It is Clear the New Mexico Legislature Did
Not Intend for Third Party Energy Developers to Fall Within the Regulatory
Jurisdiction of the New Mexico Public Regulation Commission as a Public Utility.

Notwithstanding the fact that third party PPA arrangements are not specifically

prohibited by the PUA or the REA, in reviewing those statutes together with statutes pertaining

to the same subject matter, there is no doubt that third party energy developers were never

meant to be subject to the jurisdiction of the PRC. New Mexico law repeatedly notes the

importance of developing and increasing the generation of renewable energy in the state, and

Governor Bill Richardson has used his executive authority to enhance the development of

renewable energy generation in New Mexico, to declare New Mexico the clean energy state, and

to address the problem of climate change and implement policies and laws that reduce

greenhouse gas emissions within the state.2

2Executive Order No. 2004-019, Declaring New Mexico the “Clean Energy State,” and Creating a Clean
Energy Development Council, and Directing State Agencies to Support and Participate; Executive Order
No. 2005-033, Climate Change and Greenhouse Gas Reduction, creating the Climate Change Action
Council, the Climate Change Advisory Group, and mandating executive agencies to prepare analyses of
the impact of climate change on the State‟s water supply and to develop a greenhouse gas emissions
inventory and forecast, and to produce an annual report assessing progress toward achieving greenhouse
gas emission reductions; Executive Order No. 2006-001, State of New Mexico Energy Efficient Green
Building Standards for State Buildings, mandating that all Executive Branch state agencies, including
Higher Education Department, adopt the U.S. Green Building Council‟s LEED™ rating system to achieve
a LEED™ rating of “Silver” for all virtually all new construction and renovation in excess of 15,000 ft2,
and requiring review of public schools‟ implementation of EO 2005-059 requiring the increased use of

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The legislature has been clear about its determination to increase the generation capacity

of renewable energy in New Mexico and to establish New Mexico as a national center for the

development of renewable energy technologies. In the declaration and findings section of the

New Mexico Solar Rights Act, the legislature declared that “the state of New Mexico recognizes

that economic benefits can be derived for the people of the state from the use of solar energy.

Operations research, experimentation and development in the field of solar energy use shall

therefore be encouraged. While recognizing the value of research and development of solar

energy use techniques and devices by governmental agencies, the legislature finds and declares

that the actual construction and use of solar devices, whether at a public or private expense, is

properly a commercial activity which the law should encourage to be carried out, whenever

practicable, by private enterprise.” §48-3-2 NMSA 1978.

Closely linked to the New Mexico Solar Rights Act is the Solar Recordation Act, which

declares “that in view of the present energy crisis, all renewable energy sources must be

encouraged for the benefit of the state as a whole. The legislature further finds that solar energy

is a viable energy source in New Mexico, and as such, its development should be encouraged.

Since solar energy may be used in small-scale installations and one of the ways to accomplish

such encouragement is by protection of rights necessary for small-scale installations, the

legislature declares such protection to be the purpose of the Solar Recordation Act [47-3-56 to

47-3-12 NMSA 1978] and necessary to the public interest.” §47-3-6 NMSA 1978.

In addition, the Solar Energy Development Act was passed to “promote development

and use of solar energy in New Mexico, by both industry and government for the benefit of

renewable fuels in New Mexico State Government; Executive Order No. 2006-069, New Mexico Climate
Change Action, establishing a Climate Change Action Implementation Team composed of members from
virtually all executive branch agencies and charged with ensuring implementation of climate change
action in accordance with all executive orders related thereto.

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New Mexico citizens and for the citizens of the United States. It is proposed to accomplish this

purpose through active measures to encourage the location within this state of the proposed

national solar institute, research to discover practical and feasible methods to harness solar

energy to supplement existing but limited present sources of energy and development of a

vigorous and productive solar energy industrial complex.” §71-6-2 NMSA 1978.

Finally, the Solar Energy Collector Standards Act was passed “to develop and

implement a program to promote solar industry and stimulate a demand for high quality solar

components and systems.” §71-6-5 NMSA 1978.

These “declarations” provide a clear indication of the legislature‟s direction for

renewable energy in New Mexico. They also provide the backdrop for the PRC‟s review of

whether third party energy developers are subject to PRC oversight under the Public Utility

Act, the Renewable Energy Act, and PRC Rule 572. It is important to note here that neither the

PUA nor the REA prohibit third party energy developers from entering into contractual

agreements with individuals who want to install solar energy systems on their premises.

