Albuquerque Bernalillo County Water Utility Authority v. New Mexico Public Regulation Commission

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Opinion Number: 2010-NMSC-013

Filing Date: March 19, 2010

Docket No. 31,268

ALBUQUERQUE BERNALILLO
COUNTY WATER UTILITY AUTHORITY,

Appellant,

v.

NEW MEXICO PUBLIC REGULATION COMMISSION,

Appellee,

and

PUBLIC SERVICE COMPANY OF NEW MEXICO, ET AL.,

Intervenors.

Consolidated with:

Docket No. 31,273

NEW MEXICO INDUSTRIAL ENERGY CONSUMERS,

Appellant,

v.

NEW MEXICO PUBLIC REGULATION COMMISSION,

Appellee,
and

PUBLIC SERVICE COMPANY OF NEW MEXICO
and ATTORNEY GENERAL OF THE STATE OF NEW MEXICO,

Intervenors.

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APPEAL FROM THE NEW MEXICO PUBLIC REGULATION COMMISSION

Sheehan, Sheehan & Stelzner, P.A.
Nann M. Winter
Albuquerque, NM

for Appellant Albuquerque Bernalillo County Water Utility Authority

Peter Jude Gould
Santa Fe, NM

for Appellant New Mexico Industrial Energy Consumers

Robert Y. Hirasuna
Margaret Caffey-Moquin
David P. Barton
Santa Fe, NM

for Appellee

Patrick T. Ortiz
Benjamin Phillips
Albuquerque, NM

Miller Stratvert, P.A.
Robert H. Clark
Albuquerque, NM

for Intervenor Public Service Company of New Mexico

OPINION

MAES, Justice.

{1} Albuquerque Bernalillo County Water Utility Authority (ABCWUA) and New
Mexico Industrial Energy Consumers (NMIEC) appeal from the Final Order of the New
Mexico Public Regulation Commission (the PRC), claiming that the PRC improperly
awarded an emergency fuel and purchased power cost adjustment clause to the Public
Service Company of New Mexico (PNM) under NMSA 1978, Section 62-8-7(E)(1) (2003,
as amended through 2007) and 17.9.550.1 to 550.17 NMAC (Recompiled 12/30/2001)
(hereinafter Rule 550). We affirm the Final Order of the PRC.

I. FACTS AND PROCEDURAL HISTORY

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{2} On February 21, 2007, PNM filed a rate case with the PRC seeking a rate increase
and a fuel and purchased power cost adjustment clause (FPPCAC) pursuant to Section 62-8-
7(E)(1) and Rule 550. A FPPCAC “flow[s] through to the users of electricity the increases
or decreases in Applicable Fuel and Purchased Power costs,” Rule 550.6(D) NMAC and,
therefore,” provide[s] for the stability of utility earnings when electric fuel costs and
purchased power costs are rising and permit[s] prompt credits to customers when electric
fuel costs and purchased power costs are declining.” Rule 550.6(B). Rule 550.17(A)(1)-(3)
provides that “[n]o utility shall have a FPPCAC included in its tariff” unless the utility
demonstrates that

(1) the cost of fuel and purchased power are a significant percentage of
the total cost of service;
(2) the cost of fuel and purchased power contains costs which
periodically fluctuate and cannot be precisely determined in a rate
case;
(3) the utility’s fuel and purchased power policies and practices are
designed to assure that electric power is generated and purchased at
the lowest reasonable cost.

See also § 62-8-7(E)(1) (providing that FPPCACs must be “consistent with the purposes of
the Public Utility Act, including serving the goal of providing reasonable and proper service
at fair, just and reasonable rates to all customer classes”).

{3} The PRC assigned the case to a hearing examiner. See NMSA 1978, § 8-8-4(C)(3)(a)
(1998). On March 6, 2008, following extensive discovery and two weeks of hearings, the
hearing examiner issued a Recommended Decision, which included proposed findings and
a recommendation that PNM’s request for a FPPCAC should be denied because PNM had
failed to fulfill the regulatory requirements set forth in Rule 550. Specifically, the hearing
examiner found that (1) it is doubtful whether PNM’s fuel and purchased power costs
constitute a significant percentage of the total cost of service, (2) PNM failed to establish
that its fuel mix “consists of fuels with volatile or [fluctuating] prices” and that “its fuel and
purchased power costs are so unpredictable that they cannot be calculated in a rate case and
call for an FPPCAC instead,” and (3) the proposed FPPCAC fails to provide reasonable and
proper service at fair, just and reasonable rates and is not designed to ensure that electric
power is generated and purchased at the lowest reasonable cost. See Rule 550.17(A)(1)-(3).
Thirteen days later, PNM filed exceptions to the Recommended Decision, claiming, in
relevant part, that it was entitled to a FPPCAC under Rule 550. See 1.2.2.37(C)(1)(a)
NMAC (09/01/2008).

{4} On March 20, 2008, PNM and the International Brotherhood of Electrical Workers,

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Local No. 611, filed a joint motion requesting an Emergency FPPCAC.1 Attached to the
joint motion was the affidavit of Charles N. Eldred, Executive Vice President and Chief
Financial Officer of PNM. Eldred averred that, following the issuance of the Recommended
Decision rejecting PNM’s request for a FPPCAC, PNM’s credit rating was downgraded, its
stock price hit a fifty-two week low, and it was unable “to access the commercial paper
market” or “to issue long term debt.” Eldred expressed his belief that a FPPCAC “is
absolutely necessary if PNM is to avoid further deterioration of its credit rating to junk bond
status.”

{5} The Emergency FPPCAC differed materially from the FPPCAC previously submitted
to the hearing examiner. Specifically, the Emergency FPPCAC contained the following
conditions suggested by the Attorney General and the PRC’s Utility Division Staff (Staff):
“(a) . . . prior approval of purchased power agreements (‘PPAs’) with terms greater than one
year; (b) replacement power due to plant outages [would] not be recovered through the
FPPCAC; and, (c) demand charges [would] not be recovered through the FPPCAC.”
Additionally, the Emergency FPPCAC contained other

conditions which are designed to mitigate the impact on customer bills during
peak periods and provide additional incentives to PNM management to
control costs to the extent they are controllable. Among them are that the
fuel factor charged pursuant to the Emergency FPPCAC will be capped at
$.01 per [kilowatt] and that replacement power costs due to plant availability
lower than a weighted average plant availability factor cannot be recovered
without prior approval of the [PRC]. Also included in the Emergency
FPPCAC is a condition that all costs recovered through it will be subject to
audit and refund if the costs are determined by the [PRC] to have been
imprudently incurred.

{6} In light of the serious financial concerns raised by PNM, the PRC established the
following expedited procedural schedule for the consideration and review of the Emergency
FPPCAC.

Public Notice March 31, 2008
PNM Direct Testimony March 28, 2008
Deadline for intervention April 8, 2008
Staff/Intervenor Testimony April 9, 2008
PNM Rebuttal Testimony April 14, 2008
Hearing April 15, 2008

Additionally, the PRC severed the Emergency FPPCAC from the underlying rate case,

1
The International Brotherhood of Electrical Workers, Local No. 611 is not a party
to this appeal.

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reasoning that “the Emergency FPPCAC essentially is a new FPPCAC that is significantly
different from the FPPCAC [previously] proposed by PNM” and that “the record [in the rate
case] is now closed.”2 Although the PRC established a new docket number for the
Emergency FPPCAC, No. 08-00092-UT, it noted that it would, “of course, take
administrative notice of any evidence relevant to the Joint Motion and the Emergency
FPPCAC that is in [the rate case] to the extent permitted by 17.1.2.37(D) NMAC.” The PRC
also ordered PNM to address certain issues in its direct testimony and suspended the
implementation of the Emergency FPPCAC “until and including May 7, 2008.”

{7} ABCWUA and NMIEC filed objections to the expedited procedural schedule and a
joint motion for extension of time, requesting sixty days from the filing of PNM’s direct
testimony to file a response. Essentially, they requested “that the deadline for the filing of
their testimony be extended to at least May 27, 2008, or approximately 48 days beyond the
original April 9 deadline.” ABCWUA and NMIEC claimed that the expedited procedural
schedule did “not allow the Staff and Intervenors sufficient time to propound discovery and
adequately analyze PNM’s responses before the filing deadline for their own testimony,”
thereby effectively denying them due process of law. The PRC entered a procedural order
extending the deadline five days, to April 14. Following oral argument, the PRC entered a
second procedural order extending the deadline an additional twenty-five days, to May 9.
The PRC found that “a 30-day, rather than the requested 48-day, extension of time from the
original April 9 deadline for the filing of Staff and Intervenor testimony, should give Staff
and Intervenors sufficient time, consistent with their due process rights, to take discovery
and prepare their testimony.”

{8} After holding public hearings from May 12 through May 17, 2008, a majority of the
PRC Commissioners issued a Final Order granting PNM’s request for an Emergency
FPPCAC. First, the PRC found that PNM’s fuel and purchased power costs constitute
20.167% of its total costs of service. Although the PRC had “not yet determined what
constitutes a ‘significant percentage’ of a utility’s total cost of service for the purposes of
17.9.550.17(A)(1),” applying the ordinary meaning of the term “significant,” the PRC
determined that “20% is a significant percentage of PNM’s total cost of service.” The PRC
noted that its conclusion was bolstered by the fact that PNM’s “Base Fuel Cost is the second
largest category of cost” and, therefore, “a relatively small percentage change in those costs
can have a significant impact on PNM.”

{9} Second, the PRC found that PNM had “made the requisite showing that its purchased

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In the underlying rate case, PNM found it “unnecessary . . . to address the merits of
the [original] FPPCAC” in light of “PNM’s filing of the Emergency FPPCAC and the
relatively expedited procedural schedule” attendant thereto. Although the PRC did not
approve the original FPPCAC in its Final Order, it cautioned that its “disapproval should not
be construed as adopting or approving any of the [Recommended Decision’s] findings,
conclusions, or orders.”

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power and fuel costs periodically fluctuate and cannot be precisely determined in a rate
case.” See Rule 550.17(A)(2). The PRC held that “Rule 550 does not require a showing that
purchase power and fuel costs are ‘volatile’, or fluctuate more than some other cost of
providing service.” Accordingly, “[a]lthough PNM’s coal and nuclear costs historically
have fluctuated less than the cost of natural gas,” the PRC determined that these costs,
nonetheless, “‘periodically fluctuate’ under the plain meaning of that phrase.” The PRC
rejected ABCWUA’s and NMIEC’s assertions that PNM’s fuel and purchased power costs
are predictable, noting that neither ABCWUA nor NMIEC had identified “in any way . . .
what those predictable future costs are and what methodology could be used to precisely
determine[] those future costs in this or in any other rate proceeding.”

