City of Las Cruces v. N.M. Pub. Regul. Comm'n

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IN THE SUPREME COURT OF THE STATE OF NEW MEXICO 1

Opinion Number: 2

Filing Date: May 11, 2026 3

NO. S-1-SC-40636 4

CITY OF LAS CRUCES, 5

Appellant, 6

v. 7

NEW MEXICO PUBLIC 8

REGULATION COMMISSION, 9

Appellee, 10

and 11

EL PASO ELECTRIC COMPANY, 12

Intervenor-Appellee. 13

In the Matter of the Application 14

of El Paso Electric Company for 15

a Variance from the Fuel and 16

Purchased Power Cost Adjustment 17

Clause Methodology, New Mexico 18

Public Regulation Commission 19

Case No. 21-00064-UT 20

APPEAL FROM THE NEW MEXICO PUBLIC REGULATION 21

COMMISSION 22

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City of Las Cruces 1 Bradley Douglas, City Attorney 2 Las Cruces, NM 3

Stevens Law, LLC 4

Anastasia S. Stevens 5

Santa Fe, NM 6

for Appellant 7

Erin E. Lecocq, Appellate Specialist 8 Santa Fe, NM 9

for Appellee 10

El Paso Electric Co. 11

Nancy B. Burns 12

Santa Fe, NM 13

Spencer Fane, LLP 14

Jeffrey J. Wechsler 15

Kari E. Olson 16

Joseph M. Dworak 17

Santa Fe, NM 18

for Intervenor-Appellee El Paso Electric Co.19

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OPINION 1

THOMSON, Justice. 2

{1} The public utility rate dispute at issue stems from the snow, ice, and severely 3 cold temperatures brought by Winter Storm Uri, whose Arctic air gripped New 4 Mexico for seven consecutive days in February 2021. Intervenor-Appellee El Paso 5 Electric Company (EPE) relied, in in part, upon Palo Verde Nuclear Generating 6 Station Unit 3 (PV3, PVGS Unit 3, or PVNGS Unit 3) to successfully provide 7 electric energy and capacity to its New Mexico customers without interruption 8 throughout the storm period. The rate dispute in this case centers on the propriety of 9 EPE's use of a so-called proxy price formula to calculate the increase in consumer 10 energy costs attributable to EPE's use of PV3. As a result of the storm, "natural gas 11 prices skyrocket[ed] due to supply constraints" in New Mexico and other states 12 impacted by the storm. See, e.g., Holcim U.S. Inc. v. Colo. Pub. Utils. Comm'n, 2025 13 CO 1, ¶ 6, 562 P.3d 55 ("The interplay of the extreme cold, freeze-offs of natural 14 gas production, and high customer demand for natural gas greatly impacted natural 15 gas prices during th[e reign of Winter Storm Uri]," causing gas prices to "spik[e]."); 16 Evergy Mo. W. Inc. v. Off. of Pub. Couns., 676 S.W.3d 438, 442 (Mo. Ct. App. 2023) 17 ("The spike in natural gas prices [caused by Winter Storm Uri] resulted in record 18 high real-time electricity prices [in Missouri]."). 19

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{2} The outcome of this appeal hinges on the proper interpretation and application 1 of a number of prior rate-related orders issued by the New Mexico Public Regulation 2 Commission (the Commission or NMPRC) in separate administrative proceedings 3 involving EPE and addressing similar PV3 proxy price issues. As a threshold matter, 4 however, this Court has not previously established the level of deference, if any, we 5 extend to the Commission's interpretation of its own prior orders. This opinion 6 resolves this issue of first impression in favor of the Commission by adopting the 7

"high level of deference" generally accorded an "agency's interpretation of its own 8 orders." 73A C.J.S. Public Administrative Law & Procedure § 343 (2014). Applying 9 the standard, we uphold the results of the full and fair administrative proceedings 10 held by the Commission and affirm the Commission's final orders. 11

{3} We begin by summarizing the procedural backdrop of the Commission's 12 rulings and explaining the nature of the PV3 facility and the proxy price 13 methodology EPE employed in calculating its storm-related, temporary rate 14 increase. 15

