BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

Transcription

1 BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION IN THE MATTER OF THE APPLICATION OF PUBLIC SERVICE COMPANY OP NEW MEXICO FOR APPROVAL OF ELECTRIC ENERGY EFFICIENCY PROGRAMS AND PROGRAM COST TARIFF RIDER PURSUANT TO THE NEW MEXICO PUBLIC UTILITY AND EFFICIENT USE OF ENERGY ACTS PUBLIC SERVICE COMPANY OF NEW MEXICO, Applicant. ) ) ) ) ) ) ) Case No ) ) ) ) ) -UT DIRECT TESTIMONY OF October, 01

2 Q. A. PLEASE ST A TE YOUR NAME, TITLE, AND BUSINESS ADDRESS. My name is Gerard T. Ortiz. I am the Vice President of Regulatory Affairs for Public,., _) Service Company of New Mexico ("PNM" or "Company"). My business address is Public Service Company of New Mexico, Main Offices, MS-1, Albuquerque, New Mexico. Q. A PLEASE SUMMARIZE YOUR EDUCATIONAL BACKGROUND AND PROFESSIONAL QUALIFICATIONS. I graduated from New Mexico State University in 1 with a Bachelor of Science degree in Electrical Engineering. I obtained a Master of Business Administration degree, with a concentration in Finance, from the Robert 0. Anderson Graduate School of Management at the University of New Mexico in. I am a Registered Professional Engineer in the State of New Mexico (Registration No. ). Since 1. I have been employed by PNM. and have held a variety of engineering, supervisory. and managerial positions in Distribution Engineering, Electric Marketing, Business Planning, and Market Services in addition to my current assignment. I was promoted to my current position in August, 01. A statement of my experience and qualifications, including a list of the New Mexico Public Regulation Commission ("NMPRC" or "Commission") proceedings in which I have either testified or filed testimony, is attached as PNM Exhibit GT Q. WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY?

3 A. PNM's Application in this case requests approval of its 01 Energy Efficiency and Load Management Program Plan ("01 Plan") and the associated tariff rider under ') _) which PNM will recover its costs of implementing the 01 Plan together with a 11 1 profit incentive, in accordance with the Efiicient Use of Energy Act ("EUEA") 1 and the Public Utility Act ("PUA"). My testimony: 1. Introduces PNM's other witnesses in this case who are presenting direct testimony;. Summarizes PNM's Application;. Summarizes the goals of PNM's energy efficiency programs and progress towards those goals;. Explains why the proposed profit incentive should be approved; and. Briefly describes the revised rider and its elements Q. A. WHO ARE PNM'S OTHER WITNESSES WHO ARE PROVIDING DIRECT TESTIMONY IN THIS CASE? Mr. Steven M. Bean, PNM's Manager, Energy Efficiency Design, will describe PNM's 01 Plan and the public advisory process PNM implemented to assist in developing the 01 Plan. Mr. Bean will describe the proposed modifications to PNM's existing electric energy efficiency programs and the new program being proposed. In so doing, Mr. Bean will discuss the costs associated with the 01 Plan, forecasted customer participation rates, the Utility Cost Test ("UCT") calculations, targeted customer segments and the measurement and verification ("M&V") process. 1 NMSA -1-1 to -11 (00, as amended through 0).

4 ,..,.) Mr. Patrick J. O'Connell, PNM's Director, Planning and Resources, explains the methodology used to determine the energy efficiency avoided costs used in the UCT calculations to demonstrate the cost-effectiveness of each of the programs proposed in the 01 Plan Ms. Stella Chan, Director of Pricing and Load Research, presents information that supports PNM's Advice Notice No. 01 and the th Revised EE Rider No. ("Revised Rider") through which PNM proposes to adjust the Energy Efficiency ("EE") Rate Rider No. (''EE Rider" or "Rider'') in accordance with the EUEA. She also describes PNM's plan for the annual program reconciliation of actual costs and actual revenues. 1 Q. 1 A PLEASE SUMMARIZE PNM'S APPLICATION IN THIS CASE. PNM is seeking Commission approval of its 01 Plan and the associated tariff rider designed to recover the costs of implementing the 01 Plan, together with a reasonable profit incentive in accordance with the EUEA and the PUA. The 01 Plan presents updated participation targets and budgets for PNM's existing programs approved in Case No UT, with some modifications relating to budget and program consolidations, and one new program. Mr. Steve Bean describes the proposals in the 01 Plan in his direct testimony.

