Energy Efficiency Resource Standard

Summary

Origin

In 2008, New Mexico enacted H.B. 305, the Efficient Use of Energy Act, which created an Energy Efficiency Resource Standard (EERS) for New Mexico’s electric utilities, and a requirement that all natural gas utilities pursue all cost-effective energy efficiency and demand-side management measures. In 2013, the compromise bill H.B. 267—which had revised the original standard of 10% of 2005 retail sales by 2020 down to 8%—also changed the cost-effectiveness test from Total Resource Cost test (TRC) to the Utility Cost Test (UCT).

Electric Sales Reduction

Investor-owned utilities are required to offer demand-side management and load management programs to their customers under the Efficient Use of Energy Act (EUEA). The programs must be designed to achieve electricity savings totaling 5% of 2005 retail sales by 2014 and 8% of 2005 retail sales by 2020. 

Distribution cooperative utilities, which are not regulated by the Public Regulation Commission (PRC), are required to develop their own self-imposed electricity reduction targets and to design demand-side management programs to enable them to meet those targets. Each cooperative utility must submit a report to the PRC annually describing their demand side management efforts from the previous year.

Per the EUEA, rural electric distribution cooperative utilities must develop their own self-imposed energy efficiency and load management goals and design programs to meet those goals.  Under the law, the cooperatives are not required to submit their energy efficiency programs to the PRC for approval; each cooperative’s governing board shall approve their menu of programs.  However, the cooperatives must file annual reports with the commission that describe the portfolio of energy efficiency programs, the costs, and the energy reductions achieved pursuant to the EUEA.

Program Administrator Type

New Mexico’s utilities administer the programs that provide the energy savings necessary for compliance with the Energy Efficiency Resource Standard.

Cost-Effectiveness and Program Evaluation

To evaluate the cost effectiveness of its efficiency and demand reduction activities, New Mexico utilizes the Utility Cost Test (UCT) as its primary test for measuring the cost-effectiveness of energy efficiency programs. Prior to the passage of H.B. 267, New Mexico utilized the Total Resource Cost test (TRC).

Utility Cost Recovery Provisions

The Efficient Use of Energy Act allows New Mexico’s public utilities that meet the standard to receive a financial incentive on their energy efficiency and demand-side management program efforts that partially decouples their revenues from their sales of electricity. Public Service Company of New Mexico and El Paso Electric receive financial incentives as a percentage share of their program costs. Southwest Public Service receives an incentive on its program costs that is conditional on several highly specific aspects of program performance. Distribution cooperative utilities may recover their costs through general rates.

Special Provisions (Self-Direction of Program Funds and Customer Cost Limits)

Large energy users that consume more than 7,000 MWh per year in the service territories of New Mexico’s public utilities are eligible to offset up to 70% of the amount they would pay to public utilities with investments in energy efficiency and demand-side management programs that they have invested in on or after January 1, 2005. The ability to self-direct program funds is permitted for no more than 2 years at a time, and must be accompanied by engineering studies that show that the user has exhausted all efforts to pursue cost-effective efficiency and demand-side management projects at their facilities.

The law also requires gas utilities to "acquire all cost-effective and achievable energy efficiency and load management resources" through an identical surcharge, but stops short of establishing a percentage-based savings target for them. To fund energy efficiency and demand-side management programs, electric and gas utilities are entitled to apply a surcharge to customer utility bills. Total program budgets are not to exceed the amount of the lessor of 3% of all customer bills, or of $75,000 per year per customer.

If a utility finds that they cannot meet the 5% and 8% electricity savings targets, they will report to the PRC and propose a new target based on what they determine to be their maximum cost-effective savings. If the PRC agrees with the utility, they may establish new, lower targets for the utility. Under H.B. 267, New Mexico’s utilities are not permitted to spend more than 3% of their revenue on energy efficiency and demand-side management programs, excluding taxes and fees on electric service.