I. BACKGROUND 16

A. Procedural Backdrop 17

{4} The underlying administrative proceeding (El Paso Elec. Co., No. 21-00064-18 UT) commenced when EPE moved for a variance relating to its approved Fuel and 19

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Purchased Power Cost Adjustment Clause (FPPCAC) as it applied to the cost of 1 PV3-generated energy. Specifically, EPE sought authorization to employ an 2 amortized rate to collect over a twelve-month period the extraordinary, incremental 3 electricity cost increases from Winter Storm Uri. The rate was designed to lessen 4 what the Colorado Supreme Court described in parallel circumstances as "the 'rate 5 shock' that customers would have experienced had [the utility] sought to recover the 6 extraordinary costs over [a] shorter period of time." Holcim U.S. Inc., 2025 CO 1, ¶ 7

12. The propriety of the amortization relief EPE sought on behalf of its customers 8 has never been challenged. Instead, several intervenors—spearheaded by Appellant 9 City of Las Cruces (City)—focused that administrative proceeding on various legal 10 challenges to EPE's claimed entitlement to collect any increased costs for PV3-11 generated energy attributable to Winter Storm Uri. 12

B. The Nature and Status of the PV3 Facility and the Proxy Price 13

Methodology and Its Workings 14

{5} PV3 is part of a sprawling, Arizona-based nuclear electric generating station. 15 Explaining PV3's history and status, EPE's Vice President of Regulatory Affairs 16 testified in the proceedings that: 17

PVGS Unit 3 became operational in 1988 but was never included in 18 non-fuel base rates in New Mexico. In 1998, as part of a comprehensive 19 stipulation adopted by the Commission in Case No. 2722, the 20 Commission decertified and deregulated PVGS Unit 3 but approved the 21 voluntary use of PVGS Unit 3 capacity and energy for EPE's New 22

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Mexico customers at the lowest equivalent market price for capacity 1 and energy available to EPE. Notwithstanding that PVGS Unit 3 is a 2 decertified and deregulated plant in the New Mexico jurisdiction, EPE 3 has historically relied on the NMPRC's approval to voluntarily use 4 PVGS Unit 3 capacity and energy to serve its New Mexico load when 5 available, and has agreed to sell power from PVGS Unit 3 to its 6 customers in New Mexico using the market proxy price established by 7 the Commission. 8

When asked to describe the benefits provided by EPE's use of electricity generated 9 at PVGS Unit 3, EPE's Vice President emphasized the utility's view that "PVGS 10 Unit 3 is highly reliable" because, among other attributes, the facility "has very low 11 and stable fuel costs that have helped insulate EPE's customers from volatile 12 purchased power and natural gas prices." EPE's Vice President also stated that "as 13 a carbon-free resource, PVGS Unit 3 is consistent with New Mexico's carbon-free 14 objectives." 15

{6} As the use of the word proxy suggests, the term proxy price denotes a default 16 pricing mechanism not dependent on the actual cost of generating power, in this case 17 electrical power produced in a nuclear power plant. See generally Final Order 18 Conditionally Approving and Clarifying Unopposed Stipulation (Final Order), El 19 Paso Elec. Co., No. 09-00171-UT, at 19-20 (N.M. Pub. Regul. Comm'n Dec. 10, 20

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2009) (Doc. 1076824).¹The Commission-approved proxy price rate for PV3-1 generated energy was calculated on the basis of natural gas market index prices, as 2 is set forth in a comprehensive stipulated order (the Credit Suisse Agreement) that 3 resolved an earlier NMPRC proceeding. Id. 4

{7} The provisions of the stipulated agreement settling the above-cited 2009 rate 5 case read as follows: 6

• Capacity component: On a monthly basis, EPE will include capacity 7 costs for PVNGS Unit 3 in purchased power at the rate of $9.25 per 8 kilowatt ("kW") times 211 MW of capacity at PVNGS Unit 3. 9

• Energy component: On a monthly basis[,] the energy costs for 10 PVNGS Unit 3 will be calculated by multiplying the megawatt-11 hours ("MWh") of energy generated by PVNGS Unit 3 times the 12 sum of: [(1)] the Permian Basin daily index price as reported in 13 Platt's Gas Daily's Price Survey for the corresponding day of 14 delivery under the heading "Permian Basin Area: El Paso, Permian 15 Basin, Midpoint" times a 7.6 MMBtu per MWh heat rate and [(2)] 16 $3.50 per MWh for non-fuel operation and maintenance expense. 17

