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More PNM Rate Hikes Coming Soon?

As Reported By The Albuquerque Journal:

May 21 — PNM Resources CEO Patricia Vincent-Collawn warned business and civic leaders Thursday that the electric rate increase the company will request June 1 will be big, and acknowledged this is a bad time to ask regulators for more money. She declined to say how great a rate hike the company will seek — which would come on top of increases totaling about 24 percent since 2007. But she told about 60 Economic Forum members that the company’s difficulty raising affordable capital it needs to keep its infrastructure reliable makes another rate increase necessary.

PNM Resources is a holding company that owns PNM, a regulated New Mexico electric utility. Vincent-Collawn said PNM has the worst credit rating of any utility rated by Standard & Poors. “That’s based on cash flow and the regulatory environment,” she said. “Greece has the same credit rating as PNM.”

In addition, she said, PNM has the fourth worst return on equity of the nation’s 82 investor-owned electric utilities. Critics were having none of it. “Two years ago, in the summer of 2008, they (PNM) were complaining that they were just about to go out of business,” Peter J. Gould, general counsel for the New Mexico Industrial Energy Consumers, said in a telephone interview.

“Here we are in the spring of 2010, and they are up at the Public Regulation Commission proposing a plan to spend $270 million on solar resources they don’t need to serve their load. There is an incredible disconnect between their words and their reality.” The company should tighten its belt like every other business has had to do, said Gould, who said it’s hard to believe PNM is having trouble finding capital. PNM is currently in hearings at the PRC to gain approval of a state-required plan to generate more electricity using wind, solar and other nontraditional fuels.

Gould’s group opposes the plan on grounds that it will cost consumers too much money and will produce electricity consumers can’t use. Vincent-Collawn told the Economic Forum that, whatever plan the PRC approves, it must include a way to compensate shareholders. $1 billion needed Vincent-Collawn said PNM will have to invest about $1 billion over the next five years to maintain and upgrade power plants and other existing infrastructure. “If you look at our credit metrics, and we get no rate relief, we will find ourselves at the next level of junk,” Vincent-Collawn said.

The company has said in the past that high borrowing costs lead to higher electric rates. Since 2008, the year on which state reg u lators based PNM’s electric rates when they last approved an increase, the company has had to invest $450 million but could recover none of it from customers because that investment was not built into the price of electricity PNM has been allowed to charge since then, she said.

In addition to PNM, PNM Resources owns Texas-based TNMP and First Choice Power. It also owns 50 percent of Optim Energy in Texas. It reported net earnings of $124.3 million for 2009 on all of its operations, up from a $270.6 million loss the previous year. PNM also operated a natural gas utility before selling it last year.

PNM previously told the Journal that, including the second of a two-part $51 million rate increase that went into effect April 1, a rate hike in 2008 and a mechanism that allows the utility to pass its fuel costs on to customers, customers have seen price increases of about 24 percent since 2007. The company says its rates are still among the lowest in the region. Vincent-Collawn said regulators have a tough job that she does not envy, adding, “We don’t have a constructive regulatory environment.”

The Legislature stepped in to improve regulation after PNM’s credit was downgraded to below investment grade in 2008. A new law requires the Public Regulation Commission to base rates on costs and capital needs as they are expected to be in future years instead of pegging them to past years as has been done until now. “That will get our costs aligned with our prices more like a normal business,” Vincent-Collawn said. PNM has reduced expenses by about $30 million, mostly by eliminating jobs, she said.

By law, rates cannot include executive bonuses, awards of stock, advertising for anything other than safety awareness or charitable donations and sponsorships, she said. PNM Resources Chairman Jeff Sterba, who retired as CEO March 1, received a $1.48 million bonus for achieving performance goals last year. Vincent-Collawn received a $565,422 payment. PNM Resources supports a national cap-and-trade program to reduce greenhouse gas emissions, but it opposes recently announced draft rules to establish a state and regional cap-and-trade market. Such a system would raise prices in the region and would do nothing to solve the problem of climate change, Vincent-Collawn said.

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