5 In its review and development of proposed modifications to the programs in the 01 Plan, PNM carefully considered the comments and suggestions received through the public advisory process. As described by Mr. Bean, PNM believes that there is general agreement among members of the public advisory group regarding the reasonableness of the proposed program modifications and the new Multi-Family program proposal. All of the programs in the 01 Plan pass the UCT for costeffectiveness. The 01 Plan also complies with the % program cost funding requirement of the 0 amended EUEA, taking into account projected 01 calendar year revenues and the,000 customer bill impact cap The 01 Plan proposes an annual funding in the amount of,,1, based on a % assessment on customers' bills, plus an incentive in the amount of,0, The profit incentive results in a 0.1 % addition to customer bills, as shown in the Revised Rider No. which is included in PNM Exhibit SC- of Ms. Chan's direct testimony. The proposed incentive is an essential component of the 01 Plan, which has projected annual energy savings of approximately 0 gigawatt-hours ("GWh") per year and demand savings of about megawatts ("MW"). The 01 Plan is cost effective, with a UCT ratio of 1. for the portfolio. 1 Q. 0 1 A. ARE THERE MINIMUM ENERGY EFFICIENCY SAVINGS REQUIREMENTS THAT PNM MUST MEET? The EUEA requires utilities to achieve certain levels of energy efficiency savings. In calendar year 01, savings must be at least five percent of 00 total retail kilowatt-

6 hour ("kwh") sales to New Mexico customers. This increases to eight percent in 00 as a result of energy efficiency and load management programs implemented starting in 00. PNM's total retail sales in 00 were, GWh. Therefore, the minimum savings requirements are 11 GWh in 01 and GWh in 00. Q. A. 1 I WHAT PROGRESS HAS PNM MADE TOW ARD ACHIEVING THE MINIMUM SA VIN GS REQUIREMENT'! PNM has reported the following in its Energy Efficiency Program Annual Reports: 1lt>nll<> Year Energy Efficiency Program Average Lifetimes of Savings in QWh Reported Savings in Years The savings from those six years will count toward achievement of the minimum energy efficiency savings requirement in 01. The cumulative sum of the savings from 00 through 0 is GWh. PNM estimates that an additional GWh of savings will be achieved in 01. Therefore, the total cumulative savings achieved through 01 are estimated to be about GWh, or about % of the 11 GWh goal for calendar year 01. PNM's 01 Plan carries forward the achievements through 01 and incorporates further improvements in energy efficiency programs to position PNM for compliance with the statutory energy savings required in 00.

7 Q. HOW WILL THE PROJECTED ANNUAL SAVINGS UNDER THE 01., _) A. l I PLAN POSITION PNM TOW ARDS COMPLIANCE WITH THE 00 MINIMUM ENERGY EFFICIENCY SAVINGS REQUIREMENT? The 01 Plan projects 0. GWH of savings per year after implementation. PNM projects that about GWh will be achieved in calendar year 01, assuming that the 01 Plan is approved by April 1, 01. The existing programs have broad application across many customer classes. PNM anticipates that the modifications proposed in the 01 Plan will improve the cost-effectiveness of the programs and their appeal among the rate classes to which the Rider applies, including low-income customers. The 01 Plan includes low-cost and no-cost programs to achieve broad participation among all residential customers. This is augmented by the proposed new Multi-Family program, which is specifically targeted to owners of multi-family dwellings, which have been a hard-to-reach customer segment, including those that serve low-income tenants, as discussed by Mr. Bean. By improving program administration and cost effectiveness, expanding their appeal to customers, and reaching a new customer segment, the modifications to the existing programs and the new program establish a solid program platform towards achieving the 00 energy efficiency savings target. 1 Q. 0 1 A. WHAT ARE THE PRIMARY FINANCIAL CONCERNS OF PROVIDING ENERGY EPFICIENCY PROGRAMS.FROM A UTILITY'S PERSPECTIVE? The traditional electric utility business model seeks to provide adequate and reliable power to meet customer demand. It involves building and maintaining generation

8 plant, transmission lines, transformers, substations, distribution lines and other plant and facilities necessary to accomplish this objective. This involves heavy capital investment, making the traditional electric utility business model "capital intensive". Under traditional regulation, utilities make money by selling the power they generate at rates sufficient to cover their costs and earn a return on the capital invested in the property used to serve customers. The rates are designed in such a manner that the more electricity sold by the utility, the more money it makes and the more plant and facilities it builds to meet customer demand, the greater are the profits it earns. I I 1 I IS I IS I 0 I Energy efficiency programs are in direct conflict with this traditional utility business and regulatory model. Utilities are now asked to spend money on programs that require little or no capital investment and that result in selling less of their product, which reduces their fixed cost recovery and reduces the overall profitability and profit potential of the traditional business. In short, energy efficiency investments present PNM with three primary financial concerns: I. Energy efficiency program costs that must be recovered;. Reduced sales that reduce revenues and profits, i.e. the "through-put incentive"; and. Money spent on energy efficiency programs does not provide a return as does the capital investment in utility property that is used to meet customer demand for electricity.

