## Facts

- New Mexico’s Renewable Energy Act (REA) required public utilities to meet increasing renewable portfolio standards and allowed recovery of “reasonable costs” of compliance through the ratemaking process.
- El Paso Electric Company (EPE), a regulated utility, sought REA compliance by purchasing renewable energy certificates (RECs) generated by another utility, without purchasing or taking delivery of the electricity associated with those RECs.
- EPE requested recovery of REC costs through its fuel and purchased power automatic adjustment clause rather than through a general rate case.
- The New Mexico Public Regulation Commission (PRC) approved EPE’s request, treating REC costs as eligible for automatic adjustment as “purchased power” and as part of the REA’s referenced “ratemaking process.”
- New Mexico Industrial Energy Consumers (NMIEC) directly appealed, arguing the PRC exceeded statutory authority by permitting automatic pass-through of REC-only costs.

## Issues

1. Whether costs of purchasing unbundled RECs fall within “fuel, gas or purchased power” under NMSA 1978, § 62-8-7(E), permitting recovery through an automatic adjustment clause.
2. Whether the REA’s authorization to recover reasonable compliance costs “through the ratemaking process” permits the PRC to allow automatic adjustment treatment for REC costs despite the Public Utility Act’s limits and hearing requirements.

## Decision

- The New Mexico Supreme Court held that REC-only costs are not “fuel, gas or purchased power” under § 62-8-7(E) and therefore are not eligible for recovery through an automatic adjustment clause.
- The Court rejected the PRC’s characterization of unbundled RECs as “purchased power” when no electricity was purchased or delivered.
- The Court held that the REA’s general cost-recovery language did not expand or modify the Public Utility Act’s specific restrictions on automatic adjustment clauses.
- The PRC’s order was vacated as unlawful, and the matter was remanded for further proceedings consistent with the Court’s interpretation.

## Legal Principles

- Automatic adjustment clauses are statutory exceptions to ordinary ratemaking requirements and are construed narrowly.
- “Purchased power” for automatic adjustment purposes refers to the purchase of electricity (or comparable commodity costs) and does not clearly include unbundled renewable compliance instruments divorced from energy delivery.
- General statutory authority to recover costs “through the ratemaking process” does not implicitly broaden a separate statute’s specific limits on automatic adjustments or displace notice-and-hearing safeguards.
- An agency’s ratemaking discretion is bounded by the statutory framework; policy justifications cannot supply authority absent statutory authorization.

## Conclusion

The court vacated the PRC’s approval of automatic pass-through recovery for EPE’s unbundled REC costs, holding that such costs are not “purchased power” under the Public Utility Act and must be addressed through lawful ratemaking procedures unless the Legislature provides otherwise.


N.M. Indus. Energy Consumers v. N.M. Pub. Regul. Comm'n, 168 P.3d 105 (N.M. 2007)