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F I S C A L I M P A C T R E P O R T

SPONSOR Heaton

ORIGINAL DATE

LAST UPDATED

3/02/07

3/07/07 HB 1291/aHHGAC

SHORT TITLE Energy Efficient Appliance Financing Rules

SB

ANALYST Earnest

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Energy, Minerals, and Natural Resources Department (EMNRD)

Public Regulation Commission (PRC)

SUMMARY

Synopsis of HHGAC Amendment

The House Health and Government Affairs Committee (HHGAC) amendment adds the new

section to the Efficient Use of Energy Act (62-17 NMSA 1978) instead of Chapter 62, Article 8.

The amendment deletes ‘electricity’ and inserts ‘energy’ for the pay as you save program,

effectively expanding the types of utilities and appliances the be considered in the PRC rule.

Finally, the amendment addresses a concern of the PRC by deleting the requirement that utilities

implement the program propose a tariff for PRC consideration; instead, the amendment puts a

June 30, 2008, deadline for the adoption of a rule by PRC to establish the program.

Synopsis of Original Bill

House Bill 1291 would require the Public Regulation Commission (PRC) to establish a pilot

“Pay as you Save Program" that provides financing options through utility service billing for

purchase of energy efficient appliances and heating and cooling systems.

House Bill 1291/aHHGAC – Page

2

FISCAL IMPLICATIONS

None identified.

SIGNIFICANT ISSUES

HB 1291 allows a residential public utility customer to purchase energy-efficient appliances and

heating and cooling systems with no upfront payments by allowing for payment of the cost of the

products over time on the customer's electricity bill. The bill requires that no later than June 30,

2008, each public utility propose a tariff to the PRC to implement this program for residential

customers. PRC is required to review the proposed tariff, hold a hearing and require

modifications to the proposed tariff if necessary.

HB 1291 provides that PRC ensure that all reasonable costs incurred by public utilities to start

and implement the program are recovered as part of the utility's rate base, including necessary

billing system adjustments and any costs for “Pay as You Save Pilot Program" efficiency

measures that are not recovered from residential customers' payments.

HB 1291 delineates program requirements that include the estimated life cycle electricity savings

from the product exceeds the product’s cost; provides for billing and payment of the product on

the utility bill; provides for disconnection of utility service for nonpayment of the “Pay as You

Save" product payments; and allows for assignment of the product repayment costs attached to

the meter location.

According to PRC:

The Efficient Use of Energy Act and the commission’s Energy Efficiency rule, 17.7.2

NMAC, currently address the implementation of cost-effective energy efficiency and

load management investments in their energy resources portfolios. Programs proposed

under existing rules have focused on offering rebates to individual customers, funded by

a general rate rider. The system anticipated by the bill could be more equitable, in that

the customers directly benefiting from energy efficient appliances will ultimately pay the

full initial cost of the appliances. The pay as you save approach could remove the

barriers faced by lower income consumers to participating in the current programs

because they lack the upfront cash. It could also remove equity considerations that have

caused consumer advocates to oppose incentives for energy efficient, but expensive

appliances (such as front-loading washing machines) that will only be of interest to

wealthier consumers.

This bill requires the commission to adopt rules to establish a pilot pay as you save

program. As required by the bill, “No later than June 30, 2008, each public utility shall

implement by tariff a pay as you save pilot program for residential customers. (See Page

2, Beginning on Line 15) Given the six month prior notice to the commission to allow

for commission review prior to implementation of proposed tariff the three independently

owned gas companies, four independently owned electric utilities and the twenty rural

electric cooperatives would all need to file by January 1, 2008 in order to have in place its

“pay as you save" tariff by June 30, 2008.

House Bill 1291/aHHGAC – Page

3

Assuming the normal commission process of issuing a Notice of Proposed Rulemaking, it

will require at least an eight to nine month period for the commission to give notice and

allow the opportunity for comments on the rule considered in this Bill before the rule

would become effective. Once a rule is adopted by the commission, a reasonable period

of time would be required by the utility to develop its own “pay as you save" pilot

program before being filed with to the commission for approval. Thus it might be more

appropriate for the commission to establish timetables for the utilities through the

rulemaking process, rather than to have them set by statute.

As proposed, the “pay as you save" pilot programs will not be self sustaining since the

Bill allows start up and implementation costs of such programs to be rate based by the

utility and recovered from all rate payers.

According to EMNRD, the use of energy-efficient appliances and products can offset significant

increases in utility costs that can result in savings of several hundred dollars per household per

year. HB 1291 provides a new mechanism for utility customers to purchase energy efficient

appliance that reduce a household’s energy consumption. The pilot program would provide a

way for low- and moderate-income households to afford the energy-efficient appliances that are

frequently too expensive for these households to consider.

HB 1291 provides that the repayment costs be tied to the meter location. EMNRD indicates that

this may become an issue if the customer purchasing the appliance moves from that location,

leaving the next utility customer with the financial burden.

EMNRD reports that an Energy Star furnace or air conditioning system, when properly sized and

installed, can provide considerable savings to consumers on heating and cooling bills and

reduces greenhouse gas pollution. EPA reports indicate that for every kilowatt-hour (kWh) of

electricity saved, one and a half pounds (1-1/2 lbs.) of CO2 are prevented from being pumped

into the atmosphere. If Americans bought only Energy Star products over the next 15 years, we

would shrink our energy bills by more than $100 billion and eliminate as much greenhouse gas

pollution as is produced by 17 million cars for each of those 15 years.

The cost for the utility to implement has not been provided for this analysis, and thus any change

in the base rate for utility customers cannot be estimated.

ADMINISTRATIVE IMPLICATIONS

PRC indicates that the commission may not be able to develop and adopt the proposed pay as

you save pilot program rule within the implementation time frame proposed by this bill.

Sufficient time may not be allowed by the rule for utilities to develop and implement pay as you

save pilot programs. If all electric and gas utilities are required to file programs on January 1,

2008 in order to have their programs in place by June 30, 2008, the commission will have

twenty-seven cases to review and approve on an expedited schedule in addition to its normal

work load. In addition, there may need to be further proceedings to review and verify the

implementation of these programs.

House Bill 1291/aHHGAC – Page

4

TECHNICAL ISSUES

PRC notes that the is not clear as what type of utility, i.e. gas, electric, independently owned or

rural electric cooperative, will be required to implement by tariff a “pay as you save" pilot

program.

BE/csd