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Tuesday, September 23, 2008

PNM Wants 18% Hike

By Winthrop Quigley
Copyright © 2008 Albuquerque Journal
Journal Staff Writer
          PNM on Monday asked state regulators to approve a $123.3 million increase in electric rates, an 18 percent jump that would come on top of an increase that took effect in June.
        If the Public Regulation Commission approves the new increase, a typical residential customer's bill would rise an average of $12.84 a month — or 23.5 percent — with customers paying higher rates in the summer than in winter.
        A high-usage residential customer would see a $22.41-per-month increase.
        PNM executives told the Journal they hope the commission will approve the request by next summer.
        "We've done everything we can to hold down the magnitude of the increase," said PNM Resources Chairman Jeff Sterba, who also pointed out the new rates will still be below regional and national levels.
        PNM Resources is a holding company that owns the PNM electric utility and other energy properties in New Mexico and Texas.
        PNM was granted a 6.4 percent rate increase for electricity last spring, then received permission to impose a temporary fuel adjustment charge on top of that. The Public Regulation Commission estimated the total increase at 15.4 percent.
        The new rate request would be added to this year's rate hike and fuel charge.
        Sterba said PNM returned with another rate increase request so soon because the June increase reflects costs that already are 2 1/2 years old. The new rate request uses costs as they are expected to be in 2009.
        The utility's president, Pat Vincent-Collawn, said a host of cost increases, from higher interest payments on the company's debt to the cost of acquiring new generating capacity, means PNM will have expenses of $807.4 million in 2009 and revenue of $684.1 million without the rate increase.
        PNM also asked regulators to allow the utility to raise rates faster for residential customers than for commercial and industrial customers. Vincent-Collawn said larger customers pay more for power than their cost of service justifies, which subsidizes residential customers.
        PNM proposes raising residential rates an average of 23.4 percent and the largest industrial and commercial users' rates 9.9 percent.
        PNM said it also hopes to gain PRC approval of a fuel adjustment clause that would allow the company to pass along changes in fuel expenses to customers automatically. However, the requested rate increase already includes a 10 percent increase in fuel costs, so the automatic pass through wouldn't kick in unless costs for fuel exceeded that.
        PNM says it does not earn profit on fuel cost increases.
        Regulators approved an emergency fuel adjustment clause in May that will expire after two years or at the end of PNM's next rate case, which ever occurs first.
        Vincent-Collawn said more electricity-using gadgets in homes and a growing manufacturing sector in PNM's service area have increased demand for energy. She said the average residential customer uses 618 kilowatt hours a month, compared to 508 kilowatt hours in 1990. The result is PNM will need 422 megawatts of generation more in 2013 to meet demand, she said. According to the company, PNM load growth is 50 percent faster than the nation as a whole.
        About $43.9 million of the requested increase would go to acquisition of new generation capacity, including three existing natural gas-fired power plants and a share of the Palo Verde nuclear power plant that PNM currently leases.
        PNM's request would increase the value of its rate base from $1.2 billion to $1.6 billion. The rate base consists of assets such as power plants, transmission lines and other infrastructure the PRC decides is used for the benefit of customers.
        The company is allowed to earn a return on equity against the value of its rate base as approved by the PRC. PNM is also asking the PRC to increase its allowed return on equity from 10.1 percent to 11.75 percent.
        Vincent-Collawn said the increase in the rate base value accounts for $10.5 million of the requested rate increase.
        Some of the other increases PNM hopes to cover with the higher rates include:
        • A $19.5 million hike in PNM's cost of capital. Among other things, the utility is paying more interest on its debt thanks to credit ratings downgrades.
        • $12.3 million in higher fuel costs.
        • $17.1 million more in depreciation expense.
        • $19.5 million for improved environmental controls at its San Juan coal-fired power plant near Farmington. PNM said it has significantly decreased nitrogen oxide, sulfur dioxide and mercury emissions since better environmental technology was installed.