URL: http://www.abqjournal.com/opinion/guest_columns/298907opinion04-07-08.htm

Monday, April 7, 2008
PNM, and N.M., Can't Afford Fuel-Adjustment Delay
By Jeff Sterba
PNM Resources Chairman, President and CEO
    Recent Journal coverage of a joint motion to delay deliberation of Public Service Company of New Mexico's emergency fuel adjustment proposal includes a number of inflammatory allegations by two intervening parties in the case. We need to set the record straight.
    Among other things, the parties suggest that whatever emergency exists is somehow self-inflicted. This is an insult to our employees who have done an amazing job delivering among the most reliable electric service in the nation for rates that are nearly 30 percent below the national average. They have done all this while coping with skyrocketing costs for fuel, cement, copper and steel— the very building blocks of our business.
    PNM will respond in detail to these allegations as the Public Regulation Commission considers our proposal, which is supported by Attorney General Gary King and our largest employee union, the International Brotherhood of Electrical Workers Local 611. But we object to the idea of delaying this process and any arguments made to justify a delay.
    Of chief concern to us is the idea that PNM faces a "forecasted" crisis rather than a real emergency. We are not forecasting our utility's deteriorating financial condition, nor its inability to access long-term financing. We are experiencing it today.
    The facts are quite clear:
   

There is a national credit market crisis of proportions not seen in decades, evidenced by the recent collapse and buyout of Bear Stearns.
   

Our current rates, which have not risen for 20 years, are inadequate to maintain positive cash flows during a time of rapidly rising costs.
   

Our attempt to raise rates to recover our 2006 costs recently was met by a recommended decision that would cut our proposed increase by two-thirds and deny us the ability to recover fluctuating fuel costs, a mechanism provided to all other utilities in the state and most utilities in the country.
   

After the recommended decision was announced, Fitch Ratings downgraded PNM's long-term debt to the lowest investment-grade credit rating. Standard and Poor's changed PNM's outlook from stable to negative after downgrading PNM in December to a similar level. And Moody's Investors Services said it would continue to review PNM for possible downgrades.
   

The day after the recommended decision, our stock price— already suffering due to poor 2007 earnings and diminished expectations for 2008— fell another 18 percent. Analysts at Wachovia called the recommended decision "a kick in the gut" and said it would place the utility "among the walking undead."
    Contrary to what the two parties imply in the motion, our investments in regulated and unregulated businesses in Texas are not responsible for our New Mexico utility's financial woes. Those businesses stand on their own, as PNM should. New Mexico customers have never subsidized those investment activities in any way.
    In fact, in order to preserve its own financial health, the PNM utility has not paid a dividend to parent company PNM Resources since December 2005. Instead, all earnings have been reinvested to provide quality service, a situation that cannot be sustained for the long term.
    We believe the two parties in this motion seek to delay an important proceeding for the short-term gain of keeping rates at their current level. Their position is in stark contrast to the attorney general, who says the proposed fuel clause protects "the public interest and the interests of ratepayers." The PRC itself recognized the urgency of our situation and just agreed to consider our proposal on an expedited basis.
    The two parties' failure to see the bigger picture is troubling. As PNM's credit rating declines, and possibly reaches junk status, its access to credit will shrink and its cost of borrowing will increase, particularly in the current credit market.
    At a time when PNM needs to borrow a substantial amount of money to build the infrastructure required to power New Mexico's growing economy, the consequences of such short-sightedness could be significant. Ultimately, higher borrowing costs will show up on customers' bills.
    Much of the root of how we got to where we are today lies in an agreement we signed with various stakeholders in 2002. At that time, we agreed to a five-year rate path that included two rate reductions and no fuel-cost recovery. It was a good deal for customers, and we thought we could make it work.
    But given an unexpectedly rapid move by customers to refrigerated air, a robust state economy consuming a great amount of energy, and the rising cost of doing business, these rates fell far short of covering our costs in 2007. In hindsight, this rate path should have been for just four years, not five. But we agreed to it, and we accept responsibility for our 2007 financial results. However, rates must now be adjusted going forward.
    Let's not put short-term gain ahead of the long-term energy needs of our state. We welcome debate on our proposal for an emergency fuel clause, but we cannot afford more delay.