{10} Lastly, to ensure that PNM’s electric power is generated and purchased at the lowest
reasonable cost, see Rule 550.17(A)(3), the PRC exercised its authority under Rule 550 to
“impose the condition on the Emergency FPPCAC that PNM shall pay for the costs of a
prudency review of its fuel and purchase power costs.”3 The PRC ordered that

[t]he prudency review shall be conducted by an auditor or team of auditors
to be selected by, and under the direction of, the [PRC]. The prudency
review shall be commenced as soon as practicable after PNM implements its
Emergency FPPCAC and shall continue until all of the costs flowed through
to its customers under that FPPCAC have been subject to the review. All
prudency review costs paid by PNM shall be treated as a regulatory asset by
PNM and recovered from its ratepayers through the rates established in
PNM’s next general rate proceeding.

{11} The PRC rejected ABCWUA’s and NMIEC’s claim that the Emergency FPPCAC
constitutes “piecemeal ratemaking” because it does not offset increases in PNM’s fuel and
purchased power costs against decreases in PNM’s other costs. The PRC explained that “the
Legislature, when it enacted [Section] 62-8-7(E), created a statutory exception to the general
prohibition against piecemeal ratemaking by expressly giving the [PRC] the authority to
promulgate rules governing the use of, among other matters, fuel and purchased power
adjustment clauses.” Additionally, the PRC noted that nearly “every utility in New Mexico
has a fuel clause” and that “[n]o party in this case or in [the rate case] has presented any legal

3
To further ensure that PNM’s electric power is generated and purchased at the
lowest reasonable cost, the PRC exercised its authority to order the following additional
modifications of the Emergency FPPCAC: (1) the weighted average capacity factor, below
which PNM may recover fuel and purchased power costs, “should be 86.4%, rather than the
82.9% proposed by PNM”; (2) “PNM should also be required to eliminate from the
calculation of its FPPCAC Factor the effect of the SO2 allowance sales”; (3) significant up-
front fuel and purchased power costs associated with PNM’s Underground Coal Sales
Contract with San Juan Coal Company, such as long wall moves, must be pro-rated “over
the same period that such costs benefit its ratepayers.”

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or factual arguments to justify ignoring several years of precedent and treating PNM or the
Emergency FPPCAC [differently] from all of these other utilities or their FPPCACs.”

{12} The PRC also rejected ABCWUA’s and NMIEC’s claim that the Emergency
FPPCAC, which recovers fuel purchased power costs through a uniform per kilowatt hour
charge, results in unreasonable and inequitable rates. The PRC noted that its

long-standing policy, as reflected in Rule 550, has been to require fuel and
purchased power costs to be recovered on a uniform per kWh basis. As a
result, every FPPCAC in effect in New Mexico recovers those costs in that
manner. Adopting UNM’s proposal would represent a significant and abrupt
departure from that long-standing policy and practice that could affect the
interests of other utilities and their ratepayers, and thus are beyond the scope
of this proceeding.

{13} Two of the five PRC Commissioners did not join the Final Order. Commissioner
Ben R. Lujan, PRC Chairman and representative for District 1, “Voted no” on the Final
Order and Commissioner Jason Marks, representative for District 3, filed a dissent.
Commissioner Marks agreed with the majority that “PNM has met the threshold statutory
requirements for a fuel clause,” but dissented from the Final Order because the Emergency
FPPCAC failed to contain “an additional condition retaining a portion of the fuel and
purchased power risk for PNM.” Specifically, Commissioner Marks would have imposed
“an 80/20 split on the fuel clause, with PNM being at risk for 20% of the difference between
allowable fuel costs in its most recent rate case and currently claimed costs.”

II. ISSUES ON APPEAL

{14} Following the denial of their motions for reconsideration, ABCWUA and NMIEC
appealed directly to this Court from the Final Order of the PRC. See NMSA 1978, § 62-11-1
(1993) (providing a right of direct appeal from the final order of the PRC). ABCWUA and
NMIEC raise a variety of claims, many of which overlap substantially. For the purpose of
economy and clarity, we have combined their claims into two broad general categories
enumerated below.

A. Constitutional Claims

{15} ABCWUA and NMIEC claim that the PRC deprived them of procedural due process
of law in violation of the Fourteenth Amendment to the Federal Constitution because (1) the
public notice, which emphasized PNM’s dire financial condition, was inadequate and
misleading because the PRC ultimately decided that PNM’s financial condition was “not
relevant to the issue of whether PNM should be granted the Emergency FPPCAC”; (2) the
expedited procedural schedule did not provide sufficient time to allow for adequate
discovery, review, or analysis of the Emergency FPPCAC; (3) Commissioners David King
and Carol K. Sloan improperly failed to attend many of the proceedings, thereby depriving

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ABCWUA of a full and fair opportunity to be heard; and (4) Commissioners King and Sandy
Jones improperly failed to recuse themselves from the proceedings, thereby depriving
NMIEC of a fair and impartial hearing. Additionally, ABCWUA claims that the PRC’s
failure to defer to the vote of the two dissenting Commissioners, who “represent a
significantly greater number of PNM customers than the remaining three Commissioners,”
deprived the “customers in those districts [of] adequate representation and equal protection
of the laws” in violation of the Fourteenth Amendment to the Federal Constitution.

B. Statutory and Regulatory Claims

{16} ABCWUA and NMIEC also claim that the Emergency FPPCAC violates various
state statutes and regulations governing public utilities. Specifically, ABCWUA and
NMIEC claim that (1) the Emergency FPPCAC violates Section 62-8-7(E) because it is
inconsistent “with the purposes of the Public Utility Act, including serving the goal of
providing reasonable and proper service at fair, just and reasonable rates”; (2) the
Emergency FPPCAC “discriminates against customers with the lowest cost responsibility,”
in violation of NMSA 1978, Section 62-8-6 (1993, prior to 2008 amendments); (3) the PRC
improperly permitted PNM to treat the costs of the audit as a regulatory asset, thereby
requiring consumers to pay twice for regulation, in violation of NMSA 1978, Section 62-8-8
(2005); (4) the independent audit lacks sufficient regulatory oversight, in violation of Rule
550; (5) PNM failed to file new schedules showing the proposed rate changes, in violation
of Section 62-8-7(B); and (6) the Emergency FPPCAC violates Rule 550.17(A)(2), because
PNM failed to establish that its “cost of fuel and purchased power contains costs which
periodically fluctuate and cannot be precisely determined in a rate case.”

III. STANDARD OF REVIEW

{17} The party challenging the PRC’s decision bears the burden to demonstrate that the
decision “is arbitrary and capricious, not supported by substantial evidence, outside the
scope of the agency’s authority, or otherwise inconsistent with law.” N.M. Indus. Energy
Consumers v. N.M. Pub. Regulation Comm’n, 2007-NMSC-053, ¶ 13, 142 N.M. 533, 168
P.3d 105 (NMIEC) (internal quotation marks and citation omitted); see also NMSA 1978,
§ 62-11-4 (1965) (“The burden shall be on the party appealing to show that the order
appealed from is unreasonable, or unlawful.”). In reviewing the PRC’s decision, “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.’” NMIEC, 2007-NMSC-053, ¶ 13 (quoting
Morningstar Water Users Ass’n v. N.M. Pub. Util. Comm’n, 120 N.M. 579, 582, 904 P.2d
28, 31 (1995)).

{18} “With respect to questions of fact, we look to the whole record to determine whether
substantial evidence supports the [PRC’s] decision.” Id. ¶ 24.

In reviewing the whole record, the court must be satisfied that the evidence

8
 demonstrates the reasonableness of the decision. No part of the evidence
may be exclusively relied upon if it would be unreasonable to do so. The
reviewing court needs to find evidence that is credible in light of the whole
record and that is sufficient for a reasonable mind to accept as adequate to
support the conclusion reached by the agency.

Id. (citation omitted). Although we view the evidence in the light most favorable to the
PRC’s decision, we will uphold the decision only if it is supported by substantial evidence.
Id. “Substantial evidence on the record as a whole is evidence demonstrating the
reasonableness of an agency’s decision, and we neither reweigh the evidence nor replace the
fact finder’s conclusions with our own.” DeWitt v. Rent-A-Center, Inc., 2009-NMSC-032,
¶ 12, 146 N.M. 453, 212 P.3d 341 (citation omitted).

IV. DISCUSSION

A. Constitutional Claims

{19} The constitutionality of the PRC’s rulings present this Court with a question of law,
which we review de novo. See Archuleta v. Santa Fe Police Dep’t, 2005-NMSC-006, ¶ 19,
137 N.M. 161, 108 P.3d 1019 (applying de novo standard of review to due process
violations); U S West Commc’ns, Inc. v. N.M. State Corp. Comm’n, 1999-NMSC-016, ¶ 15,
127 N.M. 254, 980 P.2d 37 (holding that an agency’s rulings with respect to whether a party
was “afforded the process it is due under the Fourteenth Amendment to the United States
Constitution are subject to de novo review”); U S West Commc’ns, Inc. v. N.M. State Corp.
Comm’n, 116 N.M. 548, 549, 865 P.2d 1192, 1193 (1993) (applying independent judgment
to claimed constitutional violation).

1. Whether Public Notice was Inadequate and Misleading

{20} ABCWUA and NMIEC claim that the public notice in the present case was
inadequate and misleading, in violation of their right to procedural due process of law.
Specifically, ABCWUA argues that “[t]he parties, who spent significant time and resources
addressing the financial issue, were denied due process and unfairly prejudiced by the lack
of notice that the [PRC] no longer considered the proceeding an emergency and viewed
PNM’s financial condition irrelevant.” Additionally, NMIEC argues that the case “changed
from an emergency, interim relief case into a routine rate application,” and “due process
required it to be re-noticed to reflect that change.”

{21} “It is well settled that the fundamental requirements of due process in an
administrative context are reasonable notice and opportunity to be heard and present any
claim or defense.” Jones v. N.M. State Racing Comm’n, 100 N.M. 434, 436, 671 P.2d 1145,
1147 (1983) (internal quotation marks and citation omitted). Notice “should be more than
a mere gesture; it should be reasonably calculated, depending upon the practicalities and
peculiarities of the case, to apprise interested parties of the pending action and afford them

9
an opportunity to present their case.” U S West Commc’ns, Inc., 1999-NMSC-016, ¶ 29
(internal quotation marks and citation omitted). General notice of the issues to be presented
at a hearing is sufficient to comport with due process requirements. Santa Fe Exploration
Co. v. Oil Conservation Comm’n, 114 N.M. 103, 111, 835 P.2d 819, 827 (1992).

{22} On March 29, 2008, the PRC published notice of the proceedings in the present case
in the Albuquerque Journal. The notice reprinted in its entirety the PRC’s March 25, 2008
Order Establishing Procedural Schedule and Opening New Docket. The notice stated that,
on March 20, 2008, PNM had filed a joint motion asking the PRC to implement

what [PNM] characteriz[es] as an Emergency FPPCAC, which, [PNM]
contend[s], [addresses and takes] into consideration the suggestion of the
[PRC’s] Utility Division Staff (“Staff”) in PNM’s pending rate case in Case
No. 07-00077-UT, and include[s] conditions that are designed to mitigate the
impact on customer bills during peak periods and provide additional
incentives to PNM management to control costs to the extent they are
controllable. . . .