• The amounts computed for capacity and energy on a Company basis 18 will be allocated to New Mexico based upon the monthly energy 19 allocator used to allocate fuel and purchased power costs to the New 20 Mexico jurisdiction. 21

Id. at 20. The use of such proxy pricing mechanisms is by no means unfamiliar in 22 electricity generation rate regimes. See, e.g., Transmission Agency of N. Cal. v. 23 FERC, 628 F.3d 538, 554 (D.C. Cir. 2010) (recognizing that proxy prices that 24

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"deviate from the market price . . . can be just and reasonable, if supported by record 1 evidence"); Pub. Serv. Co. of N.H. v. Patch, 167 F.3d 15, 19 (1st Cir. 1998) 2 (addressing a state utility commission's "use of a retail market proxy price . . . [that] 3 allow[ed] an increment to the distribution charge over and above actual distribution 4 cost . . . [in order] to end the existing regime in which the agency set retail rates for 5 electric power in New Hampshire based on cost"). 6

II. DISCUSSION 7

A. Standard of Review 8

{8} As the party challenging the Commission's final orders, the City "has the 9 burden of establishing that the order[s are] arbitrary and capricious, not supported 10 by substantial evidence, outside the scope of the agency's authority, or otherwise 11 inconsistent with law." N.M. Indus. Energy Consumers v. N.M. Pub. Regul. 12 Comm'n, 2019-NMSC-015, ¶ 8, 450 P.3d 393 (internal quotation marks and citation 13 omitted); see also NMSA 1978, § 62-11-4 (1965) ("The burden shall be on the party 14 appealing [a Commission order] to show that the order appealed from is 15 unreasonable, or unlawful."). In reviewing the Commission's final orders, our first 16 task is to "consider whether the [orders] present[] a question of fact, a question of 17 law, or a combination of the two." Pub. Serv. Co. of N.M. v. N.M. Pub. Regul. 18 Comm'n, 2019-NMSC-012, ¶ 13, 444 P.3d 460. The principal issue raised by the 19

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City in this appeal—whether the Commission appropriately used the PV3 proxy 1 price formula to calculate the incremental cost increases attributable to Winter Storm 2 Uri—implicates questions of law. The City's fallback issues—whether the 3 Commission's final orders were arbitrary and capricious and not supported by 4 substantial evidence—are primarily fact-based. See N.M. Atty. Gen. v. N.M. Pub. 5 Regul. Comm'n, 2013-NMSC-042, ¶ 10, 309 P.3d 89 ("A ruling by an administrative 6 agency is arbitrary and capricious if it is unreasonable or without a rational basis, 7 when viewed in light of the whole record." (emphasis added) (internal quotation 8 marks and citation omitted)). 9

{9} As concerns questions of law, this Court "will reverse the agency's 10 interpretation of a law if it is unreasonable or unlawful" and "will confer a 11 heightened degree of deference to legal questions that implicate special agency 12 expertise or the determination of fundamental policies within the scope of the 13 agency's statutory function." Pub. Serv. Co. of N.M., 2019-NMSC-012, ¶ 15 14 (internal quotation marks and citation omitted). We have long recognized "the broad 15 authority of the Commission in setting utility rates." N.M. Indus. Energy Consumers 16

v. N.M. Pub. Regul. Comm'n, 2007-NMSC-053, ¶ 30, 142 N.M. 533, 168 P.3d 105 17 (internal quotation marks and citation omitted). We extend particular deference to 18 the Commission's "considerable discretion in determining the justness and 19

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reasonableness of utility rates," even going so far as to say that "the Commission is 1 statutorily and constitutionally free to use any ratemaking formula it chooses." Att'y 2 Gen. of N.M. v. N.M. Pub. Serv. Comm'n, 1984-NMSC-081, ¶¶ 12, 15, 101 N.M. 3 549, 685 P.2d 957 (internal quotation marks and citations omitted). 4

