PNM Resources : Direct Testimony of Joseph A. Miller, Jr. Energy Storage Agreements PNM 2025 Rate Request 24 00089 UT

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF THE APPLICATION	)
OF PUBLIC SERVICE COMPANY OF NEW	)
MEXICO FOR REVISION OF ITS RETAIL	)
ELECTRIC RATES PURSUANT TO ADVICE )
NOTICE NO. 625	)	Case No. 24-00089-UT
	)
PUBLIC SERVICE COMPANY OF NEW	)
MEXICO,	)
	)
Applicant	)
	)

DIRECT TESTIMONY

OF

JOSEPH A. MILLER, JR.

June 14, 2024

NMPRC CASE NO. 24-00089-UT

INDEX TO THE DIRECT TESTIMONY OF JOSEPH A. MILLER, JR.

WITNESS FOR

PUBLIC SERVICE COMPANY OF NEW MEXICO

I.	INTRODUCTION AND PURPOSE	1
II.	RESOURCES IN TRANSITION	5
III.	PROCUREMENT AND RECOVERY OF RESOURCE COSTS	12
IV.	IMPUTED DEBT CONCERNS	14
V.	PNM PROPOSAL FOR RECOVERY OF ESA COSTS	21
VI.	CURRENT ESA RULEMAKING	28
VII.	CONCLUSION	.....................................................................................................	31
PNM Exhibit JAM - 1	Statement of Qualifications
SELF AFFIRMATION

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DIRECT TESTIMONY OF

JOSEPH A. MILLER, JR.

NMPRC CASE NO. 24-00089-UT

1. INTRODUCTION AND PURPOSE

1

1. Q. Please state your name, position, and business address.
2. A. My name is Joseph A. Miller Jr. I am President and CEO for Pegasus-Global
3. Holdings, Inc.® ("Pegasus-Global"), an international management consulting firm
4. that provides services in the power, energy, and infrastructure industries. My
5. business address is 1750 Emerick Rd., Cle Elum, WA. 98922. My experience and
6. qualifications, including the regulatory cases in which I have submitted testimony,
7. are attached as PNM Exhibit JAM-1.

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1. Q. On whose behalf are you testifying in this proceeding?
2. A. My testimony is on behalf of Public Service Company of New Mexico ("PNM").

1. Q. Have you previously testified before the New Mexico Public Regulation

1. Commission ("Commission" or "NMPRC")?
2. A. Yes. I provided expert testimony on behalf of PNM in NMPRC Case No. 22-
3. 00270-UT("2022 Rate Case").

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1. Q. What is the purpose of your direct testimony in this case?
2. A. The purpose of my testimony is to support PNM's proposal to include all Energy
3. Storage Agreements ("ESAs") costs in the Fuel and Purchased Power Cost
4. Adjustment Clause ("FPPCAC") and to remove the existing ESA costs from
5. PNM's base rates. I discuss the reality of how imputed debt impacts utilities and

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DIRECT TESTIMONY OF

JOSEPH A. MILLER, JR.

NMPRC CASE NO. 24-00089-UT

1. customers. I discuss how the proposal provides a fair balancing of the interests of
2. customers and shareholders and is consistent with New Mexico law and with the
3. Commission's rules. In addition, I examine how the issue of imputed debt has been
4. addressed in other jurisdictions and why the PNM proposal is superior to many of
5. the methods in place today.

6

7 Q. Please summarize your conclusions.

8 A. The electric industry is in transition from large nuclear and fossil-fuel fired

1. generation to smaller, geographically diverse intermittent renewable generation
2. such as solar and wind complemented with energy storage. In the next two decades,
3. PNM will be required to make significant resource additions to replace retiring and
4. expiring capacity, accommodate load growth and reduce carbon intensity. Energy
5. storage will be an important component of the energy transition. ESAs have
6. tangible financial implications for utilities, particularly as utilities enter into
7. increasing amounts of ESAs.

