The company requested an increase last August of $123.5 million in the annual revenue it generates through base rates paid by roughly 500,000 customers in New Mexico. If approved by the New Mexico Public Regulation Commission, that would raise the utility’s rate-generated income to about $981.5 million per year. That revenue pays for all of the company’s operating costs and investments in the electric system, plus up to a 10 percent return on equity, or profits, for shareholders.
However, in written testimony to the PRC last week, the Attorney General’s Office said PNM’s new revenue requirements should be lowered to just $27 million. And the PRC’s Utility Division Staff said it should be $69 million.
As a result, many parties intervening in the case expect clashes at the upcoming public hearing, scheduled for March 14-25.
About three-fourths of the rate hike is to cover $655 million in capital investments that PNM will have made in the electric system from 2011, when it last received a rate increase, to the end of 2016.
“The rate increase is mostly about investments made to improve the system to serve our customers and assure reliability, which is critically important,” said PNM spokesman Pahl Shipley. “We’ve invested in a lot of infrastructure, such as new solar facilities and a natural gas generating plant.”
But many groups say PNM wants to charge customers for unjustified expenses, such as certain pollution controls at the coal-fired San Juan Generating Station near Farmington that are not required under state or federal regulations, plus ownership acquisition of some generation at the Palo Verde Nuclear Generating Station in Arizona that PNM currently leases.
By eliminating those and other expenses, the Attorney General and other parties intervening in the case say PNM’s new revenue requirements could be substantially reduced.
“We’re talking about a spread of tens of millions between what PNM wants and what other groups think is justified,” said Steve Michel, chief counsel for the environmental group Western Resource Advocates. “It’s a lot of money to be arguing about, so I expect this will be a pretty contentious case.”
If the PRC approves PNM’s request, the rate increase would have a varying impact on consumers, with some large industrial customers facing a rate hike of about 3.4 percent and some residential users potentially paying up to 15.6 percent more on their bills.
PNM, however, says the net impact will be much less — about 7.9 percent for the average residential consumer — because projected declines in the cost of fuel that PNM purchases to generate electricity will substantially offset the increase in base rates.
Fuel costs are simply passed through to consumers based on the amount PNM pays for things like natural gas or coal to run power plants, whereas rates are set by the PRC to cover PNM’s costs.