{10} When it comes to questions of fact, this Court has held that "an agency's 5 action is arbitrary and capricious if it provides no rational connection between the 6 facts found and the choices made, or entirely omits consideration of relevant factors 7 or important aspects of the problem at hand." N.M. Indus. Energy Consumers, 2019-8 NMSC-015, ¶ 8 (brackets, internal quotation marks, and citation omitted). We have 9 also held that the substantial evidence standard is met when an agency decision or 10 order "is supported by evidence that is credible in light of the whole record and that 11 is sufficient for a reasonable mind to accept as adequate to support the conclusion 12 reached by the agency." Id. (internal quotation marks and citation omitted). 13

B. The Need to Expound on the Standard of Review Governing an Agency's 14

Interpretation of Its Own Orders 15

{11} This Court has not previously established the proper standard of review 16 regarding the Commission's interpretation of its own orders, a question the 17 Commission itself agrees remains unresolved. Given the decidedly policy-centric 18 nature of the standard-of-review question now before us and the paucity of New 19 Mexico caselaw on the subject, we look for guidance from other jurisdictions as well 20

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as "general principles of law." See Morris v. Giant Four Corners, Inc., 2021-NMSC-1 028, ¶ 28, 498 P.3d 238. 2

{12} Courts elsewhere, particularly federal courts, generally favor a highly 3 deferential approach when reviewing an agency's interpretation of its own prior 4 orders. See, e.g., Udall v. Tallman, 380 U.S. 1, 4 (1965) (recognizing that courts 5

"must . . . respect" an agency's interpretation of its own orders so long as it 6 represents "a reasonable interpretation," even where the "interpretation may not be 7 the only one permitted by the language of the orders"), superseded by statute on 8 other grounds as stated in W. Energy All. v. Salazar, 709 F.3d 1040, 1044 (10th Cir. 9 2013); City of Angels Broad., Inc. v. FCC, 745 F.2d 656, 661 (D.C. Cir. 1984) ("Our 10 review . . . of the Commission's construction of its own prior order is narrow: we 11 may not overturn it unless there are compelling indications that it is wrong."). For 12 purposes of this case, the Tenth Circuit Court of Appeals provides the most useful 13 endorsement of the high-deference approach analyzed through a three-factor inquiry 14 that includes "examining the entire context of the original order; looking to 15 subsequent agency conduct, especially further orders; and . . . examining the 16 agency's litigation position." S. Utah Wilderness All. v. Off. of Surface Mining 17 Reclamation & Enf't, 620 F.3d 1227, 1239 (10th Cir. 2010) (emphasis added); see 18 also 73A C.J.S. Public Administrative Law and Procedure § 343 (2014) ("In giving 19

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substantial deference to an agency's interpretation of its own order, courts evaluate 1 an agency's interpretation by examining the entire context of the original order; 2 looking to subsequent agency conduct, especially further orders." (emphasis 3 added)). 4

{13} We now adopt the same highly deferential standard in reviewing a New 5 Mexico agency's reading of its own orders. This approach is consistent with this 6 Court's practice of "tread[ing] lightly in reviewing [the Commission's] construction 7 of an unclear or ambiguous statute where, as here, the issue presented implicates 8 policy choices," in which case we "will overturn the administrative construction of 9 statutes by appropriate agencies only if they are clearly incorrect." El Paso Elec. Co. 10

v. N.M. Pub. Regul. Comm'n, 2025-NMSC-009, ¶ 14, 563 P.3d 920 (internal 11 quotation marks and citation omitted); see also U.S. W. Commc'ns, Inc. v. N.M. State 12 Corp. Comm'n, 1997-NMSC-031, ¶ 8, 123 N.M. 554, 943 P.2d 1007 (recognizing 13 in a different context that orders issued by a state commission "have the same force 14 as statutes enacted by the [L]egislature"). 15

{14} This deferential review standard strongly supports affirmance of the 16 Commission's final orders presently on appeal. 17

C. The City's Misguided Reading of the Commission's Final Order in El 18

Paso Elec. Co., No. 09-00171-UT 19

{15} The City contends that limiting language in the Credit Suisse Agreement (see 20