....

In support of [its] request [PNM has] submitted the Affidavit of
Charles N. Eldred, PNM’s Executive Vice President and Chief Financial
Officer with the Joint Motion. According to [PNM], Mr. Eldred’s Affidavit
demonstrates that PNM is experiencing serious cash flow problems, is at risk
of losing its investment grade ratings and is experiencing a loss of overall
financial integrity. . . .
One of the primary reasons for PNM’s weakened financial condition,
Mr. Eldred contends, is the lack of appropriate recovery of rapidly escalating
fuel and purchased power costs. . . .
Mr. Eldred states that approving an FPPCAC would send a positive
message to the financial community that the [PRC] is serious about properly
balancing the interest of investors with those of ratepayers and, hopefully,
quiet the concerns to some extent about PNM’s financial condition. Without
an FPPCAC, Mr. Eldred believes, it is “inevitable” that PNM’s credit rating
will be downgraded to junk bond status.

{23} “In light of the serious concerns raised by [PNM]” and “as a matter of protecting the
public interest,” the notice stated that the PRC had

establish[ed] an expedited procedural schedule for the consideration and
review of the Emergency FPPCAC. However, because the Emergency
FPPCAC essentially is a new FPPCAC that is significantly different from the
FPPCAC proposed by PNM in Case No. 07-00077-UT, and because the
record in Case No. 07-00077-UT is now closed, the [PRC] finds the Joint

10
 Motion should be considered in a separate docket. Accordingly, the [PRC]
has opened a new docket, Case No. 08-00092-UT, and will move the Joint
Motion into that case. All further pleadings and filing regarding the Joint
Motion should be filed solely in Case No. 08-00092-UT. The [PRC] will, of
course, take administrative notice of any evidence relevant to the Joint
Motion and the Emergency FPPCAC that is in Case No. 07-00077-UT to the
extent permitted by 17.1.2.37(D) NMAC. All other relevant evidence must
be filed in Case No. 08-00092-UT.

{24} The foregoing notice properly informed the public of the arguments raised in PNM’s
application for an Emergency FPPCAC and the expedited procedural schedule established
by the PRC. Contrary to the assertions of ABCWUA and NMIEC, nothing in the notice
indicated that PNM’s financial condition was relevant to the substantive issue of whether
PNM is entitled to an Emergency FPPCAC on the merits under Section 62-8-7(E)(1) and
Rule 550. Rather, the notice plainly stated that PNM’s financial condition was relevant to
the expedited procedural schedule adopted by the PRC. Specifically, the notice explains
that, “[i]n light of the serious concerns raised” by PNM regarding an imminent financial
crisis, the PRC had decided to “establish an expedited procedural schedule for consideration
and review of the Emergency FPPCAC” to “[protect] the public interest.” Accordingly, we
conclude that the notice was neither inadequate nor misleading.

{25} Alternatively, NMIEC claims that the notice was constitutionally deficient because
it “informed the public that the case involved a request for interim relief.” We disagree.
Nothing in the public notice indicated that the proceedings before the PRC pertained
exclusively to interim relief under Section 1.2.2.27 of the Administrative Code. Indeed, if
interim relief was the only issue before the PRC, then a public hearing would not have been
required. See 1.2.2.27(D) NMAC (“[R]equests for interim relief other than interim rate relief
may be acted upon with or without public hearing.”). NMIEC appears to argue, however,
that the notice was misleading because it referred to an “Emergency FPPCAC,” which it
believes is the same as an “Interim FPPCAC.” We are not persuaded. The terms
“emergency” and “interim” are not synonymous. The term “emergency” is defined as “[a]
serious situation or occurrence that happens unexpectedly and demands immediate action,”
whereas the term “interim” is defined as “[a]n interval of time between one event, process,
or period and another . . . temporary.” The American Heritage Dictionary of the English
Language 584, 913 (4th ed. 2000). Thus, an “Emergency FPPCAC” is an FPPCAC issued
on an expedited procedural basis, whereas an “Interim FPPCAC” is a temporary FPPCAC,
issued pending a final decision of the PRC. Because the PRC properly informed the public
of the general issues to be decided, we conclude that the notice comported with due process
requirements.

{26} Our conclusion on this point also disposes of NMIEC’s claim that the PRC “ignored
its own procedures and rules regarding interim rate relief.” The PRC did not award interim
rate relief to PNM and, therefore, the procedures delineated in Section 1.2.2.27 were
inapplicable to the present case. See 1.2.2.27(A) (“Except as provided in Sections 65-2A-11

11
and 70-3-16 NMSA 1978, in addition to the usual contents of a pleading, the pleading must
allege such extraordinary facts of immediate and irreparable injury as would justify the
commission’s exercise of discretion by granting interim relief prior to a final decision.”).
We therefore reject NMIEC’s claim.

2. Whether the Expedited Procedural Schedule Deprived ABCWUA and NMIEC
of Procedural Due Process of Law

{27} ABCWUA and NMIEC next argue that the expedited procedural schedule deprived
them of procedural due process of law. Specifically, they claim that the PRC granted them
an insufficient period of time in which to conduct “adequate discovery and to prepare and
file the expert testimony needed to rebut PNM’s application for an [E]mergency FPPCAC.”

{28} “In general, the right to due process in administrative proceedings contemplates only
notice of the opposing party’s claims and a reasonable opportunity to meet them.”
Archuleta, 2005-NMSC-006, ¶ 32 (internal quotation marks and citation omitted). Thus,
“due process is flexible in nature and may adhere to such requisite procedural protections
as the particular situation demands.” U S West Commc’ns, Inc., 1999-NMSC-016, ¶ 25
(internal quotation marks and citation omitted). A reviewing court’s

determination of what process is due in an administrative proceeding results
from a balancing of (1) “the private interest that will be affected by the
official action”; (2) “the risk of an erroneous deprivation of such interest
through the procedures used, and the probable value, if any, of additional or
substitute procedural safeguards”; and (3) “the [g]overnment’s interest,
including the function involved and the fiscal and administrative burdens that
the additional or substitute procedural requirement would entail.”

Id. ¶ 26 (quoting Mathews v. Eldridge, 424 U.S. 319, 335 (1976)). In balancing these
interests, we must “consider the proceedings as a whole.” Id. (internal quotation marks and
citation omitted).

{29} PNM averred that it was facing an immediate and critical financial crisis due, at least
in part, to “the lack of appropriate recovery of rapidly escalating fuel and purchased power
costs.” Indeed, PNM claimed that its financial condition was so severe that it was
“experiencing difficulties in dealing with counterparties to procure power supplies and
natural gas to serve customers.” Thus, PNM’s application for an Emergency FPPCAC
implicated the substantial public interest in an efficient and uninterrupted supply of electric
power and natural gas. See NMSA 1978, § 62-3-1(A)(1) (1967, prior to 2008 amendments)
(recognizing that public utilities affect the public interest in that they render “essential public
services to a large number of the general public”).

{30} However, this public interest must be balanced against ABCWUA’s and NMIEC’s
private interest in just and reasonable utility rates. See § 62-3-1(B) (recognizing the private

12
interest in “reasonable and proper service” at “fair, just and reasonable rates”). Accordingly,
we turn to the second prong of the Matthews test to determine “the probable value, if any,
of additional or substitute procedural safeguards.” Mathews, 424 U.S. at 335.

{31} We conclude that additional extensions of time would have had little, if any,
probative value in the present case. First, the record reflects that the parties had ample
opportunity to present evidence regarding PNM’s entitlement to an FPPCAC under Section
62-8-7(E)(1) and Rule 550 in the underlying rate case and that the PRC took administrative
notice of this evidence. Second, the PRC granted ABCWUA and NMIEC two extensions
of time, extending the time period in which they were required to file their responsive
testimony from twelve to forty-two days. This was substantially longer than the three-day
time period in which PNM was required to file its direct testimony, and only eighteen days
shy of the sixty-day time period originally requested by ABCWUA and NMIEC in their
Joint Motion for an Extension of Procedural Schedule. Under the present circumstances, we
cannot conclude that the PRC’s denial of a third extension of time was arbitrary, capricious,
or unreasonable. See Nat’l Council on Comp. Ins. v. N.M. State Corp. Comm’n, 107 N.M.
278, 286, 756 P.2d 558, 586 (1988) (“The presumption . . . is that the [agency’s] decision
was reasonable.”).

3. Whether the Absence of Commissioners King and Sloan from the Public
Hearings Deprived ABCWUA of Procedural Due Process of Law

{32} ABCWUA claims that it was deprived of its procedural due process right to a full and
fair hearing because “Commissioners King and Sloan, who voted in favor [of the Emergency
FPPCAC,] did not personally attend many of the proceedings and did not listen to the
testimony telephonically.” Additionally, ABCWUA questions whether Commissioners King
and Sloan even “reviewed the record of the hearings they failed to attend prior to rendering
their decision.”

{33} The record reflects that the PRC conducted public hearings on PNM’s application
for an Emergency FPPCAC on May 12, 15, 16, and 17, 2008. Commissioner King did not
attend the hearings held on the afternoon of May 12, 2008, the morning of May 16, 2008,
or the morning or afternoon of May 17, 2008. Commissioner Sloan did not attend the
hearings held on the morning of May 12, 2008, or the morning or afternoon of May 17,
2008. Despite their absence, both Commissioner King and Sloan voted in favor of the Final
Order awarding PNM an Emergency FPPCAC.

{34} In the absence of a statutory provision to the contrary, neither due process nor the
concept of a fair hearing requires “that the actual taking of testimony be before the same
officers as are to determine the matter involved.” E.H. Schopler, Annotation, Administrative
Decision by Officer Not Present When Evidence Was Taken, 18 A.L.R. 2d 606, § 3 (1951).
Rather, “the majority of cases hold that in order to comply with due process it is only
required that members not present when testimony is taken review the testimony before
participating in the decision.” Lewandoski v. Vermont State Colleges, 457 A.2d 1384, 1387

13
(Vt. 1983); see also Schmidt v. Beeson Plumbing & Heating, Inc., 869 P.2d 1170, 1179
(Alaska 1994) (holding that an administrative officer’s attendance at evidentiary hearings
is “not necessary” so long as the officer reviews the transcript and documentary evidence
prior to rendering a decision); Clairborne v. Coffeyville Mem’l Hosp., 510 P.2d 1200, 1202
(Kan. 1973) (“[A]n administrative decision is not invalid merely because, due to a change
in personnel because of illness, death, resignation, transfers, or similar reasons, an officer
who was not present when the evidence was taken, made or participated in the decision,
provided he was considered and acts upon the evidence received in his absence.”).

