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New Mexico Takes 'First Step' Toward Customer Choice

New Mexico Takes 'First Step' Toward Customer Choice

A measure introduced in the New Mexico senate recently was a "good first step" towards opening up the state's electricity industry to competition, says the state's largest utility, although it cited certain concerns.

The Public Service Co. of New Mexico (PNM) supports the legislation in that it's the "first major comprehensive" effort by the Legislature to restructure the state's electricity market, but it also has some "serious reservations" because while the bill would allow for recovery of stranded costs, it fails to give utilities credit for the costs they've already written off, said Larry Smith, a spokesman for the utility that serves 1.3 million electric and natural gas customers.

Specifically, "there is no recognition [in the bill] that PNM shareholders have already absorbed substantial losses in order to provide more than $30 million in rate reductions since 1994," noted PNM President and CEO Benjamin Montoya. Moreover, he expressed concern that the four years allotted under the legislation for utilities to collect between 50% and 100% of their stranded costs might not be enough time.

The bill, which was sponsored by Sen. Michael Sanchez (D-Belen), calls for customer choice to be offered to schools, residential customers 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 proposed yet.

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

If enacted, the Sanchez bill would require all public utilities operating in New Mexico to submit transition plans to the state Public Regulation Commission (PRC) no later than March 1, 2000, for approval by Dec. 1, 2000. Such plans would include proposed tariffs for transmission and distribution services, together with proposed standard offer service tariffs for residential and small business customers that don't select a power supplier. Additionally, utilities would have to submit proposals for separating their regulated and non-regulated business activities.

Significantly, the legislation would give utilities a "reasonable opportunity to recover an appropriate amount" of shareholder investments in facilities that will be stranded in a competitive power market. For PNM, most of its stranded costs will stem from its 10% ownership in the Palo Verde, NM, nuclear generating plants, Smith said.

The bill would permit utilities to collect between 50% and 100% of their stranded costs through a nonbypassable charge on all customer bills for four years after the implementation of customer choice in New Mexico. The PRC could authorize a utility's recovery of all stranded costs only if it finds it: 1) is in the public interest; 2) is needed to maintain the financial integrity of the public utility; 3) is needed to continue adequate and reliable service; and 4) would not cause an increase in residential or small business customer rates during the transition period.

In addition to stranded costs, state utilities would be able to recover in full any costs associated with implementing open access on their systems. The transition costs would be recoverable through 2007.

Susan Parker

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