9 Consequently, there must be a framework that appropriately addresses all three financial concerns so that an effective regulatory environment promoting energy.) "' efficiency exists. Q. A DOES THE EUEA IN NEW MEXICO ADDRESS ALL THREE OF THE FINANCIAL CONCERNS YOU DESCRIBE? Yes. The EUEA requires all three of these concerns to be appropriately addressed. First, the Commission approves program plans, such as the 01 Plan, to determine if the programs meet the UCT and, therefore, are determined to be cost-eff ectivc. Utilities are then allowed to recover the program costs through base rates, a tariff rider, or a combination of the two, at the utility's option. Second, the EUEA requires the Commission to identify regulatory disincentives to energy efficiency and take steps to remove them in a manner that balances the interests of customers and investors and the overall public interest. Third, the EUEA reqmres the Commission to provide utilities with "an opportunity to earn a profit on cost-effective enerf:.,ry efficiency and load management resource development that, with satisfactory program performance, is "financially more attractive to the utility than supply-side utility resources." [Emphasis added.] The EUEA also requires that recovery of the profit incentive shall be through base rates, a tariff rider, or a combination of the two, at the utility's option.

10 Q. DOES PNM'S APPLICATION ADDRESS ALL THREE FINANCIAL A. CONCERNS? PNM's Application addresses the first and third financial concerns and elects to recover program costs and the profit incentive through a tariff rider. PNM stipulated in Case No UT that the rates approved in that case addressed the second financial concern and that PNM would not seek any additional ratemaking mechanism to address the ''disincentives" until its next general rate case, after good faith consultations regarding alternative ratemaking solutions. Q A PLEASE ELABORATE ON YOUR EARLIER STATEMENT THAT THE PROPOSED INCENTIVE IS AN ESSENTIAL COMPONENT OF PNM'S APPLICATION. PNM has developed and offered cost-effective energy efficiency programs since 00 that put PNM on pace to achieve the 01 energy saving goal identified in the EUEA. These programs reduced participating customers' bills and provided system benefits in terms of avoided fuel and avoided capacity costs to all of our customers. These benefits will continue into the future. Yet, as I explained earlier, these savings will result in reduced additions to rate base and, in turn, reduced shareholder returns. That being the case, approval of a meaningful incentive that fairly balances customer and investor interests (and the overall public interest) as required by the EUEA is essential.

11 Q. WITH WHAT RATEMAKING ST AND ARDS MUST PNM'S TARIFF RIDER A. 11 COMPLY? It is my understanding that all rates must be '"just and reasonable" and that would include energy efficiency rates. A rate is "just and reasonable" if it falls within a "'zone of reasonableness" which balances the interests of customers and investors. These general ratemaking requirements were confirmed by the New Mexico Supreme Court to be applicable to energy efficiency rates in Attorney General v. New Mexico Public Regulation Commission, 011-NMSC-0, N.M. 1. In that regard, our Supreme Court has said that a profit incentive under the EUEA must be evidencebased, cost-based, and utility-specific. Attorney General, 011-NMSC-0, ir. PNM' s Rider No. is just and reasonable and meets the requirements of the EUEA. 1 Q. 1 1 A WHAT METHODS HAS THE COMMISSION TRADITIONALLY USED TO DETERMINE IF RATES ARE.JUST AND REASONABLE? First, the Commission determines the revenue requirements associated with the business activity for which rates are being set. To determine the revenue requirements associated with the business activity for which rates are being set, the Commission ascertains the reasonable and prudently-incurred costs plus an appropriate profit margin to determine the amount of revenues that should be recovered. Because a utility's traditional business is capital-intensive, a return on investment (also called rate base) is generally considered to be the most appropriate way to derive the appropriate amount of profit included in a just and reasonable rate. The amount of profit is determined by the return on equity component of the return on rate base.