{35} The burden is on ABCWUA to show that the Final Order is unreasonable or unlawful
because Commissioners King and Sloan failed to review the evidentiary record prior to
rendering a decision. See § 62-11-4. “[M]ere allegation that the commissioners did not
consider the entire record [is] insufficient.” Pub. Utils. Comm’n v. District Court, 431 P.2d
773, 777 (Colo. 1967) (en banc); see also Nat’l Council on Comp. Ins., 107 N.M. at 286, 756
P.2d at 586 (“The presumption . . . is that the [agency’s] decision was reasonable.”); Taub
v. Pirnie, 144 N.E.2d 3, 5 (N.Y. 1957) (“[I]n the absence of a ‘clear’ revelation that the
administrative body ‘made no independent appraisal and reached no independent
conclusion’, its decision will not be disturbed.”). However, ABCWUA has failed to present
this Court with any evidence to support its claim that Commissioners King and Sloan failed
to review the evidentiary record prior to rendering a decision. Accordingly, we reject
ABCWUA’s due process claim.

{36} Although we are not persuaded that a due process violation occurred, we nonetheless
find the repeated absences of Commissioners King and Sloan, as well as Commissioner Ben
R. Lujan, from the evidentiary hearings conducted by the PRC to be a cause for concern.
The Commissioners of the PRC have a constitutional and statutory obligation to participate
actively and fully in the proceedings before them. See N.M. Const. art. XI, § 1; § 8-8-4.
Where the PRC does not delegate its authority to a hearing examiner, but, rather, conducts
an evidentiary hearing before a full complement of Commissioners, unexplained absences
should be the exception, rather than the rule.

4. Whether Commissioners King and Jones Improperly Failed to Recuse
Themselves in Violation of the Due Process Clause

{37} NMIEC claims that Commissioners King and Jones “prejudged the outcome of the
case prior to receiving all the evidence” and, therefore, improperly failed to recuse
themselves in violation of NMIEC’s procedural due process right to a fair and impartial
hearing.

{38} The following additional facts are relevant to NMIEC’s claim. At a hearing
conducted on April 24, 2008, Commissioner King proposed that PNM should be granted
interim relief on its application for an Emergency FPPCAC. Commissioner Jones responded
that, in lieu of interim relief, the PRC should render a final decision on PNM’s application
for an Emergency FPPCAC immediately following the conclusion of the public hearings.

14
Commissioner Jones explained that

I just fear that we get in – here’s what my concern is. We’re really not giving
them a decision [on their request for a FPPCAC in the rate case]. I think all
of us understand that the possibility exists that we could be convinced that
they need a fuel clause. That’s about as easy a way to say I’m not convinced
yet. If we go to a – if we go to May 15th [for the public hearings], take
several days to render a decision and it’s adverse and gets appealed, then I
think that we’ve tied our hands into putting into any kind of an interim relief
pending appeal. I could see this thing going on a year. I don’t think – my
opinion is . . . PNM doesn’t have a year. I’ve seen enough stuff from
Standard & Poors. These people have been in here begging, pleading and
crying. There’s no question in my mind PNM needs some relief here. How
do we keep from killing a company if this goes through an appeal process
and is there a way that in the event of an appeal that we can provide interim
relief? That’s my question. Because that’s a question that I’m weighing
right now is whether or not to give them an interim fuel clause.

{39} Commissioner Jones acknowledged that his alternate proposal might have “dilute[d]”
or “muddied” Commissioner King’s motion for interim relief and, therefore, he moved for
consideration of Commissioner King’s original motion. Commissioners King and Jones
voted in favor of granting PNM interim relief. Commissioner King explained that

We’re not crying wolf. We have a very, very serious situation today. That’s
not going to gloss over. It’s going to get worse in the days ahead if we don’t
take decisive action today. There’s not any debate in my mind about that.
I think we’re going to see in the next few days when Moody comes forward,
it’s going to be worse still and so I think we need to take action.

However, the remaining Commissioners did not vote in favor of the motion and,
consequently, interim relief was not granted.

{40} Thereafter, NMIEC filed a motion requesting Commissioners King and Jones to
recuse themselves from the present case, claiming that they had “prejudged the outcome of
this case in favor of [PNM] before the full evidentiary record [had] been developed.” In
support of its motion, NMIEC argued that the Commissioners’s votes in favor of interim
relief, as well as their accompanying statements, “clearly establish that [they] have already
made up their minds about the emergency fuel clause.”

{41} Commissioners King and Jones denied NMIEC’s motion, explaining that they could
and would “make a fair and impartial decision based on the record to be developed.” They
believed that

NMIEC may have completely misunderstood Commissioner Jones’

15
 comments during the April 24 meeting. Contrary to NMIEC’s assertions,
neither Commissioner Jones nor Commissioner King voted to approve, on
its merits, the Emergency Fuel Clause proposed by PNM in this case.
Rather, we both supported granting PNM an INTERIM rate clause
that would be in effect until a final decision were issued in this case on
PNM’s Emergency Fuel Clause. . . .
We supported giving PNM an interim fuel clause solely as a way to
give PNM some interim relief until we and the rest of the [PRC] had the
opportunity to determine, based on the record in this case, whether a more
permanent fuel clause or some other relief should be given to PNM.

{42} It is well established that adverse rulings do not constitute a valid basis for
disqualification based on personal bias or prejudgment of a disputed factual issue. See, e.g.,
Liteky v. United States, 510 U.S. 540, 541 (1994) (“[J]udicial rulings alone almost never
constitute valid basis for a bias or partiality recusal motion.”); State v. Hernandez, 115 N.M.
6, 20, 846 P.2d 312, 326 (1993) (holding that “[p]ersonal bias cannot be inferred from an
adverse ruling”); United Nuclear Corp. v. Gen. Atomic Co., 96 N.M. 155, 249, 629 P.2d 231,
325 (1980) (“Rulings adverse to a party do not necessarily evince a personal bias or
prejudice on the part of the judge against it even if the rulings are later found to have been
legally incorrect.”). Accordingly, we reject NMIEC’s claim that Commissioners King’s and
Jones’s votes in favor of interim relief mandated their disqualification from all further
proceedings.

{43} Nonetheless, NMIEC claims that the Commissioners’s comments during the April
24 hearing demonstrated that they “had already made up their minds” about the merits of the
present case. We recognize that “comments by a Commissioner which constitute
prejudgment may constitutionally taint any subsequent hearing so as to invalidate the
ensuing order of the [PRC].” Mountain States Tel. & Tel. Co. v. Corp. Comm’n, 99 N.M.
1, 7, 653 P.2d 501, 507 (1982) (per curiam); see also NMSA 1978, § 8-8-18(A)(1) (1998)
(“A commissioner or hearing examiner shall recuse himself in any adjudicatory proceeding
in which he is unable to make a fair and impartial decision or in which there is reasonable
doubt about whether he can make a fair and impartial decision, including . . . when he has
. . . prejudged a disputed evidentiary fact involved in a proceeding prior to hearing.”).
However, “not all allegations of bias or prejudice are of the type that render a proceeding
fundamentally unfair or require the disqualification of a decisionmaker.” U S West
Commc’ns, Inc., 1999-NMSC-016, ¶ 41.

{44} To determine whether a Commissioner’s remarks constitute prejudgment sufficient
to violate the constitutional right to due process of law,

[t]he inquiry is not whether the [commission]ers are actually biased or
prejudiced, but whether, in the natural course of events, there is an indication
of a possible temptation to an average [person] sitting as a judge to try the
case with bias for or against any issue presented to him [or her]. This inquiry

16
 measures allegations of bias or prejudice by an objective standard . . . .

Id. ¶ 42 (internal quotation marks and citation omitted). In conducting this inquiry, we are
mindful that

[o]pinions formed by the judge on the basis of facts introduced or events
occurring in the course of the current proceedings, or of prior proceedings,
do not constitute a basis for a bias or partiality motion unless they display a
deep-seated favoritism or antagonism that would make fair judgment
impossible. Thus, judicial remarks during the course of the trial that are
critical or disapproving of, or even hostile to, counsel, the parties, or their
cases, ordinarily do not support a bias or partiality challenge.

Id. ¶ 44 (quoting Liteky, 510 U.S. at 555).

{45} The timing of Commissioners King’s and Jones’s remarks indicate that they were
based on the evidence adduced in the rate case, as well the direct testimony filed by PNM
in the present case. Absent evidence to the contrary, we will not presume that these remarks
“were based on information obtained . . . outside the course of the proceedings.” Id.; see
also Siesta Hills Neighborhood Ass’n v. Albuquerque, 1998-NMCA-028, ¶ 19, 124 N.M.
670, 954 P.2d 102 (upholding a city councilor’s refusal to disqualify herself because the
appellant had failed to produce any evidence indicating that the councilor prejudged the
merits of the case). Because these remarks do not “‘display a deep-seated favoritism or
antagonism that would make fair judgment impossible,’” U S West Commc’ns, Inc., 1999-
NMSC-016, ¶ 44 (quoting Litkey, 510 U.S. at 555), we conclude that Commissioners King
and Jones properly declined to recuse themselves.

5. Whether the PRC’s Failure to Defer to the Vote of the Dissenting
Commissioners Violated the Equal Protection Clause

{46} ABCWUA claims that the PRC improperly failed to defer to the votes of the two
dissenting Commissioners, “who represent a significantly greater number of PNM customers
than the remaining three Commissioners,” thereby depriving the “customers in those districts
[of] adequate representation and equal protection of the laws” in violation of the Fourteenth
Amendment to the Federal Constitution.

{47} The PRC is composed of five Commissioners, each of whom is elected from a
different district. See NMSA 1978, § 8-7-2 (1997). The boundaries of the five different
districts are “established pursuant to the Precinct Boundary Adjustment Act [1-3-10 to
1-3-14 NMSA 1978] and revised and approved by the secretary of state as of August 31,
2001.” NMSA 1978, § 8-7-5(A) (2001); see NMSA 1978, §§ 8-7-6 to -10 (2001) (codifying
the boundaries of the five PRC districts).

The purpose of the Precinct Boundary Adjustment Act [1-3-10 to 1-3-14

17
 NMSA 1978] is to comply with the criteria established pursuant to the
provisions of Subsection (c) of Section 141 of Title 13 of the United States
Code in order to obtain an enumeration of the populations of election
precincts by the bureau of the census in the federal decennial census and in
order to provide such enumeration data to the New Mexico legislature for
purposes of legislative reapportionment.

NMSA 1978, § 1-3-11 (1995). Pursuant to Section 8-8-4(D), only “a majority vote of the
commission is needed for a final decision of the commission.”

{48} Essentially, ABCWUA claims that Sections 8-7-6 through 8-7-10 violate the one
person, one vote principle of the equal protection clause because the PRC districts are not
equally apportioned on the basis of population. Cf. Connor v. Finch, 431 U.S. 407, 416
(1977) (“The Equal Protection Clause requires that legislative districts be of nearly equal
population, so that each person’s vote may be given equal weight in the election of
representatives.”). “In calculating the deviation among districts, the relevant inquiry is
whether the vote of any citizen is approximately equal in weight to that of any other citizen,
the aim being to provide fair and effective representation for all citizens.” Board of Estimate
of City of New York v. Morris, 489 U.S. 688, 701 (1989) (internal quotation marks and
citations omitted); id. at 703 (holding that a population deviation of 78% violated the “one-
person, one-vote ideal”).