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1. PNM's proposal to recover the costs associated with ESAs through the FPPCAC
2. will reduce total costs to customers by reducing the imputed debt costs of these
3. agreements. I conclude that while there are a number of different ways to address
4. issues associated with imputed debt, PNM's proposal to include these ESAs in the
5. FPPCAC is superior in that it seeks to lower the imputed debt costs instead of
6. simply quantifying them and passing on those higher costs to customers.

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DIRECT TESTIMONY OF

JOSEPH A. MILLER, JR.

NMPRC CASE NO. 24-00089-UT

1. PNM and New Mexico are on the leading edge of the projected exponential growth
2. in energy storage. Energy policy related to the issues being raised by PNM in this
3. case are just beginning to be addressed across the country. This Commission has
4. an opportunity in this case to establish regulatory policy that balances the interests
5. of customers and shareholders and reduces costs for customers.

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7 Q. Please summarize your educational background and professional

8 qualifications.

9 A. I graduated from Purdue University with a Bachelor of Science degree in

1. Mechanical Engineering. I also completed twelve post graduate level courses in
2. Business Administration at Indiana State University.

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1. I began my career in 1991 as a staff engineer at Duke Energy Indiana's Cayuga
2. Generating Station. I then held various roles of increasing responsibility in the
3. operations, engineering, maintenance and strategy areas, including the role of
4. station manager, first at Duke Energy Kentucky's East Bend Generating Station,
5. followed by Duke Energy Ohio's Zimmer Generating Station.

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1. I was named General Manager of Analytical and Investment Engineering in 2010.
2. In this role, I began providing leadership in modernizing one of the largest fossil
3. fuel generating fleets in the county. This involved supporting and directing the
4. analysis of plant abandonments and new resource replacements in addition to

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DIRECT TESTIMONY OF

JOSEPH A. MILLER, JR.

NMPRC CASE NO. 24-00089-UT

1. setting lifecycle strategy for the remaining plants in the fleet. This included
2. carrying out all facets of environmental compliance planning for the coal plants that
3. would remain in operation. In this role, I was also responsible for financial and
4. engineering analysis of capital upgrade projects as well as project controls for the
5. company's fleet of nuclear, fossil, and hydroelectric plants.

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1. Following the merger between Duke Energy and Progress Energy, I became the
2. Vice President of Central Services. In this position, I had oversight of 500
3. employees and responsibility for engineering, environmental compliance planning,
4. generation and regulatory strategy, NERC and regulatory compliance, technical
5. services and maintenance services for the company's fleet of 89 fossil and
6. hydroelectric power plants in North Carolina, South Carolina, Ohio, Indiana,
7. Kentucky and Florida.

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1. In 2019, I began providing strategic and regulatory consulting services primarily to
2. clients undertaking transitions in the production or sourcing of their electricity.

1. In the last 14 years, in multiple states, I have sponsored 64 testimonies in regulatory
2. proceedings, including base rate, fuel, certificate of public convenience and
3. necessity, plant abandonment and environmental cases.

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DIRECT TESTIMONY OF

JOSEPH A. MILLER, JR.

NMPRC CASE NO. 24-00089-UT

1. I became President and Chief Executive Officer of Pegasus-Global in October
2. 2022. My experience and qualifications, including the regulatory cases in which I
3. have submitted testimony, are attached as PNM Exhibit JAM-1.

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5II. RESOURCES IN TRANSITION

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1. Q. What are your observations about the current trends in electric industry
2. resource planning in the US?
3. A. The electric utility industry is in a time of great transition from a fossil-fuel and
4. nuclear-basedgeneration system to one that is focused on a low-carbon future. The
5. majority of the coal-fired generating stations in the US have been retired, with many
6. more slated to retire over the next few years. The key components of the low-
7. carbon future are renewable resources, particularly wind and solar. Many states
8. have passed renewable energy standards and/or carbon reduction standards to
9. reduce carbon emissions. As I discussed in my direct testimony in the 2022 Rate
10. Case, wind, solar, and battery storage costs have declined significantly over the past
11. ten years.1 The combination of renewable portfolio standards, carbon reduction
12. goals, and lower costs for renewables and battery storage has led to a significant
13. increase in the penetration of wind and solar generation and battery storage systems.

