New Mexico Industrial Energy Consumers v. New Mexico Public Regulation Commission

New Mexico’s Renewable Energy Act (REA) required that beginning January 1, 2006, at least 5 percent of public utilities’ total retail electricity sales consist of renewable energy. Utilities were permitted to establish compliance with this requirement by filing renewable-energy certificates (RECs) with the New Mexico Public Regulation Commission (the commission) (defendant). The commission defined RECs as documents evidencing that a certain amount of renewable energy had been generated from a renewable-energy-generating facility. RECs were permitted to be bought, sold, or traded for the purposes of allowing utilities to come into compliance with the REA even if the utility itself did not generate renewable energy. The REA also allowed public utilities to recover reasonable compliance costs through the ratemaking process as long as the costs of procuring the RECs were reasonable. The REA did not define the ratemaking process. Another New Mexico statute, the Public Utility Act, generally required rate changes to go through a process involving notice and a public hearing, although it allowed costs related to taxes or the cost of fuel, gas, or purchased power to be automatically recovered through an adjustment clause. El Paso Electric Company sought to comply with the REA by purchasing RECs but did not intend to take physical delivery of the actual renewable energy. El Paso Electric intended to recover the costs of compliance through the automatic-adjustment process. The commission approved El Paso Electric’s plan, determining that automatic adjustment was part of the ratemaking process as referenced in the REA and that automatic adjustment was permitted even if El Paso Electric did not take physical delivery of the renewable energy. New Mexico Industrial Energy Consumers (plaintiff) appealed the commission’s order approving El Paso Electric’s plan, arguing that RECs did not constitute purchased power or any other cost that could be recovered through automatic adjustment. In response, the commission argued that it had broad discretion in setting rates, including through the automatic-adjustment process, and that evidence in the record supported its finding that RECs were purchased power even if unaccompanied by taking delivery of the energy.