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El Paso Elec. Co., No. 09-00171-UT)—whose terms restricted the application of the 1 proxy price provisions set out therein to "this Stipulation only"²—precludes the 2 Commission's continued reliance on the proxy price formula to determine the proper 3 rate for energy produced at the PV3 facility. The City's argument is best 4 characterized as a misplaced freeze-frame analysis. The Commission's final order in 5 the pivotal 2009 rate case, establishing the proxy price formula at issue, went on to 6 serve as the cited justification for the Commission's continued use of the same Credit 7 Suisse proxy price formula to measure the cost of EPE's PV3-produced energy in 8 multiple subsequent administrative cases. 9

{16} To illustrate this point, we focus our attention primarily on the final orders 10 issued by the Commission in two such subsequent administrative cases. In the first 11 of those final orders, the Commission approved EPE's 2013 application "to continue 12 the current proxy price for PVNGS Unit 3 firm capacity and energy" that previously 13

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had been authorized in the 2009 rate case, pricing that, as the Commission expressly 1 found in addressing EPE's 2013 application, "continue[d] to be reasonable" during 2 the relevant time period there involved. Final Order, El Paso Elec. Co., No. 13-3 00380-UT, ¶ 12 (N.M. Pub. Regul. Comm'n Jan. 8, 2014) (Doc. 1122820) 4 (concluding that, although the Credit Suisse Agreement entered into by the parties 5 in the prior 2009 rate case had "terminated as of April 2010, the associated pricing 6 [then] remain[ed] competitive based on current market pricing . . . [and] reflect[ed] 7 the lowest equivalent market price of capacity and energy"). Plainly, the 8 Commission's approval of the 2009 Credit Suisse proxy price formula in EPE's 2013 9 PV3-related rate case eclipses the City's notion that the Commission intended the 10 2009 use of the PV3 proxy pricing formula to serve as a stand-alone, one-off event. 11

{17} Nor did the Commission's treatment of the PV3 proxy price-related issues 12 raised by the City in yet another NMPRC proceeding in any way serve to advance 13 the City's cause in the matter at hand. See Final Order Adopting Recommended 14 Decision with Modifications (Final Order), El Paso Elec. Co., No. 18-00006-UT 15 (N.M. Pub. Regul. Comm'n Feb. 13, 2019) (Doc. 1175713). That is, the City's 16 current position notwithstanding, the 2018 case—initiated by EPE's "Application 17 for Continued Use of its Fuel and Purchase[] Power [Cost Adjustment] Clause . . . 18 covering the period of calendar years 2015-2016"—did little more than maintain the 19

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proxy price status quo. Recommended Decision, El Paso Elec. Co., No. 18-00006-1 UT, at 1 (N.M. Pub. Regul. Comm'n Nov. 21, 2018) (Doc. 1174158). The 2 Commission explained in its 2024 order denying the City's motion for rehearing that 3 the February 2019 final order issued by the Commission in No. 18-00006-UT was 4 the "relevant" agency order in place at the time of the Winter Storm Uri "crisis," and 5 that order by its terms merely "confirmed the continuation of EPE's authorization to 6 use PV3 energy and capacity at the proxy price." Order Denying Motion for 7 Rehearing and Motion for Stay, El Paso Elec. Co., No. 21-00064-UT, ¶ 26 (N.M. 8 Pub. Regul. Comm'n Oct. 3, 2024) (Doc. 1235974). Indeed, far from altering New 9 Mexico's proxy price mechanism, the final order issued by the Commission in the 10 2018 FPPCAC case deliberately left any changes in approach to the proxy pricing 11 mechanism for another day. See Final Order, No. 18-00006-UT, Feb. 13, 2019, 12 supra, ¶ 85. (noting the "important" nature of the "proxy pricing" issue raised by the 13 City in connection with EPE's use of PV3 energy and "urg[ing EPE] and the parties 14 to be prepared to present and review th[is] issue[] in EPE's next rate case"). 15

{18} Neither of the earlier NMPRC orders discussed herein, nor any other NMPRC 16 order issued prior to Winter Storm Uri, expressly or impliedly foreclosed EPE's use 17 of the PV3 proxy price formula the City now challenges. To the contrary, EPE has 18 consistently relied on the PV3 proxy price formula for the better part of two decades, 19

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as a hearing examiner assigned to the administrative proceedings in this case 1 correctly recognized. Second Recommended Decision, El Paso Elec. Co., No. 21-2 00064-UT, at 43 (N.M. Pub. Regul. Comm'n May 20, 2024) (Doc. 1233452). Use 3 of the formula has been "reaffirmed and perpetuated" throughout the relevant time 4 period, as the Commission further confirms in its briefing to this Court.³5

