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Enron Exits Residential Gas Market in New Mexico

Enron Exits Residential Gas Market in New Mexico

New Mexico is the latest state to be labeled unfit for residential energy marketing by Enron Corp., North America's largest energy marketing firm. The regulatory structure will make it difficult, if not impossible, to compete profitably against the incumbent gas supplier, Public Service Company of New Mexico (PNM), Enron said.

Until the regulatory environment improves, Enron will drop residential marketing efforts and opt out of the 229 New Mexico residential customer contracts it currently holds. Those contracts expire Aug. 31. Enron will not renew them, officials said. As in other states, such as California, where Enron came to a similar conclusion about the residential market, the company plans to continue participating in commercial and industrial energy marketing.

"When we started down the road to residential choice [in New Mexico] we had several assumptions," an Enron executive said. The company anticipated PNM would unbundle rates, the state's electricity market would be restructured and there would be access to billing and metering, among other services. "But that didn't happen." PNM won't even file to unbundle tariffs for another 18 months. The state legislature is moving slowly on electric sector competition. And Enron will not have access to billing and metering services until 2000.

Electric sector competition was key because it would allow Enron to bundle gas and electricity supply services, much as PNM currently does. That would have increased Enron's profit margins, with the possible profits in one service offsetting lower profits in another.

Currently, there is no date specific for New Mexico electric sector competition. Also, access to billing and metering would have taken PNM out of the Enron business picture and bolstered profits as well.

Currently, PNM is a formidable competitor because of that company's ability to recover lost revenues in the gas market from one year with a rate surcharge the next year, a luxury not allowed Enron or other competitors. PNM can set gas rates at one level, Enron said, and if that level proves to be unprofitable, it can add a surcharge to customer bills a year later. Enron didn't say so, but such a system would allow PNM to set rates lower than competitors to win business and drive away those competitors, then make up the difference the following year.

For now, New Mexico's Gas Choice program does offer competitors some advantage. The program lowered the PNM service charge from $50 per customer down to $6 per customer.

Currently, Enron is the only outside company in the Gas Choice market in New Mexico. Enron noted Texas-Ohio Energy Inc. has filed required applications to participate in the market.

Theo Mullen

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