{49} The record is devoid of any evidence regarding the relative population density of
each of the five PRC districts or the maximum deviation among the districts. The burden
is on ABCWUA to provide this Court with an adequate record to review the merits of its
claims on appeal. See § 62-11-4 (“The burden shall be on the party appealing to show that
the order appealed from is unreasonable, or unlawful.”); see also Brown v. Trujillo,
2004-NMCA-040, ¶ 34, 135 N.M. 365, 88 P.3d 881 (noting parenthetically that “the party
seeking review has the burden of providing an adequate record to review the issues on
appeal”). Because ABCWUA has failed to fulfill its burden, we will not review its equal
protection claim.

B. Statutory and Regulatory Claims

{50} The PRC’s “decisions requiring expertise in highly technical areas, such as utility
rate determinations, are accorded considerable deference. Less deference, however, is
warranted when reviewing determinations outside the realm of the [PRC]’s expertise.” El
Vadito de Los Cerillos Water Ass’n v. N.M. Pub. Serv. Comm’n, 115 N.M. 784, 787, 858
P.2d 1263, 1266 (1993) (citation omitted). Statutory construction “is not a matter within the
purview of the [PRC]’s expertise” and, therefore, “‘we afford little, if any, deference to the
[PRC] on this matter.’” NMIEC, 2007-NMSC-053, ¶ 19 (quoting Pub. Serv. Co. of N.M. v.
N.M. Pub. Util. Comm’n, 1999-NMSC-040, ¶ 14, 128 N.M. 309, 992 P.2d 860).
Accordingly, we apply a de novo standard of review to the PRC’s rulings regarding statutory
construction. Id.

18
{51} By contrast, “[t]his Court will generally defer to an agency’s reasonable
interpretation of its own ambiguous regulations,” In re Rhino Envtl. Servs., 2005-NMSC-
024, ¶ 13, 138 N.M. 133, 117 P.3d 939, especially where the subject of the regulation
implicates agency expertise, Rio Grande Chapter of Sierra Club v. N.M. Mining Comm’n,
2003-NMSC-005, ¶ 17, 133 N.M. 97, 61 P.3d 806. However, we are not bound by the
agency’s interpretation and we may substitute our own independent judgment for that of the
agency “if the agency’s interpretation . . . is unreasonable or unlawful.” Morningstar Water
Users Ass’n, 120 N.M. at 583, 904 P.2d at 32 (noting that “it is the function of the courts to
interpret the law”). The canons of statutory construction guide our interpretation of
administrative regulations. Johnson v. N.M. Oil & Conservation Comm’n, 1999-NMSC-021,
¶ 27, 127 N.M. 120, 978 P.2d 327.

{52} “When construing statutes, our guiding principle is to determine and give effect to
legislative intent.” NMIEC, 2007-NMSC-053, ¶ 20. “In discerning the Legislature’s intent,
we are aided by classic canons of statutory construction, and [w]e look first to the plain
language of the statute, giving the words their ordinary meaning, unless the Legislature
indicates a different one was intended.” Marbob Energy Corp. v. N.M. Oil Conservation
Comm’n, 2009-NMSC-013, ¶ 9, 146 N.M. 24, 206 P.3d 135 (internal quotation marks and
citation omitted). “Statutory language that is clear and unambiguous must be given effect.”
V.P. Clarence Co. v. Colgate, 115 N.M. 471, 473, 853 P.2d 722, 724 (1993). “Only if an
ambiguity exists will we proceed further in our statutory construction analysis.” Marbob
Energy Corp., 2009-NMSC-013, ¶ 9.

1. Whether the Emergency FPPCAC Violates Section 62-8-7(E)

{53} ABCWUA and NMIEC claim that the Emergency FPPCAC violates Section 62-8-
7(E) because it fails to ensure “reasonable and proper service at fair, just and reasonable
rates.” Section 62-8-7(E). Specifically, ABCWUA and NMIEC argue that the Emergency
FPPCAC unlawfully permits PNM “to pass on increased fuel and purchased power costs
without an examination of the other areas in which its costs may have decreased or its
revenues increased,” thereby requiring consumers to pay increased costs while PNM enjoys
increased profits.

{54} Section 62-8-7(E) plainly and unambiguously provides that “taxes or cost of fuel, gas
or purchased power” may be recovered automatically via a FPPCAC. Section 62-8-7(E);
see also NMIEC, 2007-NMSC-053, ¶ 31. “The purpose of a [FPPCAC] is to flow through
to the users of electricity the increases or decreases in Applicable Fuel and Purchased Power
costs per kilowatt-hour of delivered energy above or below a Base Cost.” Rule 550.6(D).
FPPCACs “provide for the stability of utility earnings when electric fuel costs and purchased
power costs are rising and permit prompt credits to customers when electric fuel costs and
purchased power costs are declining.” Rule 550.6(B). Thus, utilities only “collect through
the FPPCAC the amount actually expended for fuel and purchased power costs.” Rule
550.6(C).

19
{55} Automatic cost recovery is “a narrow exception” to the general rule requiring
“notice, hearing, and approval” in rate cases. NMIEC, 2007-NMSC-053, ¶ 31. In
determining whether a FPPCAC is appropriate in a particular case, Section 62-8-7(E)
requires the PRC to consider, inter alia, “whether the existence of a particular adjustment
clause is consistent with the purposes of the Public Utility Act, including serving the goal
of providing reasonable and proper service at fair, just and reasonable rates to all customer
classes.” See also § 62-3-1(B) (“It is the declared policy of the state that the public interest,
the interest of consumers and the interest of investors require the regulation and supervision
of such public utilities to the end that reasonable and proper services shall be available at
fair, just and reasonable rates . . . .”).

{56} FPPCACs, by their very nature, authorize the direct and automatic recovery of a
utility’s actual fuel, gas, and purchased power costs. Indeed, the purpose of a FPPCAC is
to place the burden of volatile fuel costs on the consumer; thereby providing the public
utility with a stable income stream, while at the same time ensuring that the consumer only
pays for the fuel and purchased power costs actually incurred. See Rule 550.6(B)-(D). To
require a utility to offset its fuel and purchased power costs against cost-savings in other
areas would undermine the direct and automatic nature of the cost recovery system inherent
in FPPCACs. By enacting Section 62-8-7(E), which explicitly permits FPPCACs, the
Legislature plainly has determined that the benefits of such an efficient cost recovery system
outweigh the possible burdens that it might impose on consumers and “is consistent with the
purposes of the Public Utility Act, including serving the goal of providing reasonable and
proper service at fair, just and reasonable rates to all customer classes.”

{57} ABCWUA and NMIEC claim, however, that Section 62-8-7(E) must be construed
narrowly to prohibit the cost-shifting mechanism inherent in a FPPCAC. In support of their
claim they rely on NMIEC, in which this Court held that renewable energy certificates are
not eligible for automatic cost recovery because Section 62-8-7(E) plainly and
unambiguously limits allowable costs to “taxes or cost of fuel, gas or purchased power.”
NMIEC, 2007-NMSC-053, ¶ 31 (internal quotation marks and citation omitted). “In light
of [this] plainly exclusive language, we interpret[ed] Section 62-8-7(E) narrowly and
decline[d] to read into it language which is not there . . . .” Id. ¶ 33 (internal quotation marks
and citation omitted).

{58} NMIEC did not hold, as ABCWUA and NMIEC suggest, that the entire statutory
scheme governing FPPCACs is subject to narrow construction. Rather, it simply held that
the statutory phrase “taxes or cost of fuel, gas or purchased power” must be construed
narrowly, consistent with its plain and unambiguous language. Id. ¶¶ 31-33. Because the
Emergency FPPCAC, in the present case, limits automatic cost recovery to “taxes or cost of
fuel, gas or purchased power,” we reject ABCWUA’s and NMIEC’s claim.

{59} However, ABCWUA claims in its reply brief that the Emergency FPPCAC violates
Section 62-8-7(E) because it relies on forecasted increases in PNM’s fuel and purchased
power costs, rather than the historical test year method, whereby the PRC “evaluates a

20
utility’s operating costs for a specified preceding twelve-month period and uses the utility’s
past experience as a guide to the utility’s future revenue requirement.” In re PNM Gas
Servs., 2000-NMSC-012, ¶ 6, 129 N.M. 1, 1 P.3d 383. During the pendency of this appeal,
the PRC filed a motion to strike ABCWUA’s claim, arguing that it had not been raised in
ABCWUA’s brief-in-chief. Our review of ABCWUA’s brief-in-chief reveals that, although
ABCWUA raised this argument in support of its procedural due process and substantial
evidence claims,4 it failed to raise the issue as a separate basis for reversal of the PRC’s Final
Order. It is well established that we will not address issues “raised for the first time in the
reply brief.” State v. Fairweather, 116 N.M. 456, 463, 863 P.2d 1077, 1084 (1993).
Accordingly, the PRC’s motion to strike is hereby granted.

2. Whether the Emergency FPPCAC Violates Section 62-8-6

{60} ABCWUA next claims that the Emergency FPPCAC violates Section 62-8-6 because
it establishes and maintains “unreasonable differences as to rates of service.” Specifically,
ABCWUA argues that the Emergency FPPCAC improperly discriminates against “efficient-
use customers with high load factors and customers who consume [electricity during] off-
peak” hours because it recovers fuel and purchased power costs through a uniform per
kilowatt hour charge.

{61} Section 62-8-6 provides, in relevant part, that

[n]o public utility shall, as to rates of services, make or grant any
unreasonable preference or advantage to any corporation or person within
any classification or subject [to] any corporation or person within any
classification to any unreasonable prejudice or disadvantage. No public
utility shall establish and maintain any unreasonable differences as to rates
of service either as between localities or as between classes of service.

“[This] section does not prohibit variations in rates, nor does it require ‘equal service.’
Rather, it prohibits ‘unreasonable differences’ in rates of service between localities. Section
62-8-6 thus forbids arbitrary variations in rates, while permitting variations due to differing
costs of service to different areas.” Albuquerque v. N.M. Pub. Regulation Comm’n, 115 NM.
521, 531, 854 P.2d 348, 358 (1993) (“Allowing municipalities to contract with utilities for
service rates to their inhabitants does not, ipso facto, violate Section 62-8-6.”); see also

4
In its brief-in-chief, ABCWUA claims that it was deprived of procedural due
process of law because the expedited procedural schedule did not permit sufficient time to
explore the accuracy of PNM’s projected increase in fuel and purchased power costs. We
have rejected this claim for the reasons explained supra part IV.A.2. ABCWUA also claims
that the Emergency FPPCAC is not supported by substantial evidence because it is based on
projected, rather than historical, fuel costs. We reject this claim for the reasons hereinafter
explained infra part IV.B.6.b.