D. The Commission's Application of the Proxy Price Formula to the Facts 6

of This Case Was Not Arbitrary and Capricious or Unsupported by 7

Substantial Evidence 8

{19} The City's claims that the Commission's final orders on appeal are arbitrary 9 and capricious or unsupported by substantial evidence as a result of the agency's 10 purported misapplication of the proxy price formula to the facts in this case are 11 unpersuasive. The Commission's final orders established the requisite "rational 12 connection between the facts found and the choices made" and were supported by 13

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substantial evidence. N.M. Indus. Energy Consumers, 2019-NMSC-015, ¶ 8 1 (internal quotation marks and citation omitted) ("[A] decision is supported by 2 substantial evidence when it is supported by evidence that is credible in light of the 3 whole record and that is sufficient for a reasonable mind to accept as adequate to 4 support the conclusion reached by the agency" (internal quotation marks and citation 5 omitted)). 6

{20} As articulated by the Commission itself during the course of the extensive 7 administrative proceedings, the decisive question in resolving this matter was 8

"whether PVNGS [Unit] 3 energy and capacity was the most cost-effective resource 9 available to EPE when EPE chose to use it in response to [Winter Storm] Uri and 10 the natural-gas crisis in February 2021." Order Adopting Recommended Decision 11 with Modifications; Order Assigning Matter to Hearing Examiner for Further 12 Proceedings, El Paso Elec. Co., No. 21-00064-UT, at 15, ¶ A (N.M. Pub. Regul. 13 Comm'n Dec. 28, 2022) (Doc. 1216995). In her comprehensive analysis of that and 14 other related issues, the hearing officer ultimately determined that "EPE has 15 provided credible evidence that using PV3 for capacity and energy was necessary 16 and available to provide continuous uninterrupted service during . . . Winter [Storm 17 Uri]" and that it was "manifestly reasonable" for EPE to have chosen "to use [PV3] 18 in response to [Winter Storm] Uri and the natural-gas crisis in February 2021." 19

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Second Recommended Decision, No. 21-00064-UT, May 20, 2024, see supra, at 37, 1

44. 2

{21} The Commission fully adopted the hearing officer's determination that 3 PVNGS Unit 3 "was the most cost-effective resource available to EPE" in the face 4 of Winter Storm Uri. Order Adopting Second Recommended Decision, El Paso 5 Elec. Co., No. 21-00064-UT, ¶ 10 (N.M. Pub. Regul. Comm'n Aug. 22, 2024) (Doc. 6 1235485). In doing so, the Commission pointed to record evidence showing that 7 PVNGS Unit 3 "was the only resource available to EPE that could be relied upon to 8 provide continuous, uninterrupted service" during the storm period, and relied as 9 well on the persuasive logic of the hearing examiner's "own, evidence-based 10 analysis of the actual cost effectiveness of the [PV3] resource." Id. ¶¶ 15, 19. 11

{22} There is no reasonable basis for this Court to reweigh the evidence or 12 substitute our own judgment for that of the Commission on the factual matters at 13 issue during the administrative proceedings. Nonetheless, brief comment is 14 warranted on whether, as the City frames the issue, the Commission's final orders 15 in the present case were arbitrary and capricious in that they approved EPE's 16

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recovery of PV3 energy "for Every Hour of February 2021 at the Proxy Price" 1 despite the finite, seven-day duration of Winter Storm Uri.⁴2

{23} The short answer is provided in the Commission's briefing to this Court: The 3 monthly duration of the incremental rate increase approved by the Commission is 4 consistent with—and, indeed, called for by—the very purpose and function of the 5 proxy price formula itself. This is reflected in both the express terms of the Credit 6 Suisse Agreement—which calculates both the capacity and energy components of 7 the proxy price standard "[o]n a monthly basis"—as well as the administrative-8 hearing testimony of EPE witness Jennifer Borden, the utility's Director of 9 Regulatory Accounting. Borden emphasized that "[e]ach month through the 10 FPPCAC reporting process, EPE reprices the power from PVGS Unit 3 on a total 11

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