A measure introduced in the New Mexico senate recently was a”good first step” towards opening up the state’s electricityindustry to competition, says the state’s largest utility, althoughit cited certain concerns.

The Public Service Co. of New Mexico (PNM) supports thelegislation in that it’s the “first major comprehensive” effort bythe Legislature to restructure the state’s electricity market, butit also has some “serious reservations” because while the billwould allow for recovery of stranded costs, it fails to giveutilities credit for the costs they’ve already written off, saidLarry Smith, a spokesman for the utility that serves 1.3 millionelectric and natural gas customers.

Specifically, “there is no recognition [in the bill] that PNMshareholders have already absorbed substantial losses in order toprovide more than $30 million in rate reductions since 1994,” notedPNM President and CEO Benjamin Montoya. Moreover, he expressedconcern that the four years allotted under the legislation forutilities to collect between 50% and 100% of their stranded costsmight not be enough time.

The bill, which was sponsored by Sen. Michael Sanchez (D-Belen),calls for customer choice to be offered to schools, residentialcustomers and small businesses in New Mexico beginning Jan. 1,2001, and to industrial customers and municipalities on Jan. 1,2002. A companion bill in the state House has not been proposedyet.

The New Mexico Legislature has a very narrow window (until theend of March) in which to pass a customer-choice bill and get it toGov. Gary Johnson for his signature. If it should fail this year,the Legislature would have to wait until its next session – twoyears away – to again address customer choice, which would put NewMexico behind other states in the Southwest that are quickly movingto restructure their power markets. PNM already has opened up itssystem to gas competition.

If enacted, the Sanchez bill would require all public utilitiesoperating in New Mexico to submit transition plans to the statePublic Regulation Commission (PRC) no later than March 1, 2000, forapproval by Dec. 1, 2000. Such plans would include proposed tariffsfor transmission and distribution services, together with proposedstandard offer service tariffs for residential and small businesscustomers that don’t select a power supplier. Additionally,utilities would have to submit proposals for separating theirregulated and non-regulated business activities.

Significantly, the legislation would give utilities a”reasonable opportunity to recover an appropriate amount” ofshareholder investments in facilities that will be stranded in acompetitive power market. For PNM, most of its stranded costs willstem from its 10% ownership in the Palo Verde, NM, nucleargenerating plants, Smith said.

The bill would permit utilities to collect between 50% and 100%of their stranded costs through a nonbypassable charge on allcustomer bills for four years after the implementation of customerchoice in New Mexico. The PRC could authorize a utility’s recoveryof all stranded costs only if it finds it: 1) is in the publicinterest; 2) is needed to maintain the financial integrity of thepublic utility; 3) is needed to continue adequate and reliableservice; and 4) would not cause an increase in residential or smallbusiness customer rates during the transition period.

In addition to stranded costs, state utilities would be able torecover in full any costs associated with implementing open accesson their systems. The transition costs would be recoverable through2007.

Susan Parker

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