21
Albuquerque v. N.M. Pub. Serv. Comm’n, 2003-NMSC-028, ¶ 25, 134 N.M. 472, 79 P.3d
297 (holding, in relevant part, that a utility properly may apportion undergrounding costs to
those “customers located within the jurisdiction requiring the undergrounding”).

{62} John D. Olmstead, Rates Manager for PNM, submitted testimony concerning the
“customer impacts of PNM’s Emergency FPPCAC.” Olmstead explained that a FPPCAC
that implements different rates based on different customer classifications is an inappropriate
method of rate recovery because

1) PNM’s Emergency FPPCAC proposal specifically requests recovery
of increases in fuel expenses above what was allowed in NMPRC
Case 07-00077-UT. The amount charged to customers for base fuel
does not vary by rate class, and to vary the recovery of those
additional expenses by class is not consistent with the rate design
adopted in NMPRC Case 07-00077-UT or cost justified.
2) Having an FPPCAC that varies by rate class will cause some
customers to change rate classes on the basis of the combined cost of
their base rate bill plus their FPPCAC charge. This results in a
revenue shortfall to PNM that cannot be corrected under the true-up
provision of the Emergency FPPCAC. If a class-by-class FPPCAC
were adopted by the [PRC], the amount of the shortfall from rate
switching could exceed $0.5 million.
3) An FPPCAC that varies by rate class could result in some rates that
exceed the $0.01 per kWh FPPCAC cap that PNM has proposed in
this case to limit customer impacts. This would not allow PNM to
recover some FPPCAC costs even though they had been approved for
recovery at a company level. If a class-by-class FPPCAC were
adopted by the [PRC], the amount of the shortfall due to cap limits
could exceed $1.7 million.

When asked whether the Emergency FPPCAC fairly apportions cost recovery across
different rate classes, Olmstead answered, “Yes. Increased fuel costs are allocated on a per
kWh basis in a manner entirely consistent with cost causation principles.”

{63} In addition to Olmstead’s testimony, the record reflects that the PRC has a “long-
standing policy . . . to require fuel and purchased power costs to be recovered on a uniform
per kWh basis.” Indeed, “every FPPCAC in effect in New Mexico recovers those costs in
that manner.” This long-standing policy is reflected in Rule 550, which provides that “[t]he
Fuel and Purchased Power Cost Adjustment Factor shall be expressed in $ per kWh, and the
resultant monthly charge or credit shall be shown on each customer’s monthly bill.” Rule
550.16.

{64} However, ABCWUA points out that John C. Tysseling, Ph.D., President of E3c, Inc.
(d/b/a Energy, Economic and Environmental Consultants), testified that “a disproportionate

22
impact occurs on the larger customer rate classes” “when the proposed Emergency FPPCAC
surcharge is applied on a per kWh basis.” Specifically, Tysseling explained that

[t]he larger customer rate classes (generally) have lower fixed cost rate
elements (per kWh of usage) . . . than is the case in smaller customer classes.
Thus, when these Emergency FPPCAC . . . revenues are recovered on a per
kWh basis—without consideration of the class revenues that are otherwise
recovered on a “fixed” basis (e.g., Customer Charges)—there is a significant
distortion in the cost responsibilities between rate classes. This is a classic
“rate design” issue. In fact, if the [PRC] were to adopt the “per kWh”
proposal it would send dramatically incorrect price signals to the larger
customer classes.

{65} Viewing the foregoing evidence in the light most favorable to the PRC’s decision,
we conclude that the Emergency FPPCAC is supported by substantial evidence. See
NMIEC, 2007-NMSC-053, ¶ 24 (“We view the evidence in the light most favorable to the
[PRC]’s decision and draw every inference in support of the [PRC]’s decision, but we will
not uphold the decision if it is not supported by substantial evidence.” (citation omitted)).
Olmstead’s testimony, the long-standing policy of the PRC, and the plain language of Rule
550, amply support the PRC’s determination that a uniform per kilowatt hour charge is the
most equitable and efficient method of cost recovery. Although conflicting evidence existed,
it is well established that “evidence of two conflicting opinions in the record does not mean
that the decision arrived at is unsupported by substantial evidence.” Attorney General of
N.M. v. N.M. Pub. Serv. Comm’n, 101 N.M. 549, 553, 685 P.2d 957, 961 (1984).
Accordingly, we conclude that the Emergency FPPCAC does not violate Section 62-8-6.

3. Whether the FPPCAC Violates Section 62-8-8

{66} ABCWUA and NMIEC claim that the Emergency FPPCAC improperly permits
PNM to treat the costs of the independent audit as a regulatory asset, which may be
recovered from the ratepayers through PNM’s base rates. Specifically, they claim that
Section 62-8-8 already imposes an inspection and supervision fee on utilities, which may be
recovered from the ratepayers through their base rates and, therefore, the Emergency
FPPCAC forces ratepayers to pay twice for utility regulation.

{67} The following additional background is necessary for our review of this claim. In
its Final Order, the PRC found that a prudency review of the Emergency FPPCAC was
necessary “[i]n order to provide the parties and PNM customers assurances that PNM’s
electric power is generated and purchased at the lowest reasonable cost.” However, the PRC
had “neither the resources nor the expertise to conduct an adequate prudency review” of the
Emergency FPPCAC. Consequently, the PRC held that the prudency review must “be
conducted by an auditor or team of auditors to be selected by, and under the direction of, [the
PRC].” The PRC ordered PNM to “pay for the costs of the prudency review,” but permitted
PNM to treat those costs “as a regulatory asset” that may be recovered “from its ratepayers

23
through the rates established in PNM’s next general rate proceeding.”

{68} The PRC “has an obligation to allow a utility expenses that are necessary in
providing utility service, that benefit ratepayers, and that are prudently incurred.” In re PNM
Gas Servs., 2000-NMSC-012, ¶ 68 (internal quotation marks and citation omitted). For
example, federal taxes and the expenses associated with a rate case are all legitimate
operating costs that a utility may recover from its ratepayers through its base rates. See id.
(“Because rate proceedings are a part of the normal course of business for a utility and
because rate proceedings, by establishing just and reasonable rates, are conducted for the
benefit of both ratepayers and shareholders, it is widely accepted that rate case expenses are
one aspect of a utility’s operating costs and are recoverable in a general rate proceeding.”);
In re Zia Natural Gas Co., 2000-NMSC-011, ¶ 11, 128 N.M. 728, 998 P.2d 564 (“[A]
regulatory body cannot arbitrarily disallow federal taxes that a company has paid or is
obliged to pay, by assuming a tax savings under a capital structure which does not exist.”).
Because the independent audit is necessary for the proper administration of the Emergency
FPPCAC and is beneficial to consumers by ensuring that PNM’s electric power is generated
at the lowest reasonable cost, we conclude that the costs of the audit are a legitimate
operating expense that PNM may recover from its ratepayers through its base rates.

{69} However, ABCWUA and NMIEC claim that PNM’s ratepayers will be required to
pay twice for utility regulation under Section 62-8-8. Section 62-8-8 imposes an “inspection
and supervision fee” on “[e]ach utility doing business in this state and subject to the control
and jurisdiction of the commission with respect to its rates or service regulations.” “[T]he
inspection and supervision fees are in fact fees charged for the services of the Public Service
Commission in supervising and inspecting these rural electric cooperatives.” United
Waterworks, Inc. v. N.M. Pub. Util. Comm’n, 2000-NMCA-057, ¶ 11, 129 N.M. 262, 5 P.3d
584 (quoting N.M. Att’y Gen. Op. 62-16 (1962)). However, the amount of the fee is not
based on the PRC’s actual costs of operation, or on the amount of regulation that a utility
receives, but, rather, on a percentage of the utility’s “gross receipts from business transacted
in New Mexico for the preceding calendar year.” Section 62-8-8 (providing that the amount
of the fee is five hundred six thousandths percent of a utilities annual gross receipts).
Additionally, the fee is not paid directly to the PRC, but, rather, is deposited “directly into
the State general fund,” where it “may be appropriated by the Legislature as it sees fit.”
N.M. Att’y Gen. Op. 78-10 (1978); cf. NMSA 1978, § 63-7-21 (1957) (“All moneys
collected under the provisions of Chapter 194, Laws of 1951 . . . , shall be deposited with
the state treasurer and by him credited to the general fund.”).

{70} The inspection and supervision fee is an administrative fee intended to defray the
PRC’s costs of operation by levying a tax or tariff on the annual gross receipts of the utilities
subject to the PRC’s supervision and control. The amount of the fee has nothing to do with
a utility’s cost of regulation, and the amount of money generated by the fee has nothing to
do with the money allocated to the PRC by the Legislature. Thus, the utility and supervision
fee does not recover, either directly or indirectly, the PRC’s costs of regulation. Although
ABCWUA’s and NMIEC’s claim may be rejected on this basis alone, we note that, in the

24
present case, the prudency review will be conducted by an independent auditor, rather than
the PRC. As such, the costs of the prudency review will not be borne by the PRC or
recovered by the State through the inspection and supervision fee. Accordingly, we
conclude that the Emergency FPPCAC properly permits PNM to treat these costs as a
regulatory asset that may be recovered from the ratepayers through PNM’s base rates.

4. Whether the Independent Audit Lacks Sufficient Regulatory Oversight

{71} ABCWUA claims that the independent audit lacks sufficient regulatory oversight
because the PRC failed to “specify any details, it did not indicate how the audit would be
conducted to protect ratepayers, and it did not explain or describe the timing or mechanics
of the audit process.” Without sufficient regulatory oversight, ABCWUA argues that the
Emergency FPPCAC violates Rule 550 because it fails to ensure that “the utility’s fuel and
purchased power policies and practices are designed to assure that electric power is
generated and purchased at the lowest reasonable cost.” Rule 550.17(A)(3).

{72} The following additional background is necessary to our resolution of this claim.
After the issuance of the PRC’s Final Order, the PRC submitted a seventy-seven page
Request for Proposals (RFP) in Case No. 08-00330-UT. The purpose of the RFP was “to
select a qualified [auditor] to provide professional auditing and prudence review services of
PNM’s fuel and purchased power costs, fuel clause filings and related documentation for the
period of June 1, 2008 through May 31, 2009.” The RFP summarized the scope of the audit
as follows:

• All cost elements of PNM’s fuel clause shall be audited and reviewed
for accuracy and compliance by the [auditor] selected by the [PRC]
to ensure that only appropriate costs are being recovered from retail
ratepayers. PNM files Rule 550 Form 1 on a monthly basis along
with a number of supporting schedules showing the fuel clause
related expenses and the balancing account.

• Data shall be collected, organized and maintained so that future
audits can be conducted by the [PRC] staff.

• Written reports and presentations shall be made to the [PRC] each
quarter and at the end of the audit time period. Additional reports
and presentations may be requested by the [PRC] or its designated
agent or recommended by the [auditor].

• The [auditor] may be required to prepare and submit written
testimony and to stand for cross examination on its work related to
the audit and prudence review. As needed, the [auditor] is to be
available as a witness, assist with the drafting of direct testimony,
cross-examination questions, briefs and motions, and other regulatory

25
 activities.