Such policy driven legislation as noted above is wholly consistent with, and in fact

reliant upon market forces driving the development of distributed generation of renewable

energy, as well as the development of an industrial base to manufacture the equipment

necessary for distributed generation. The declarations, goals and objectives of this legislation

and of the numerous executive orders relating to renewable energy simply cannot be

accomplished without market driven renewable energy developers.

To suggest otherwise, or to conclude through some distorted analysis of the overlying

law that third party PPAs are prohibited in New Mexico, flies in the face of clear public policy

as reflected in statute and executive orders.

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Reading all of these acts in pari materia, it is clear that the New Mexico Legislature did

not intend for the PRC to regulate third parties engaged in the production or sale of renewable

energy at the point of production as if they were public utilities. If, during the flurry of

legislative activity dealing with the development of renewable energy resources in New

Mexico, the legislature had any desire to categorize third party energy developers as a public

utility, they most certainly had the opportunity to amend the PUA to do so, but they did not.

This body should not now attribute legal prohibitions that neither exist, nor were intended by

the legislature. (See, e.g., Public Service Co. v. Diamond D Constr. Co., 2001-NMCA-082 at ¶¶50, 33

P.3d 651., in which the New Mexico Supreme Court delineated the method through which it

reviews and reconciles public policy directives memorialized in law: “We find three such

principles to be helpful in our… [analysis]. First, we consider the legislative purpose behind the

statute in order to best effectuate the intent of the statute and accomplish its objectives. Peterson

v. Wells Fargo Armored Servs. Corp., 2000-NMCA-043, ¶ 14, 129 N.M. 158, 3 P.3d 135. Second, we

use statutes concerning similar subject matter, relevant common law principles, and public

policy to guide us in our interpretation. See Investment Co. of the Southwest v. Reese, 117 N.M. 655,

658, 875 P.2d 1086, 1089 (1994) (determining legislative intent of ambiguous statute from similar

statutes, relevant common law principles, and policy considerations). Finally, we read the

provisions of the statute “together with statutes pertaining to the same subject and seek to

achieve a harmonious result.” State v. Lopez, 2000-NMCA-001, ¶ 5, 128 N.M. 450, 993 P.2d 767;

see also Key v. Chrysler Motors Corp., 121 N.M. 764, 769, 918 P.2d 350, 355 (1996)).

In addition, the PRC even contemplated the participation of third party DG energy

developers when, in 2008, it promulgated its regulations governing small-scale customer-based

renewable energy facilities. Specifically, the PRC noted that “[i]t is intended that the obligations

of utilities provided for in 17.9.570 NMAC shall extend to both production and consumption

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functions of qualifying facilities irrespective of whether the production and consumption

functions are singly or separately owned.” (emphasis added) §17.9.570.2(B), NMAC. Moreover,

the PRC specifically provided for the contingency that net metering agreements and ownership

of renewable energy credits could be with either the customer or with the third party developer

when it noted that “[i]n situations where the production and consumption functions are

separately owned, the qualifying facility or its operator may elect to enter into the contract with

the utility.” (Emphasis added) Id.

Nothing under the current net metering regulations or The New Mexico Interconnection

Manual (published by the PRC in 2008) restrict or prohibit a third party from installing a

renewable energy DG net metering system on private property on a contractual basis with a

customer host. To interpret the PUA or the REA to include such third party providers of net

metering systems as “utilities” would be ignoring the plain language of both the statutes and

their implementing regulations.

There is no question that a net metering system provider in these circumstances does not

serve the public at large, but rather serves a single customer-generator pursuant to a private

contract. In fact any DG facility/equipment, regardless of ownership, that generates electricity

on the customer side of the meter cannot by definition be a public utility because the energy is

either utilized on the customer side of the meter, or sold to the utility directly. (See §17.9.572.7( I)

NMAC, “distributed generation means electric generation sited at a customer‟s premises,

providing electric energy to the customer load at that site and/or providing electric energy to a

public utility or a rural electric distribution cooperative for use by multiple customers in one or

more contiguous distribution substation service areas.”) This model of distributed generation

exists primarily to serve the individual customer, and the owner of the system – whether that be

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a third party developer or the owner of the host site - is not obligated to serve the public‟s need

for energy.