12 Q.,., _) A IS THIS TRADITIONAL APPROACH USED BY PNM IN DEVELOPING ITS PROPOSED PROFIT INCENTIVE? For the most part, yes. The revenue requirements associated with the 01 Plan are determined in much the same way, i.e., the costs associated with the 01 Plan are determined and approved in advance by the Commission, and then a reasonable profit margin is added. However, because energy efficiency programs have little to no capital investment associated with them, there is no rate base to which a reasonable profit percentage can be applied. Thus, pragmatic adjustments to the traditional ratemaking formula must be used to derive a just and reasonable rate that meets the requirements of the EUEA to provide a profit incentive for cost-effective energy efficiency programs that is more financially attractive than supply-side resources. Our Supreme Court has recognized the need for such adjustments in many cases, most recently with regard to energy efficiency profit incentives in New Mexico Attorney General v. New Mexico Public Regulation Commission, 0-NMSC-0, ~. 1 Q. 1 0 A. 1 HOW DOES THE DERIVATION OF A REASONABLE PROFIT INCENTIVE FOR ENERGY EFFICIENCY PROGRAMS DIFFER FROM THE DERIVATION OF A REASONABLE RETURN ON EQUITY? It differs to the extent that different profitability measures must be used to derive the reasonable profit level due to the practical consideration that energy efficiency programs do not result in a rate base upon which a return may be granted. The New Mexico Supreme Court has confirmed the Commission's authority to set profits on 11

13 energy efficiency measures using techniques other than return on rate base. New Mexico Attorney General, 0-NMSC-0, ~~,,, -. Q. A. HAS THE COMMISSION PREVIOUSLY GRANTED A PROFIT INCENTIVE TO PNM AS A RESULT OF THE IMPLEMENTATION OF ENERGY EFFICIENCY PROGRAMS? Yes, the Commission has approved a profit incentive to PNM as a result of the implementation of energy efficiency programs in two separate cases: Case Nos. I UT and Case No UT. However, the Commission has not 1 1 specifically endorsed any specific mechanism to calculate a profit incentive for PNM Q. A. WHAT TYPES OF PROFIT INCENTIVES HAVE STATE REGULATORY COMMISSIONS APPROVED FOR ENERGY EFFICIENCY PROGRAMS? While the details vary considerably from state to state and utility to utility, there are basically five different types of financial incentives for energy efficiency programs in use by state regulatory commissions. They are: 1. shared net benefits or shared savings;. value pricing or Save-a-Watt plans;. capitalizing the direct costs as a regulatory asset and allowing a superior return on equity for this asset; In its Final Order Partially Adopting the Recommended Decision in Case No UT at p. I, the Commission stated that: "The Hearing Examiner did not endorse Staff's methodology, nor did she recommend the resulting/, 00, 0 incentive amount in isolation. Rather, as stated above, she found the I, 00, 0 incentive to be reasonah/eji;r the size of PNM's energy efficiency program."(emphasis added). 1

14 . incentives based on a percentage of direct costs, such as the program budget; and, _) ". incentives based on quantities of kwh of energy savings and kw-years of demand savings, on a verified basis, relative to targets. Q. A WHAT MECHANISM IS PNM PROPOSING FOR THE CALCULATION OF THE PROFIT INCENTIVE IN THIS 01 PLAN? For its 01 Plan Profit Incentive, PNM is proposing the use of a shared savings approach. PNM requests the Commission to grant an incentive equal to % of the net present value of the Net Economic Benefits generated by the 01 Plan. The net benefit for the initial 1 months of the 01 Plan, using the UCT, is estimated to be 0,,. Accordingly, PNM is requesting a profit incentive of,0,. PNM Exhibit SC- in the Direct Testimony of Stella Chan, shows the derivation of the profit incentive requested by PNM in this case. 1 Q. 1 A IS THE USE OF SHARED SAVINGS A REASONABLE BASIS FOR CALCULATING A PROFIT INCENTIVE? Y cs. A shared savings approach for the calculation of PNM' s profit incentive, results in a performance-based mechanism that encourages the utility to outperform its projections and promotes the implementation of a more efficient portfolio. This is an advantage over the existing approach relied on by the Commission in Case No UT. In that case the Commission considered the amount of profit margin generated by a two-step Staff methodology to be reasonable, without approving use

15 of the Staff methodology. The Commission looked to the percentage of profits above 11 energy efficiency program costs generated by Staffs methodology, which was approximately the same profit margin approved in Case No. I UT, using a different Staff methodology. lfowever, I believe it would be beneficial and reduce disagreement in energy efficiency plan cases to adopt a method which results in sharing the benefits associated with energy efficiency programs, rather than simply attempting to establish a reasonable margin above program costs. Establishing the profit incentive primarily as a function of program costs does not directly promote efficiency in the implementation of programs. Furthermore, a shared savings approach is consistent with the shared savings step in Staff's methodology in Case No UT, but excludes the additional component of creating a regulatory 1 asset proxy. As such it is a "simplified" method for the calculation of the profit 1 1 incentive, an important consideration identified by the Commission in rejecting PNM's proposed methodology in that case. It is. in fact, the most common method utilized for those utilities with an approved energy efiiciency profit incentive mechanism across the country Shared savings embodies two elements of an appropriate incentive. First. it rewards the utility only to the extent that of its energy efficiency programs produce net savings. If there is no net benefit to customers, there is "State Electric Efficiency Regulatory Frameworks," EEi Report, July 0. See Performance Incentive Description, which is discussed by State at pages -0. 1