{73} The RFP summarized the scope of the prudence review as follows:

• The major elements of the utility fuel clause shall be reviewed for
prudence by an [auditor] selected by the [PRC] to ensure that
reasonable and accurate costs are being recovered from retail
ratepayers. The [auditor] should review PNM practices and policies,
procedures and compliance with regulations on all major components
of fuel costs included in the fuel clause.

• Data shall be collected, organized and maintained so that future
prudence reviews can be conducted by the [PRC] staff.

• A status report should be made to the [PRC] each month outlining
key activities and summarizing current prudence review findings. At
the end of the review, a report summarizing the prudence review and
areas of concern will be required. Additional reports and
presentations may be requested by the [PRC] or its designated agent
or recommended by the [auditor].

• The [auditor] may be required to prepare and submit written
testimony and to stand for cross examination on its work related to
the audit and the prudence review. As needed, the [auditor] is to be
available as a witness, assist with the drafting of direct testimony,
cross-examination questions, briefs and motions, and other regulatory
activities.

{74} As the foregoing record reflects, the independent audit is subject to extensive
regulatory oversight in Case No. 08-00330-UT. We therefore reject ABCWUA’s claim that
the Emergency FPPCAC violates Rule 550.

{75} Nonetheless, ABCWUA argues, for the first time in its reply brief, that “waiting until
after the emergency hearing and the Final Order to set forth the details of the audit
significantly impaired the parties’ ability to ensure that the audit will result in a meaningful
review of PNM’s policies and practices and that its electric power is generated and
purchased at the lowest reasonable cost.” As previously explained, we will not address
issues “raised for the first time in the reply brief.” Fairweather, 116 N.M. at 463, 863 P.2d
at 1084. We therefore decline to review ABCWUA’s claim.

5. Whether the Emergency FPPCAC Violates Section 62-8-7(B)

{76} ABCWUA claims that PNM improperly failed to file new schedules in violation of
Section 62-8-7(B). Section 62-8-7(B) provides that,

26
 [u]nless the commission otherwise orders, no public utility shall make any
change in any rate that has been duly established except after thirty days’
notice to the commission, which notice shall plainly state the changes
proposed to be made in the rates then in force and the time when the changed
rates will go into effect and other information as the commission by rule
requires. The utility shall also give notice of the proposed changes to other
interested persons as the commission may direct. All proposed changes shall
be shown by filing new schedules that shall be kept open to public inspection.
The commission for good cause shown may allow changes in rates without
requiring the thirty days’ notice, under conditions that it may prescribe.

(Emphasis added.) The purpose of the statute is to provide both the PRC and the public with
advance notice of any proposed rate changes before those changes go into effect.

{77} In the present case, PNM notified the PRC of the changes proposed in the Emergency
FPPCAC on March 20, 2008, the date on which it filed its joint motion for an Emergency
FPPCAC. The public was notified of these changes on March 29, 2008, the date on which
public notice was published in the Albuquerque Journal. The Emergency FPPCAC, as
modified by the PRC’s Final Order, went into effect on June 2, 2008, approximately sixty
days later.

{78} With respect to the filing of new schedules, the record reflects that PNM filed new
schedules in the underlying rate case in accordance with Section 62-8-7(B). However, the
proceedings in the present case were severed from the underlying rate case. PNM did not
file another set of new schedules until after the issuance of the Final Order granting its
request for an Emergency FPPCAC. Specifically, the Final Order required PNM to file new
schedules for the “Emergency FPPCAC containing terms and conditions consistent with
[the] Final Order[,] . . . no later than 5 days after the date this Final Order is issued.” PNM
timely filed new schedules on May 27, 2008, and the Emergency FPPCAC went into effect
six days later, on June 2, 2008.

{79} We conclude that PNM complied with the substantive requirements of Section 62-8-
7(B). First, PNM gave the PRC and the public approximately sixty days notice of the rate
changes proposed in the Emergency FPPCAC. Second, PNM filed new schedules in
accordance with the Final Order before the Emergency FPPCAC went into effect. We
therefore reject ABCWUA’s claim that the Emergency FPPCAC violates Section 62-8-7(B).

6. Whether the Emergency FPPCAC Violates Rule 550.17(A)(2)

{80} ABCWUA and NMIEC next claim that the PRC improperly concluded that PNM’s
“cost of fuel and purchased power contains costs which periodically fluctuate and cannot be
precisely determined in a rate case.” Rule 550.17(A)(2). First, ABCWUA and NMIEC
challenge the PRC’s construction of Rule 550, claiming that the PRC improperly concluded
that “Rule 550 does not require a showing that purchase power and fuel costs are ‘volatile’”

27
and “improperly shifted the burden of proof from PNM . . . [to] Staff and Intervenors to
show that PNM’s fuel and purchased power costs could be precisely determined” in a rate
case. Second, ABCWUA and NMIEC challenge the sufficiency of the evidence, claiming
that the evidence was insufficient to establish that PNM’s fuel and purchased power costs
periodically fluctuate and cannot be precisely determined in a rate case.

a. Whether the PRC Improperly Construed Rule 550.17(A)(2)

{81} We begin our analysis with the plain language of Rule 550, which provides that

A. No utility shall have a FPPCAC included in its tariff unless it
complies with the requirements of NMPSC Rule 550 [17.9.550 NMAC] in
the design of its FPPCAC and tariff and files an application with the
Commission requesting approval of its use of a FPPCAC. The utility shall
submit testimony along with its initial tariff filing and application under
NMPSC Rule 550 [17.9.550 NMAC] showing that all of the purposes stated
in of [17.9.550.6 NMAC] are met by its tariff and that:

....

(2) the cost of fuel and purchased power contains costs which
periodically fluctuate and cannot be precisely determined in a rate case.

Rule 550.17(A)(2). The rule imposes a burden of proof on the utility to prove that (1) its
“cost of fuel and purchased power contains costs which periodically fluctuate,” and (2) these
fluctuating costs “cannot be precisely determined in a rate case.” Id.

{82} Because the phrase “periodically fluctuate” is not defined in Rule 550, we turn to the
dictionary to ascertain its common and ordinary meaning. Cf. State v. Nick R.,
2009-NMSC-050, ¶ 18, 147 N.M. 182, 218 P.3d 868 (noting that when a “term is not defined
separately in the statutes” the court “must consider the ordinary meaning most likely to have
been in the minds of the enacting legislators”). The term “periodic” is defined as
“[h]appening or appearing at regular intervals . . . Recurring or reappearing from time to
time; intermittent.” The American Heritage Dictionary of the English Language 1307 (4th
ed. 2000). The term “fluctuate” is defined as “[t]o vary irregularly . . . To rise and fall in or
as if in waves.” Id. at 677. Thus, fuel and purchased power costs “periodically fluctuate”
if they rise and fall irregularly from time to time. In light of the plain language of the rule,
we conclude that the PRC properly determined that “Rule 550 does not require a showing
that purchase power and fuel costs are ‘volatile’, or fluctuate more than some other cost of
providing service.”

{83} We next address ABCWUA’s argument that the PRC improperly shifted the burden
of proof to Staff and Intervenors to prove that PNM’s fuel and purchased power costs can
be precisely determined in a rate case. In its Final Order, the PRC held that PNM had

28
fulfilled its burden of proof, stating that it was “persuaded by PNM’s arguments that its fuel
and purchased power costs [could not] be precisely determined in a rate case.” With respect
to the contrary arguments raised by the opposing parties, the PRC noted that these arguments

are undercut by [the opposing parties’] failure to in any way identify what
those predictable future costs are and what methodology could be used to
precisely determined those future costs in this or any other rate proceeding.
Similarly, none of the parties advance any arguments or evidence showing
whether and how the previous fluctuations in price shown by PNM could
have been precisely, or even reasonably, determined in a rate case. The
[PRC] further agrees with PNM’s contention that any future projection of
fuel and purchased power costs is made substantially more difficult by the
fact that PNM’s fuel and purchased power costs can and will be affected by
load growth, changes in customer demand, and changes in off-system sales
revenues.

(Citations omitted.) Thus, the PRC did not shift the burden of proof to the opposing parties;
the PRC simply held that the opposing parties had failed to discredit or rebut PNM’s
evidence demonstrating that its fuel and purchased power costs periodically fluctuate and
cannot be precisely determined in a rate case.

b. Whether the Emergency FPPCAC is Supported by Substantial Evidence

{84} Lastly, ABCWUA and NMIEC claim that the evidence was insufficient to establish
that PNM’s fuel and purchased power costs periodically fluctuate and cannot be precisely
determined in a rate case. In support of their claim, they point to evidence in the record
indicating that (1) PNM had advance knowledge and/or the ability to predict future fuel and
purchased power costs, (2) PNM’s coal and nuclear fuel costs “are the subject of long-term
contracts and relatively stable,” and (3) “only a tiny portion of PNM’s fuel costs are volatile
and that [PNM’s] total annual fuel cost could be reasonably estimated.”

{85} The following additional evidence, which was adduced in the underlying rate case
and of which the PRC took administrative notice, is relevant to this claim. Hugh W. Smith,
PNM’s Senior Vice President of Energy Resources, offered direct testimony with respect to
PNM’s need for a FPPCAC. Smith explained that

PNM has operated without a FPPCAC since 1994. In recent years, however,
prices for all fuels - coal, nuclear and natural gas - have increased
substantially and become more volatile. Increased volatility means that it is
increasingly difficult to predict the future costs of fuel and purchased power
for the purpose of establishing an appropriate fuel cost level in rates, one that
will be reflective of the period when the approved rates will be in effect. A
FPPCAC is the most effective way to match fuel costs with fuel revenues so
that customers pay only for the actual fuel and purchased power costs

29
 incurred by PNM. In short, the FPPCAC eliminates the difficult and
controversial task of predicting the level of these costs years into the future.
Equally difficult to predict for rate setting purposes is the amount of off-
system sales that will be generated and credited to customers during the
period that rates are in effect. The availability of such sales and the level of
margins derived from them depends upon future market prices, plant
availability, and customers needs, which can vary significantly from year to
year. The use of a FPPCAC, through which off-system sales credits flow,
assures that customers are credited with the appropriate level of off-system
sales during the period that rates are in effect, no more and no less.
Finally, as discussed by Dr. Samuel Hadaway in his testimony, the financial
markets perceive that any utility without a FPPCAC operates with greater
risk compared to a utility that has a FPPCAC. Credit rating agencies and
investors take that risk factor into account when determining a utility’s credit
rating and its cost of capital. Thus, a utility that does not have a FPPCAC is
potentially at a competitive disadvantage in the financial markets.

