April 25, 2008
Albuquerque Journal
Move Quickly, Carefully on PNM Rate Request (Editorial)
State utility regulators will make some crucial decisions in the next few weeks affecting New Mexico’s biggest electric utility and its customers.
To do the job right, they should tune out the rhetoric from politicians, advocates and Wall Street and focus on the evidence at hand. That’s the best way to balance utility and consumer interests by ensuring Public Service Company of New Mexico’s investment and expenses are reasonable and prudent, then approving rates that provide a fair return. Unfortunately, they will be doing it in a crisis atmosphere.
Faced with a cash crunch, a sagging stock price and its newly minted junk credit rating, PNM is asking for relief on a couple of fronts. In what is known as a rate case, the utility wants a $77 million increase in basic rates plus the ability to pass along the costs of fuel and purchased power directly to consumers. Combined, that would be an increase of about 20 percent.
Opposition from the attorney general and large energy users was stiff. After lengthy proceedings, a hearing examiner recommended an increase of only $24 million and denial of the fuel clause, triggering consternation at corporate headquarters. PNM went to Attorney General Gary King and convinced him to go along with an emergency request to pass along up to $72 million in fuel costs over the course of a year. Unlike the original open-ended fuel clause request, this plan would hold the fuel-cost factor constant over a year, making monthly bills more stable.
The company persuaded King that without immediate relief, Wall Street would conclude regulators would not give the company sufficient cash flow and would downgrade its credit – costing New Mexico consumers in the long run. That downgrade came to pass last Friday, when Standard and Poors relegated the company’s credit status to below investment grade.
All this is now before the five elected members of the Public Regulation Commission, who have indicated they will decide today whether to modify the hearing officer’s recommendation on rates. Further, they promise to deal with the fuel clause issues before June. Some things to keep in mind as they go forward:
n PNM is entitled to a fair return, even if it means pain for customers. But, the evidence the company presented must justify the relief it gets. Commissioners need to resolve to their satisfaction questions raised by intervenors and others about whether some of the company’s problems are attributable to its own management decisions and out-of-state expansion. New Mexico customers can’t be expected to pay for those, and PNM should be ready and willing to give commissioners the proof they need. That’s part of the price of those ambitions, especially given the company’s disastrous diversification schemes of the 1980s.
n PNM’s long-term financial health is important and should be a factor for the commission’s consideration. But it’s the PRC’s job to set rates in a fair manner, not to satisfy credit rating services.
n PNM needs to be compensated in a timely fashion for its fuel costs. But a carte blanche pass-through would remove the incentive for keeping those costs down. It also could subject consumers to significant gyrations in their bills. To the extent possible, fuel costs should be estimated and put into basic rates with some mechanism that could kick in when costs vary significantly. There is a middle ground, as shown by the emergency request signed off on by the AG.
Lastly, PNM admits some of its problems stem from agreeing to a five-year freeze in 2002. That’s too long and it led to a significant financial hit last year. Let’s not kid ourselves. Energy costs are going up. Everywhere. Alternatives such as solar will be even more expensive and are not even contemplated in this case. If we want alternative energy we will have to pay.
Filing rate cases more frequently will help PNM sharpen its game and reduce sticker shock.