PNM Resources, which supplies natural gas to 481,000 customers in New Mexico, on Tuesday asked state regulators to approve a rate hike to help pay for infrastructure expansion and to compensate for rising costs for fuel and steel.

If approved by the New Mexico Regulation Commission, the average PNM residential gas bill would increase about 4.7%, while most business bills would increase 2.7%. The structure of the proposed rates also includes a line item that provides a true-up mechanism to recover operational costs when system-wide gas consumption is lower or higher than what is designed in the rates. The proposed rate increase would take effect in April 2007.

The new rate structure, said PNM, would better capture costs to maintain and expand the gas transmission and distribution system, even during times of reduced consumption. The proposed new rates would increase annual revenues by $20.7 million and impact only delivery fees, which are separate from the cost of gas, which makes up nearly 70% of winter bills.

“The cost of one our basic building blocks — steel pipe — has increased 110% in just three years while the cost of fueling our vehicles has increased more than 80%,” said CEO Jeff Sterba, in explaining why the rate hike was necessary.

Since it last requested a gas delivery rate increase in 2003, PNM said it has added 31,300 new gas customers and invested more than $110 million in infrastructure. Sterba said new pipeline safety requirements, the company’s commitment to maintaining its record of safety and reliability, and New Mexico’s economic growth all require continued investment in new pipe, replacement pipe and monitoring and control technology.

The proposed rates include a return on equity of 11%, based on a rate base of $400.8 million and a revenue requirement of $160.9 million. PNM’s last gas rate case was filed in 2003 and ultimately approved by regulators in 2004, increasing rates and charges by $22 million. The 2003 case had an imputed return on equity of 10.25%.

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