{86} Jeffrey E. Sterba, Chairman, President and Chief Executive Officer of PNM
Resources, Inc. and its principal subsidiary, PNM, also offered direct testimony with respect
to PNM’s need for a FPPCAC. Sterba explained that

Gas will be an increasing percent of our fuel base. Purchased power
agreements will likely have variable fuel costs based on natural gas prices.
Replacement power prices are high and volatile due to national market prices
for gas and coal. Gas price volatility is evidenced by 50% to 60% price
swings. The current fixed base rate method of fuel cost recovery for PNM
is based on historical prices and limited estimates of future prices. If the
estimate is too low, the company cannot recover costs. PNM was unable to
recover about $50 million in increased fuel and purchased power costs over
the past two years due to the lack of a fuel clause. This is one of the factors
adversely affecting our credit standing. Rating agencies and investors view
the impact of replacement power expense on cash flows in the absence of a
fuel clause as significant risk. Dr. Hadaway discusses this in further detail.
The result of this perceived risk is a higher cost of capital that is ultimately
passed on to customers. Under the current method, without a fuel clause, the
only way the company’s owners can be protected from high volatility is to
project high prices in the base rate calculations and have it approved by the
[PRC]. If the estimate is too high, however, the price risk shifts to the
customers and they pay more than actual costs. The fixed method also fails
to provide accurate price signals, which are important to encourage economic
efficiency. Either way the fuel and purchase power prices move, higher or
lower, someone absorbs the risk when a fixed base rate method is used. An
adjustment clause fairly balances the risk and instead tracks costs accurately
for customers and [PNM]. In sum, the existing regulatory model is no longer

30
 viable for customers of PNM because of the changes in our supply portfolio,
market prices, the energy environment and the need to encourage DSM and
energy efficiency.

{87} E. James Ferland, who succeeded Smith as Senior Vice President of Energy
Resources for PNM, offered rebuttal testimony disputing that PNM’s nuclear and coal costs
“are usually obtained through long-term contracts so that future fuel prices are fairly
predictable.” Ferland testified that

[w]hile it is true that nuclear fuel and coal are generally obtained through
longer-term contracts, these contracts are not fixed-price contracts. Longer-
term contracts are used to provide some security for fuel availability.
For uranium, purchases for Palo Verde are layered in over time, from
a diverse set of suppliers, to avoid the delivery and price risk of buying fuel
all from one supplier. Longer-term contracts and PNM’s uranium purchasing
strategy ensure a reliable fuel supply, but they do not prevent nuclear costs
from fluctuating.
Likewise, PNM’s coal supply contract is not a fixed price contract.
San Juan obtains all its coal from a single source. There are two main cost
components for PNM’s San Juan coal contract: the capital investment
element and the operating cost reimbursement, which is over 70 percent of
the total coal cost. Operating costs are affected by labor costs, prices for
construction materials like steel and concrete and unforeseen events like the
changing coal mine safety standards. These operating costs are passed
directly through to PNM. The long-term contract does not prevent the cost
of coal for San Juan from fluctuating. Please see PNM Exhibit EJF-1R,
which shows costs on a dollar per megawatthour basis, to remove
fluctuations due to changes in load. As can be seen, coal costs, even on a
dollar per megawatthour basis, fluctuate month-to-month and year-to-year,
and cannot be precisely determined in a rate case.

{88} Ferland also offered rebuttal testimony disputing the “relative[] stabil[ity]” of PNM’s
nuclear costs. Ferland explained that the spot market price of uranium oxide (U3O8) “[i]n
the few years prior to 2004,” was “relatively stable, with prices between approximately $8
and $17 per pound.” However,

[s]ince 2004, there have been swift, dramatic spikes in the price of uranium,
with the market seeing a tenfold price increase over that time, before making
a quick retreat. With the rising level of concern about fossil fuel emissions,
there is a growing level of consensus that the nuclear power industry in the
U.S. will soon begin to expand, leading to increased demand for uranium.
The market is not sure that supply will meet demand. As a result, we have
clearly entered a new era of fluctuating nuclear fuel costs.

31
{89} We conclude that the foregoing evidence amply supports the PRC’s findings that
PNM’s fuel and purchased power costs periodically fluctuate and cannot be precisely
determined in a rate case. Although conflicting evidence existed, the issue on appeal is not
whether there was sufficient evidence to support a contrary result but, rather, whether the
evidence supports the findings made by the PRC. See DeWitt, 2009-NMSC-032, ¶ 25.
Indeed, “[t]he PRC’s order is rejected only if conflicting evidence renders incredible the
evidence in support of the decision.” Qwest Corp. v. N.M. Pub. Regulation Comm’n,
2006-NMSC-042, ¶ 38, 140 N.M. 440, 143 P.3d 478 (internal quotation marks and citation
omitted). Because the conflicting evidence fails to render incredible the evidence that
supports the PRC’s decision, we affirm the Final Order of the PRC.

V. CONCLUSION

{90} For the foregoing reasons, we conclude that the PRC properly granted PNM’s request
for an Emergency FPPCAC. We therefore affirm the Final Order of the PRC.

{91} IT IS SO ORDERED.

____________________________________
PETRA JIMENEZ MAES, Justice

WE CONCUR:

____________________________________
EDWARD L. CHÁVEZ, Chief Justice

____________________________________
PATRICIO M. SERNA, Justice

____________________________________
CHARLES W. DANIELS, Justice

RICHARD C. BOSSON, Justice (dissenting)

BOSSON, Justice (dissenting).

{92} The PRC conducted an expedited hearing on PNM’s emergency request for an
automatic fuel adjustment clause. During four days of testimony before the Commission,
sitting en banc, the record reflects the following lack of participation by individual
commissioners. One of the commissioners personally attended none of the hearings, and
only participated by teleconference for a day and a half. Another commissioner attended one
hearing and was absent for all the rest. Another commissioner attended for two days only.
Only two of the five commissioners—a mere 40% of the PRC—personally attended all four
days worth of hearings.

32
{93} The PRC attempts to defend such a dismal performance by citing to its own
regulations which permit commissioners to abstain from attendance when they appoint a
hearing examiner to take testimony, receive evidence, and recommend a decision to the full
Commission. The PRC may also appoint one of its own to “preside” over hearings. Fair
enough. The nagging little detail with this argument, of course, is that the Commission did
not appoint a hearing examiner or one of its own to preside, but elected to hear the
proceedings itself, the full PRC sitting en banc. Simply put, the Commission shouldered the
responsibility of hearing this case from beginning to end, and that responsibility starts with
the simple task of showing up for work.

{94} The PRC parries with general legal principles that understandably excuse occasional
and de minimus absences from commission or board proceedings, so long as members
review the full record of proceedings before they vote on the matter at hand. In fact, as a
general rule, boards and commissions enjoy a presumption to that effect. However, the
desultory performance of these commissioners vastly exceeds the context from which these
principles arise. No case cited to us involves absences on this grand of a scale. And we have
no way of being assured that individual commissioners—the 60% who were absent from
more than half of the hearings—actually did review a record of proceedings. Significantly,
after four full days of hearings involving complex, technical matters, the commissioners
voted a mere five days later—barely enough time, one would think, to prepare the full
record, much less review it.

{95} This is important. Members of boards and commissions are allowed to review the
record and compensate for the occasional absence precisely because the alternative—voting
on matters not reviewed—would deny due process of law to participants and the public alike.
Faced with at least the potential for a due process violation, the PRC should do more than
rely on a naked presumption that they reviewed the record, especially in light of the
bothersome evidence suggesting that commissioners did no such thing.

{96} The Commission’s own Code of Conduct states the “irrefutable principle” that “a
public office is a public trust.” It further states that the Commission “needs the public’s
respect and confidence that its power will be used on behalf of the community as a whole.”
Respect must be earned; it does not flow automatically upon assumption of office. In the
face of this record, I am compelled to wonder how we can indulge these commissioners in
any presumption that implies the faithful performance of their duties.

{97} And, more importantly, that question permeates the remainder of this appeal. Recall
that this fuel adjustment clause—now granted PNM for the first time in many years—came
about in an expedited, emergency proceeding that necessarily truncated the normal
deliberative process for considering such a weighty matter. PNM had just been through an
exhaustive rate proceeding, in which the hearing examiner recommended against this very
fuel adjustment clause or one very much like it. PRC staff and many other parties joined the
opposition to automatic fuel adjustment, preferring instead that PNM prove its need in the
ordinary course of a rate proceeding. The PRC had not yet ruled on the hearing examiner’s

33
recommended decision, when PNM seemingly aborted the normal appeal process and filed
the present emergency petition declaring the need for immediate relief due to an impending
fiscal crisis.

{98} The PRC scheduled a hearing a mere two months away—a fraction of the time
typically required to consider such a complex questions. Then, as the hearing drew near,
PNM’s fiscal emergency evaporated, yet the PRC kept to its emergency time-table and
denied the protestants their requests for additional time and opportunity to prepare and
analyze complex technical evidence. The PRC then based its decision to grant the fuel
adjustment clause less upon the petition for emergency relief and more upon evidence in the
initial rate proceeding that was still being appealed.

{99} As judges, we take comfort when duties are performed in an orderly, routine manner
consistent with normal practice and procedure. Under those circumstances, we rely on a
presumption of regularity. Conversely, however, when matters fall outside the norm,
experience teaches us to exercise a healthy dose of caution and circumspection. We are on
notice of the need for further inquiry. I am at that point with the PRC.

{100} This Court is the only constitutionally empowered body that can review the final
orders of the PRC. As the majority rightly notes, we traditionally afford those decisions a
high level of deference, affirming in all but the rarest circumstances. We defer to the PRC
because, at least theoretically, the commissioners are in a better position to decide these
types of issues—having been elected for that purpose and having acquired special expertise
in these matters.

{101} I am not convinced, however, that we are meeting our constitutional obligation when
we defer to a commission that reaches its decisions under circumstances such as these. Let
us not forget that PRC commissioners sit in a quasi-judicial capacity; they adjudicate
complex, technical matters that go to the heart of the public interest of our state. We would
never tolerate judicial conduct like this; I see no reason to be more permissive of PRC
commissioners.

{102} I would reverse this decision and remand for the PRC to reconsider its decision to
grant PNM an automatic fuel adjustment clause, a decision that could ultimately be borne
out, but only after a full proceeding in the ordinary course giving these protestants and others
a full and adequate opportunity to present their case in opposition.

____________________________________
RICHARD C. BOSSON, Justice

Topic Index for Albuquerque Bernalillo County Water Utility Authority v. New Mexico
Public Regulation Commission and New Mexico Industrial Energy Consumers v. New
Mexico Public Regulation Commission, No. 31,268/31,273

34
AL ADMINISTRATIVE LAW AND PROCEDURE
AL-DU Due Process
AL-EV Evidence
AL-HR Hearings
AL-NO Notice
AL-RE Record
AL-RU Rules
AL-SC Scope of Review
AL-SE Sufficiency of Evidence

CT CONSTITUTIONAL LAW
CT-DP Due Process
CT-EP Equal Protection

PU PUBLIC UTILITIES AND COMMUNICATIONS
PU-EL Electric
PU-GS Gas

ST STATUTES
ST-IP Interpretation
ST-LI Legislative Intent

35