16 no profit to the utility. This encourages both good program choices and efficiency in the implementation of the programs..) " Second, because the amount of profit increases as the net benefits to customers increase, the utility is encouraged to implement measures that have the highest value in terms of avoided cost savings. In this way, the utility is incented to prioritize energy efficiency efforts towards the most productive energy efficiency measures. Thus, customer and investor interests are aligned. Q. A WHY IS % SAVINGS A REASONABLE LEVEL OF PROFIT INCENTIVE'? Ten percent is the level recommended by Staff in Case No UT, which the Commission found to be a reasonable amount of profit incentive. Staff recommended that percentage in part because it was consistent with the I 0% sharing of net margins from off-system sales approved in other cases. 1 1 Q. 1 A HAS THE COMMISSION USED OTHER MECHANISMS TO CALCULATE A REASONABLE PRO)j'IT INCENTIVE FOR PNM'? Yes. In Case No UT, the Commission approved the use of a per kwh and a per KW rate applied to the life-time energy and annual demand savings that was recommended by Staff witness Jeff Primm. In Case No UT, the Commission relied on a mechanism proposed by Staff witness Bruno Carrara, that the profit incentive be calculated based on the hypothetical return resulting from amortizing the energy efficiency program costs (viewed as a regulatory asset) and the life-time fuel and operation and maintenance savings associated with energy 1

17 DIRECT TESTIMONY O"F efficiency programs. Mr. Carrara recommended that PNM receive l 0% of the benefits. The two mechanisms previously proposed by Staff resulted in a profit incentive of between and % of annual Program Costs. The ratio of profit incentive to program costs has been used by the Commission as a test to determine the overall reasonableness of a profit incentive. Q. l l A. 1 1 HOW DOES PNM'S PROPOSED PROFIT INCENTIVE IN THIS CASE COMP ARE, AS A PERCENT AGE OF PROGRAM COSTS, TO THE PROFIT INCENTIVES AUTHORIZED BY THE COMMISSION IN CASES UT AND UT? PNM's proposed profit incentive for the 01 Plan is approximately.0% of the proposed annual budget for the 01 Plan, compared to the.% and.% of program costs found to be reasonable in Cases l UT and UT, respectively. 1 Q. 1 1 A. 0 1 WHAT WOULD BE PNM'S PROFIT INCENTIVE IN THIS CASE IF THE COMMISSION USED THE METHODS PROPOSED BY STAFF IN CASES -000-UT AND UT? PNM Exhibit GT0- shows the results of applying Staff's two previously proposed incentive mechanisms to PNM's 01 Plan. As indicated, application of the method proposed by Staff in Case No. l UT results in a PNM profit incentive of 1,,01. Under the method proposed by Staff in Case No UT, PNM's profit incentive would be,,11. PNM's proposed incentive of,0, using

18 a shared savings mechanism is roughly the average of the incentive amounts resulting,.., j from the use of Staff's formerly proposed mechanisms. As such, it falls within the range of results previously found by the Commission to be reasonable for PNM. Q. A. IF THE COMMISSION WERE TO APPROVE PNM'S PROPOSED SHARED SAVINGS PROFIT INCENTIVE, WOULD THERE BE A RECONCILIATION/TRUE-UP OF THE AMOUNT BASED ON ACTUAL SAVINGS FROM THE 01 PLAN'? Yes. Ms. Chan provides a detailed explanation of this reconciliation process in her direct testimony Q. SHOULD THE COMMISSION ESTABLISH THE PROI<~IT AN AI<~TER-TAX AMOUNT OR PRE-TAX'? INCENTIVE AS 1 A In previous cases the Commission has established the profit incentive as a pre-tax amount, meaning that the actual profit realized would be reduced by the amount of taxes payable on the amount. PNM argued in Case No UT that the amount of profit incentive should be established on an after-tax basis so that PNM would be able to recover the legitimate tax expense associated with the profit incentive. Otherwise the amount of profit incentive is actually less than the amount found to be reasonable. Also, allowing recovery of the associated taxes is consistent with how returns are set for supply side resources and thus a necessary component of providing a profit that is more financially attractive than investments in supply side resources. Although PNM believes that it would be appropriate for the Commission to approve 1

