Overview
On January 16, 2025, the Supreme Court of New Mexico issued a community solar opinion that reflected a misunderstanding, caused by the New Mexico Public Regulation Commission’s own apparent misunderstanding, of what load pays for transmission service and what load relies on the transmission system. The opinion would harm New Mexico’s state-regulated utilities’ non-participating ratepayers that would bear a cost shift, although the likely elimination of Solar for All funds may mitigate any potential impacts.
The court reviewed a New Mexico state commission decision that disallowed New Mexico’s state-regulated utilities from deducting the retail transmission rate component from a community solar customer’s bill credit for energy produced by their community solar resource. In other words, community solar customers would receive a bill credit large enough that they would not be contributing to their relevant utility’s retail transmission revenue requirement (TRR). The court permitted the inclusion of transmission costs in the bill credit despite the fact that the relevant New Mexico Community Solar Act (CS Act) indicated that “non-subscribers shall not subsidize costs attributable to subscribers.” (In contrast, the CS Act permitted the deduction of distribution costs from the bill credit.)
The opinion include a “background” discussion section that makes three points. First, the court reviewed regulatory definitions of generation, distribution, and transmission, and claimed that such definitions illustrate that “electricity generated by a community solar facility is distributed and consumed locally, without requiring use of a utility’s transmission system.” No engineering analysis supported this conclusion. The court also determined that the size of the bill credit had to sufficiently reduce the amount of the overall retail bill paid by the customer-subscribers to cause them to join the program. Finally, the court favorably cited the state commission’s claim that it was difficult “to conceive of any situation in which transmission costs might be reasonably be considered to have been caused by a community solar project.” This causation statement would be accurate as to community solar that will be used on some tribal lands, where the community solar resource and the loads are transmission grid-isolated (i.e., electric islands). The causation statement is incorrect if sufficient community solar is located on a distribution facility such that power flows to the transmission system and causes the need for upgrades, a situation that can be “conceived of.” More importantly, the statement is irrelevant, the question before the commission and court should have been whether the community solar customer was causing transmission costs or being deemed to cause such costs. If that is the case, those costs must be shifted to make the utility whole, and the program would appear to violate the CS Act.
If the commission or court had examined the correct question – is the community solar customer causing transmission costs? – it should have been apparent that if the community solar resource is not operating, and the customer is not grid isolated, it would rely on and use the transmission system to obtain power. Moreover, a TRR also includes costs associated with various balancing area activities. A community solar resource cannot operate synchronized to the grid without assistance from the interconnected transmission provider as balancing area authority. (The opinion does not mention if community solar customers bear (or cause) ancillary services costs.)
In ruling, the court applied a deferential standard and indicated that it would overturn the state commission’s construction of the Act to allow the customers to avoid transmission costs only if the commission was clearly incorrect. The court found the commission’s conclusion that a community solar resource would not cause transmission costs to be reasonable. The court noted that the utilities’ had claimed that transmission costs are shared among all ratepayers, such that by necessity a subsidy would result. The court found that position plausible, but chose to defer to the state commission.
As discussed below, even where a FERC-set TRR is not passed directly through to retail customers, the mere fact that FERC allocates the TRR between wholesale and retail customers based on a load divisor that would include all load served by in-front-of-the meter (FTM) resources renders the conclusion that a cost shift will not occur, if some of this load served by FTM resources does not pay its share of the TRR incorrect.
For nearly thirty years now, i.e., since the adoption of Order No. 888, FERC has determined that under its pro forma open access transmission tariff (OATT), which applies to three New Mexico utilities, the load divisor (in MW) includes the total load of retail customers of both the transmission providing utility and wholesale transmission customers. FERC reinforced this position in Midcontinent Independent System Operator, explaining that the “the Commission made clear in Order No. 888 and its progeny that the entire load at a discreet point of delivery must be designated as Network Load, including load served by behind-the-meter resources, regardless of whether the load is served at retail or wholesale.” Both the PJM Tariff and ISO-NE Tariff (which have far more flexibility that New Mexico utilities using a pro forma OATT) carve out very specific exceptions to this FERC policy, thus proving the rule. Although FERC’s “count all load” directive has largely been ignored as to load served by behind-the-retail-meter resources, that issue is irrelevant to load served by FTM community solar resources. Indeed, one of reasons for community solar is that siting resources behind-the-retail-meter is either impossible, inefficient, or otherwise unworkable.
The reason that FERC allocates transmission costs in this manner has been settled for decades as well. The issue of the reliance of loads on the transmission system, even if some resources that serve the load are located on the distribution system, has been litigated at FERC. A presiding judge, as affirmed by FERC, explained in the context of the CAISO that distribution-only service would have numerous effects on the CAISO grid, and delivery service over the distribution system can not be performed in isolation from the CAISO grid.
Once FERC sets a TRR and allocates a portion to wholesale loads, utilities must seek to recover the remainder (or approximate) remainder at retail, or utility shareholders will bear the difference. Under the opinion here, the New Mexico utilities effectively now must seek to recover the same retail TRR from fewer MW or MWh of load, if community solar customers are not paying for transmission. Basic division of a TRR by load illustrates that the cost of transmission to non-community solar retail ratepayer must increase if some “counted” FTM load is paying nothing. Under some states’ community solar programs, subscribing customers pay for transmission but may get a bill credit that includes an amount for theoretical future reduction in transmission costs. Other states do no not make community solar customer pay transmission costs and other costs, but some of them, like Maine, fully acknowledge the cost shift to non-community solar subscribers, which runs into the 100s of millions of dollars annually. A recent Minnesota Commerce Department study indicated that Minnesota community solar program “comes at a meaningful cost” to non-subscribing customers.
Whether the actual impact of this court opinion on non-subscribing retail customers will turn out to be a rounding error or more considerable in size will not be known for some time. The answer largely depends on the economics of the program for community solar developers. New Mexico may have been relying heavily on a $156 million Solar for All grant to build out this program. Whether any Solar for All funds will be made available over the next four years is quite doubtful. Anti-renewable policies may render the commission’s and court’s failure to recognize how transmission costs actually are allocated to FTM load a moot point. But, it illustrates the need for FERC experts to examine any state program in order to determine whether the programs cause cost shifts that may violate a state law or otherwise violate federal law. (Whether the New Mexico community solar program violates PURPA is an entirely separate legal issue, but one that the New Mexico utilities, like the vast majority of regulated utilities, chose not to raise.)
