NMBCTC position on PNM rate case

PNM Rate Increase could benefit Union Labor

Purpose:  Encourage a broader perspective for the long-term benefit of the state. You know what the future holds in terms of the transition that must take place in energy and electricity provision – and it is essential that utilities be in the financial position to be able to invest in those resources that may be higher cost today and in the infrastructure necessary to ensure NM is positioned for smart growth.  And to help them understand that how financial markets perceive our state really matters in ways they may not fully appreciate.  Shouldn’t we let NM-based companies that do right by the state and NM customers be encouraged to grow?

• Current rate status: 
• PNM has not had an electric rate increase in 20 years.
• PNM’s rates are 30% below regional averages and 40% below most other providers in NM and in the top 10% in the country in reliability
• Even with the proposed electric rate increase and fuel clause.  PNM’s electric rates will remain competitive, well below regional averages.
• This rate increase is necessary but not sufficient, additional rate relief will be required over the next couple of years, driven by substantially increased costs of steel/aluminum copper/cement/gasoline.

• PNM’s current rates and reliability have benefited New Mexico: 
• PNM’s service, reliability and power quality attracted many manufacturers and industries to locate here (Schott, Tempurpedic, Fidelity, Intel expansions).
• These lower costs have also helped our existing businesses invest in more technology and provide much needed jobs.
• Abundant, high-quality and reliable power is critical to the manufacturing industry bringing economic-based jobs and financial prosperity to the state.
• The organizations that have helped bring these businesses in (AED, Economic Forum, GACC, ACI) actively support the need for rate relief and the fuel clause

• Costs to serve are rising:
• This need for capital comes at a time when the cost of raw materials, such as copper, steel and cement, has skyrocketed.  Fuel costs (natural gas, uranium and coal are also rising).
• PNM should be granted a fuel adjustment clause, as are other New Mexico investor-owned utilities and virtually every other utility in the country, so that it can recover these costs and so that consumers see the true price of electricity.  This is an essential signal to the financial community that we will treat utilities right so they can help our state grow and generate value for the state.

• New Mexico benefits from PNM’s leadership in many areas when it is financially healthy.
• PNM demonstrated leadership with the addition of 204 megawatts of wind energy to its system with the New Mexico Wind Energy Center, long before the state required such a commitment. 
• The company continues its commitment to clean energy with sources such as biomass, solar, customer solar photovoltaic and energy efficiency programs.  Solar development could be accelerated with utility investment, but an unhealthy utility doesn’t have the financial capability to do so.
• PNM is viewed as an innovative and proactive leader nationally on issues such as climate change and renewable – can’t we encourage and reward this rather than punish it for short-term lower rates?
• Last year, the company contributed more than $3 million to community programs (e.g. classroom innovation grants $250,000/year, $300,000 for the hunger initiative over 3 years).

• PNM is a good employer:
• New Mexicans benefit when companies like PNM is healthy, resulting in good paying jobs.
• It has the active support of the unions in the rate case
• Hard decisions to reduce costs and workforce have been taken to ensure that costs we ask customers to pay are minimized
• The decision on this rate case has taken on a broader perspective and audience – it is about rates for the low-cost provider in the region but increasingly it is also about the perception of the NM business climate risking the downgrade to junk status of the debt of this utility has a real cost to customers over time. 
• It also must rely on shareholders to help finance the business, who have lost 60% of their value in the last 10 months, worth over $1.6 billion.  Much of this is because of financial market concern over the NM regulatory environment.  What happened in 2007 for PNM is their (PNM’s) issue – but can’t we ensure they have their costs covered by rates in 2008 and forward?  And the less that is addressed in this rate case compounds what has to be addressed in the next case – with interest?
• The issue of exec compensation may be raised.  While a red herring, it is an attractive public point.  They don’t understand the difference between real compensation and stock compensation, nor do they realize that stock options issued over the last 6 years are worthless at today’s stock price.   

Current Status:  a recommended decision by the hearing examiner was issued March 6, which denied the Company’s request for a fuel and purchased power mechanism. This provides an exposure of $69 million in 2008 and $91 Million in 2009.  The rate increase in the recommended decision was a third of that requested ($24M) -- this will not be enough to cover the expenses associated with running the business.  PNM could not lay off enough people to make up the lack of cash flow from this decision.
 
While very important, what really matters is what the Commission does in issuing their final order which must be done by May 7, 2008.

Please let your PRC Commissioners know what you think!

District 1 Jason Marks – contact       leroy.aragon@state.nm.us

District 2 David W. King – contact    stacy.starr-garcia@state.nm.us

District 3 Ben R. Lujan – contact       setareh.javaheripou@state.nm.us    

District 4 Carol K. Sloan – contact     luis.ledezma@state.nm.us

District 5 Sandy Jones - contact        elizabeth.martin@state.nm.us

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