19 recovery of the legitimate tax expense associated with PNM's proposed profit,., _) Q. A. incentive. PNM is not requesting that treatment at this time. WHAT REVISIONS TO PNM'S RIDER NO. WILL RESULT FROM PNM'S PROPOSED 01 PLAN? As discussed in more detail by Ms. Chan, PNM is updating Section IV(C) of the tariff for the amounts to be recovered under the rider and the element rate, and the APPLICATION section to reflect 0 changes to the EUEA. PNM is not proposing other revisions to the tariff. 11 Q. 1 1 A DO YOU BELIEVE THAT PNM'S 01 ENERGY EFFICIENCY PLAN AND THE PROPOSED REVISIONS TO RIDER NO. ARE PRUDENT AND REASONABLE? Yes. PNM' s 01 Plan is prudent and reasonable because it adjusts current programs to improve cost effectiveness and administrative efficiency; it adds a new program that will appeal to a heretofore difficult market to reach; it is consistent with the recent changes to the statutory requirements in the EUEA regarding the annual expenditure percentage and changing from the TRC to the UCT cost effectiveness tests, and it implements a straight-forward, widely-used profit incentive mechanism for PNM with respect to its energy efficiency programs. 1 The Revised Rider No. is prudent and reasonable because, consistent with the EUEA and the Commission's rules, it recovers the cost of the 01 Plan, provides an

20 appropriate financial incentive to PNM to implement the approved programs, and ensures through the reconciliation process that only actual costs are passed-through to customers. Additionally, the Shared Savings approach provides a verifiable methodology for an incentive mechanism that is directly tied to the success of PNM's energy efficiency programs and avoids the argument of whether this or that dollar amount is an appropriate incentive. Q. A. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY? Yes. GCG # 0 1

21 PNM EXHIBIT GTO-l Consisting of pages

22 PNM EXHIBIT GT0-1 I EXPERIENCE AND QlJALIFICATIONS Name: Gerard T. Ortiz Address: PNM Resources Inc. Position: 1 Silver Ave. SW Albuquerque, NM JO 1 I Professional Engineer Registration: State of New Mexico # 1 l 1 1 Education: B.S., Electrical Engineering, New Mexico State University, 1 M.B.A., Finance Concentration, University of New Mexico, I 1 Employment: Employed by Public Service Company of New Mexico since 1. Positions held within the Company include: Executive Director, New Mexico Retail Regulatory Services Director, Regulatory Policy and Case Management Director, Market Services Director, Business Resource Planning Marketing Manager, Healthcare/Communications Segment Engineering Supervisor Distribution Engineer Testimony Filed: Proceeding 0 1 In the Matter of the City of Albuquerque To Institute Retail Pilot Load Aggregation Program and Its Request for Related In the Matter of PNM's transition plan Pursuant to the Electric Utility Industry Restrncturing Act of l -- Part II Testimony in Support of Merchant Plant Regulatory Body NMPLJC NMPRC Docket Number 0 In the Matter of the application of PNM NMPRC 0-00I01-LJT 1 For Approval of Voluntary Renewable Energy Rider Page l of

23 PNM EXHIBIT GT0-1 1 Regulatory Docket ln the Matter of the application of PNM NMPRC 0-00-UT For Approval of Rio Rancho 00 Underground Projects Rider Pursuant to Advice Notice No. In the Matter of the application of PNM NMPRC UT lo For Approval of Gas Energy Efficiency 11 Programs and Program Cost Rider Pursuant 1 To the New Mexico Public Utility and Efficient Use of Energy Acts 1 1 In the Matter of the application of PNM NMPRC 0-00-UT For a Certificate of Public Convenience 1 And Necessity for the Afton Generation Station 1 0 In the Matter of the application of PNM NMPRC 0-00-UT 1 For Approval of Rio Rancho 00 Underground Projects Rider Pursuant to Advice Notice No. 1 [n the Matter of Staff's Petition for the NMPRC 0-00-UT Docketing of a Case to Address Issues Arising from PNM's Fiber Optic Network Pilot Program 0 In the Matter of the application of PNM NMPRC UT 1 For Approval of Rio Rancho Unser Boulevard Road Widening Project Underground Rider Pursuant to Advice Notice No. In the Matter of the application of PNM NMPRC UT For Approval of Rio Rancho 00 Underground Project Rider Pursuant to Advice Notice No. 0 1 In the Matter of the application of PNM NM PRC 0-00-UT For Approval of the ML Tap Underground Project Rider Pursuant to Advice Notice No.,+ Page of

