Regulator insists Facebook must pay for New Mexico line

New Mexico regulators have unanimously refused to rehear a case in which they demanded that Facebook pay almost half of a proposed $85-million transmission line that will help ship power from a wind project to the company's data centre.

Power hungry… Some argue the surge in electricity use from Facebook’s $1-billion Los Lunas data centre would have been enough to pay for the BB2 line (pic: Facebook)

The state’s public regulation commission had unexpectedly ruled in April that Public Service of New Mexico (PNM) should bill the social media giant $39 million rather than charge consumers for the BB2 line.

The commissioners said the line would only benefit Facebook and wholesale electricity buyers — rather than ordinary ratepayers.

The commission also refused to reconsider instructing PNM to recover the remaining cost of BB2 from its wholesale customers, which are defined as electricity buyers outside the utility’s service area, as opposed to in-state consumers.

Facebook has a power purchase agreement (PPA) to buy power from Avangrid’s 166MW La Joya wind project, near Encino, New Mexico, which is due online in 2020. Avangrid did not respond to a request for comment.

The BB2 line would run adjacent to PNM’s existing BB Line in Santa Fe and Sandoval counties. The existing line carries 1GW of wind energy and is fully subscribed. The new line could take 362MW and is fully committed to Avangrid, a PNM wholesale transmission customer, according to US trade publication Utility Dive.

From this, the regulator concluded that the BB2 line would be built to meet the needs of just two PNM customers— Facebook and Avangrid.

Analysts have said that PNM had initially misrepresented the case to regulators, saying BB2 would be mostly for the data centre. In corrected testimony, PNM said the line is a "network upgrade" with broader system benefits, Utility Dive reported.

"Chilling effect"

The dispute has prompted fears that New Mexico will be hit economically as the new energy economy is ushered in.

Governor Michelle Lujan Grisham, a Democrat who took office in January following a campaign that included a video of her climbing a wind turbine, said she was disappointed in the decision.

"The potential for a chilling effect is of great concern," she added.

Chuck Noble, chief counsel at the Coalition for Clean Affordable Energy (CCEA), said: "It will not end [renewable energy] development in New Mexico, but it will make it harder for businesses to come in and be green." Data centres are especially power-hungry.

He pointed out that the cost of the BB2 line would have been more than covered by Facebook’s increased electricity use.

Ray Sandoval, director of corporate communications and brand management at PNM, responded with a statement: "We understand that we created initial confusion but, after clarifying the information, we believe the law and precedent should have led the commission to modify their decision.

"We are in the process of reviewing our options on how to proceed."

The case can apparently now be appealed in the courts.

The rehearing had been requested by the CCEA, PNM and the New Mexico Industrial Energy Consumers group.

"Regardless of the evolving arguments, this situation does indeed bring up an interesting question," noted Dan Shreve, head of global wind research at Wood Mackenzie Power & Renewables.

"Who should fund transmission infrastructure expansion as it pertains to renewables deployment for commercial and industrial (C&I) buyers?"

Growing trend

C&I buyers are becoming increasingly important as support is phased out.

"In the absence of a federal carbon policy, and with oversubscribed state renewable portfolio standard programmes, demand from corporate America becomes ever more important," Shreve said.

BB2 could also be more critical than ever because of the utility’s recently announced plan to go zero-carbon by 2040, Shreve added.

"But I do not expect that it sets an iron-clad precedent for what happens to others in the future," he said.

"Rather, I feel it is a lesson to be learned, and unfortunately an issue that may prolong the development of these C&I-centric projects." The proliferation of C&I buyers of wind power is a growing trend in the US.

The most important takeaway from the "PNM/Facebook debacle" is that large-scale C&I deals, whether via virtual power purchase agreements or green tariffs, must outline exactly what contractual transmission charges are being covered, Shreve concluded.

Under green tariffs, customers can source their electricity from renewable resources at a fixed rate.

Power hungry

Facebook opened the first phase of its $1-billion hyperscale Los Lunas data centre in February, with construction to be completed in 2023. It is said to be considering expanding the data centre.

CCEA’s Noble wondered whether Facebook will now drop its plans to expand. Facebook did not respond to a request for comment.

The PRC oversees cost recovery of transmission built by regulated utilities for retail customers within the state, but not of transmission for wholesale customers.

New Mexico is one of the top three US states in terms of the capacity of wind projects in advanced development or under construction, according to the American Wind Energy Association.