1 NMPRC Case No. 22-00270-UT, Miller Direct Testimony, p. 22, lines 6 , - p. 25, line 5.

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DIRECT TESTIMONY OF

JOSEPH A. MILLER, JR.

NMPRC CASE NO. 24-00089-UT

1. Q. Why is energy storage so critical?
2. A. Utilities are increasingly pairing large wind and solar portfolios with energy storage
3. to manage the non-dispatchable, variable output of wind and solar. Energy storage
4. can balance the intermittent nature of renewable resources, providing grid stability.
5. As one industry expert stated:2

6	Energy storage is key to secure constant renewable energy supply to power
7	systems - even when the sun does not shine, and the wind does not blow.
8	Energy storage provides a solution to achieve flexibility, enhance grid
9	reliability and power quality, and accommodate the scale-up of renewable
10	energy.
11

1. As has been seen in Texas and California, large quantities of wind and solar without
2. batteries can create problems for system operators that require curtailment of the
3. wind and solar resources to protect system reliability. Incorporating battery storage
4. with wind and solar resources allows a more significant portion of energy to come
5. from renewable sources.

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1. Q. What are the national projections related to energy storage?
2. A. PNM Figure JAM-1 below from the US Energy Information Administration
3. ("EIA") Annual Electric Generator Report demonstrates the expected exponential
4. growth of energy storage (particularly battery storage) expected in the US between
5. 2015 and 2024.3

2 "Why Energy Storage Matters for the Global Energy Transition," World Bank Blogs, Demetrios Papathanasiou, June 30, 2023; https://blogs.worldbank.org/en/energy/why-energy-storage-matters-global-energy-transition

3 U.S. Energy Information Administration, 2022 Form EIA-860 Early Release, Annual Electric Generator Report.

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DIRECT TESTIMONY OF

JOSEPH A. MILLER, JR.

NMPRC CASE NO. 24-00089-UT

PNM Figure JAM-1 - Large Scale Battery Storage (2015-2024)

Figure 6. Large-scale battery storage cumulative power capacity (2015-2024)

megawatts

35,000								SPP
	history planned
	operating capacity					MISO
30,000					ISO-NE
annual capacity additions
				NYISO
25,000						PJM
					ERCOT
20,000
15,000						CAISO
10,000
5,000									other	other
									Nevada
0									Arizona	states
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024	2024

McKinsey and Company believes battery energy storage is likely to quintuple

between 2023 and 2030 as shown in PNM Figure JAM-2 below.4

4 "Enabling Renewable Energy with Battery Energy Storage Systems," McKinsey and Company, August 2023; https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/enabling-renewable-energy-with-battery-energy-storage-systems#/

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DIRECT TESTIMONY OF

JOSEPH A. MILLER, JR.

NMPRC CASE NO. 24-00089-UT

1 PNM Figure JAM-2 - Battery Energy Storage Capacity (2023-2030)

2

1. Texas illustrates the exponential rise of battery storage. A September 2023 Texas
2. Tribune article states:5

5	Three years ago, the state grid, managed by the Electric Reliability Council
6	of Texas, hardly had any battery power. The number has quickly increased,
7	from 275 megawatts in 2020 to more than 3,500 operating on the grid
8	today, and by the end of 2024, upwards of 10,000 megawatts are expected
9	to be available. The decreasing cost of producing batteries and tax
10	incentives through the federal Inflation Reduction Act are helping to make
11	them more economical to build and operate, developers say.

5 "As brutal heat tests Texas' power grid, batteries play a small but growing role in keeping the lights on," Texas Tribune, September 12, 2023, Keaton Peters and Emily Foxhall, 2023; https://www.texastribune.org/2023/09/12/texas-power-grid-batteries/?utm_campaign=trib-social-buttons&utm_source=copy&utm_medium=social,emphasis added.

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