24 PNM EXHIBIT GT0-1 l Regulatory Docket Proceeding Bodx Number In the Matter of the application of PNM NMPRC UT For Approval of Electric Energy Efficiency Programs and Load Management Programs Program Cost Tariff Riders Pursuant to the New Mexico Public Utility and Efficient Use of Energy Acts 11 In the Matter of the Investigation of the NMPRC UT 1 Continuation of PNM's Gas Energy Efficiency Programs and Program Cost 1 Tariff Rider 1 In the Matter of the application of PNM NMPRC 0-00-UT 1 For Approval of the City of Santa Fe 00 Underground Projects Rider Pursuant to 1 Advice Notice No. 0 1 In the Matter of the application of PNM NM PRC 0-00-UT For Approval of the Santa Fe County 00 Underground Projects Rider Pursuant to Advice Notice No. [n the Matter of the application of PNM NMPRC 0-00-UT For Approval of the City of Albuquerque Unser 1 00 Underground Project Rider Pursuant to Advice Notice No. 0 1 In the Matter of the application of PNM NMPRC UT For Approval of the City of Rio Rancho 00 Underground Projects Rider Pursuant to Advice Notice No. Inquiry into Charges to Customers NM PRC 0-00-UT Of Public Service Company of New Mexico's Voluntary Renewable Energy Program Under Rider I 1 and the 0 Emergency Fuel Adjustment Clause 1 In the Matter of the application of PNM NM PRC UT For Approval of the County of Santa Fe 00 Underground Projects Rider Pursuant to Advice Notice No. Page of

25 PNM EXHIBIT GT0-1 l Regulatory Docket Proceeding Body: Number In the Matter of the application of PNM NMPRC I -UT For Approval of the City of Rio Rancho 00 Underground Projects Rider Pursuant to Advice Notice No. In the Matter of the Application of Public NMPRC UT Service Company of New Mexico 11 For Approval of a Plan to 1 Manage Fuel and Purchased Power Costs By Entering into Certain Forward Market 1 Transactions 1 In the Matter of the Application of Public NMPRC I0-000-UT 1 Service Company of New Mexico For Approval of a New Voluntary 1 Renewable Energy Program to Replace 0 The Company's Existing Sky Blue 1 Program and for Approval to Terminate The Sky Blue Program In the Matter of an Investigation by the NMPRC -000-PL Pipeline Safety Bureau of the New Mexico Public Regulation Commission Concerning A Complaint Filed by the International Brotherhood of Electrical Workers 0 In the Matter of the Application of Public NMPRC -000-UT 1 Service Company of New Mexico For Approval of the City of Rio Rancho 0 Underground Projects Rider Pursuant to Advice Notice No. In the Matter of the Application of Public NM PRC -000-UT Service Company of New Mexico For Approval of the City of Albuquerque 0 Underground Projects Rider Pursuant to Advice 0 Notice No. 1 1 Page of

26 PNM EXHIBIT GT0-1 1 Regulatory Docket Proceeding Body Number In the Matter of the Application of Public NMPRC -000-UT Service Company of New Mexico For Approval of 0 I 0 Electric Energy Efficiency And Load Management Programs and Revisions to Program Cost Tariff Riders Pursuant to the New Mexico Public Utility and Efficient Use of Energy Act 11 1 In the Matter of the Application of Public NMPRC -00-UT Service Company of New Mexico for 1 Approval of the County of Santa Fe 1 Underground Project Rider Pursuant to Advice Notice No. 0 l 1 In the Matter of the Proposed Revisions to EIB EIB-OI(R) 1 The State Implementation Plan for 0 Regional Haze 1 In the Matter of the Public Service NMPRC 1 I -00-UT Company of New Mexico's Renewable Energy Portfolio Procurement Plan for 01 In the Matter of the Application NMPRC UT Of Public Service Company of New Mexico For Approval of Renewable Energy 0 Rider No. Pursuant to Advice 1 Notice No. and for Variances From Certain Filing Requirements In the Matter of Public Service NMPRC UT Company of New Mexico's Renewable Energy Portfolio Procurement Plan for 0 In the Matter of Public Service NMPRC -001-UT 0 Company of New Mexico's Application 1 For a Certificate of Public Convenience And Necessity and Related Approvals For the La Luz Energy Center Page of