In contrast, public utilities are required to meet the public‟s demand for electricity in

exchange for their monopoly rights within a franchise area and their specified reasonable return

on investment.

Allowing this form of third-party participation to advance customer-based distributed

generation of renewable energy is wholly consistent with the PUA, and with the purposes and

goals enumerated in the REA and its implementing regulations.

3. Summary of Threshold Question

Based on New Mexico statutes, regulations, and case law, third party energy developers

who own, finance, install, and/or maintain customer-hosted renewable energy generating

equipment, and who sell the customer electricity on a kWh basis do not serve the public at large

or a portion of the public at large as defined by law. Moreover, the public has no legal right to

demand and receive electric service from such third party energy developers. Thus, third party

energy developers who sell electricity to host customers through power purchase agreements

are not “public utilities” under New Mexico law, and thus not subject to regulation by the PRC.

A. Arrangements that are Entered into Primarily as a Financing Mechanism for


Distributed Renewable Energy Generation Systems Whereby a Third Party Owns the
Renewable Generation Equipment That is Installed on the Customer’s Premises, And
That Supplies Some or All of the Customer’s Electrical Use, Accompanied by a Power
Purchase Agreement Based on Kilowatt-hours, is Not Prohibited By the PUA, the
REA, and Sect. 17.9.572 NMAC.

As noted above, because third-party energy developers are not subject to regulation by

the PRC, their sale of electricity to single customers through power purchase agreements are not

regulated business. As a result, third party energy developers do not intrude upon a public

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utility‟s monopoly franchise right of service to the public at large within a geographic area.

Such arrangements are not prohibited under New Mexico law, and are thus permissible.

B. The Permissibility of Third Party PPA Arrangements is not Affected by Whether the
PPA is Entered into with a Single Host or Multiple Hosts Who are Supplied With
Renewable Energy From a Third Party Energy Developer.

As noted above, because third-party energy developers are not subject to regulation by

the PRC, their sale of electricity to single customers through power purchase agreements is not

regulated business. As a result, third party energy developers do not intrude upon a public

utility‟s monopoly franchise right of service to the public at large within a geographic area.

Such arrangements are not prohibited under New Mexico law, and are thus permissible.

C. Arrangements That Involve The Leasing of DG Equipment From a Non-utility Lessor


to a Lessee Who is a Retail Customer of a Public Utility Are Permissible Under the
PUA, the REA and Section 17.9.572 NMAC.

As noted above, because third-party energy developers are not subject to regulation by

the PRC, their sale of electricity to single customers through power purchase agreements is not

regulated business. As a result, third party energy developers do not intrude upon a public

utility‟s monopoly franchise right of service to the public at large within a geographic area.

Such arrangements are not prohibited under New Mexico law, and are thus permissible.

In addition, Section 62-3-4.1 specifically excludes “persons who own or control electrical

generation, transmission or generation equipment, but lease the equipment or the use and

operation of the equipment to a utility or other lessee.”

III. CONCLUSION

Third-party energy developers are not public utilities as defined by New Mexico law.

Consequently, such developers are not subject to oversight by the PRC, and thus PPA

arrangements entered into between third party developers and host customers are not

prohibited under the New Mexico Public Utilities Act. Rather, they are encouraged by the New

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Mexico Renewable Energy Act (§62-16-1 et seq.) and by Public Regulation Commission Rule 572

(as codified in Title 17, Chapter 9, Part 572 of the New Mexico Administrative Code), and a host

of other related statutory provisions. Moreover, such arrangements are fully contemplated by

net metering regulations (Title 17 Chapter 9, Part 570.2(B)). PPA arrangements are independent

bilateral contracts between two parties who knowingly and willingly enter into them, and are

legal unless prohibited by law. Suggesting that the referenced provisions of law prohibit third-

party PPAs is inconsistent with, and antithetical to, the public policy delineated by statute, and

it would be an insurmountable barrier to growth of the distributed generation of renewable

energy in New Mexico if third party providers are subject to the complexity and cost of PRC

regulation and requirements.

Date: July 30, 2009

Respectfully submitted,

James A. Noel
New Mexico
Energy, Minerals
& Natural Resources Department
1220 S. St. Francis Dr.
Santa Fe, NM 87505
Phone (505) 476-3200
Facsimile (505) 476-3220

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