27 PNM EXHIBIT GT0-1 Regulatory Proceeding Body In the Matter of Public Service NMPRC Company of New Mexico's Renewable Energy Portfolio Procurement Plan for 0 And Proposed 01 Rider Rate under Rate Rider No. 11 In the Matter of the Application NMPRC 1 Of Public Service Company of New Mexico For Continued Use of Fuel and Purchased 1 Power Cost Adjustment Clause 1 In the Matter of the Application of Public NMPRC 1 Service Company of New Mexico for Approval To Abandon Sm1 Juan Generating Station 1 Units and, Issuance of Certificates of 0 Public Convenience and Necessity for Replacement 1 Power Resources, Issuance of Accounting Orders And Dctem1ination of Related Ratemaking Principles and Treatment Docket Number -00-UT -00-UT I -000-UT Page of

28 PNM EXHIBIT GT0- Consisting of Pages

29 PNM Exhibit GT0- Page 1of Calculation of Profit Incentive using Staff's Proposed Method used in Case No UT (a) Program 01 Plan Lifetime kwh Savings Small Business,, New Construction - Retrofit,,1 Building Tune Up,, Refrigerator Recycling,,0 Residential Lighting,1,01 Multi-Family (New),0, Home Energy Check-Up 1,,11 PNM Home Works,,1 Residential Cooling,, Home Energy Reports 1,01,000 Low Income Refrigerator,,1 Low Income CFL 1,0 Easy Savings Kit,0,0 LI Home Energy Check-UP,,0 Power Saver Load Management 00,000 Peak Saver Load Management 00,000 TOTAL,, (c )= (b) 01 Plan kw Savings [(a)*(0.00)+(b)*(.00)]*[l.0] Incentive Calculated using the Methodology from -000-UT,,0, 0, 0,0 1,1, 1,, 0,0,1 1,,, 0,,00 1, 0, -,000 0, 0,000,1,0 1,,01

30 Calculation of Profit Incentive using Staff's Proposed Method used in Case No UT PNM Exhibit GT0- Page of 1 PNM ENERGY EFFICIENCY AND LOAD MANAGEMENT INCENTIVE Component 1 - Present value of earnings for program costs (Regulatory Asset Proxy) Year 1 Program costs: Year Program costs: Discount Rate Cap Structure Debt Preferred Common Amortization 1 Shared Incentive to company Shared Incentive to customers wee,0,11 PNM Exhibit SMB-,, 1, Table -.% Ratio.% 0.%.% Rate.%.%.00% years Year 1 Asset Value Year Asset Value Total Asset Value,0,11,0,11,,0,,,, 1,,,,0,0,1,,1 1,0,,, Weighted Rate.1% 0.0%.%.% NPV Year-End 0 Equity Return 1,,,,0,1,1 1,, 1,, 1,, 0,,01, % 0%,1,1 Line *% Line *0%

31 0 PNM ENERGY EFFICIENCY AND LOAD MANAGEMENT INCENTIVE 1 Component - Based on Lifetime kwh saved Discount Rate Average Fuel prices and kwh Savings from 01 EE Plan Avoided Energy Year kwh Saved (/kwh) 01 0,1, ,, ,0, ,0, ,0, , 0, ,, ,, ,, ,, ,, ,1, ,, 0.0 0,, ,0, ,, , , 0.0 0, TOTAL 1,S,0,011 NPV Shared savings incentive to company Shared savings incentive to customers TOTAL INCENTIVE TO COMPANY FOR 01 AND 0 PROGRAMS.% PNM Exhibit SMB-1, Table -1 PNM Exhibit SMB-1, Table - Saved,,,0,,,,,,1,,00,0,0,,,00,,0,,,0,,,0,1,1,00, 0, 1,,0 % 0%,,1 PNM Exhibit GT0- Page of Line 1 *% Line 1 *0% Line 1+ Line jtotal INCENTIVE TO COMPANY PER YEAR,,11 Line + I

32 BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION IN THE MATTER OF THE APPLICATION OF 1 PUBLIC SERVICE COMPANY OF NEW MEXICO ) FOR APPROVAL OF ELECTRIC ENERGY ) EFFICIENCY PROGRAMS AND PROGRAM ) COST TARIFF RIDER PURSUANT TO THE ) NEW MEXICO PUBLIC UTILITY AND ) EFFICIENT USE OF ENERGY ACTS ) ) PUBLIC SERVICE COMP ANY OF NEW ) MEXICO, ) ) Applicant ) Case No UT AFFIDAVIT STATE OF NEW MEXICO ) ) SS COUNTY OF BERNALILLO ), Vice President of Regulatory Affairs for Public Service Company of New Mexico, upon being duly sworn according to law, under oath, deposes and states: I have read the foregoing Direct Testimony of Gerard T. Ortiz and it is true and accurate based on my own personal knowledge and belief. My Commission Expires: THE STATE OF NEW MEXICO GCG # 1