Carmela Starace
Last week, the Public Regulation Commission approved a 9 percent rate hike for the Public Service Company of New Mexico (PNM). I’ve spent the last nine months opposing PNM’s request, so many are surprised to find out that I see the 9 percent result as a victory for New Mexicans. But having been there, through every twist and turn of this process, I appreciate that the commissioners did the work to achieve the fairest result possible under the law.
It’s hard to understand what really happened in the PNM rate case without knowing the applicable law.
And the legal fundamentals come down to this. Both Supreme Court case law and New Mexico statute dictate that a regulated monopoly such as PNM has a right to have all of its costs covered by rates in addition to a fair return on investment for its shareholders. This means that, under the law, PNM is entitled to, and commissioners are mandated to provide it with, rates high enough to ensure a “cost plus profit” system.
Under this legal framework, all PNM has to do to qualify for the rate increase is prove by means of testimony and pertinent records that the requested increase is necessary to cover its cost of service and 10 percent shareholder return.
In theory, this law protects both residents as well as the utility. For example, PNM’s original request for $165 million increase was abandoned because PNM failed to justify the need for a revenue increase of that magnitude. This is why PNM reduced its request to “just” (as it was described in most news reports) $85 million – with an additional one time $20 million “additions rider” to pay for maintenance on PNM’s San Juan coal plant.
By the time the matter finally came to a vote last month, the commission had already determined through the hearing process that PNM was in fact operating in the red and needed an increase to meet its cost of service. The only question left was how much to raise rates. The choices on the table were to give PNM the $85 million plus the $20 million rider – or to give PNM the $85 million without the additional $20 million. During the hearing, PNM and the PRC general counsel struggled to justify the extra $20 million cost to consumers.
Something extraordinary
It was at this point that something quite extraordinary happened.
The commissioners, citing a flood of phone calls and e-mails from concerned New Mexicans, rejected both plans. Instead, the commissioners reduced PNM’s request by an additional $13 million a year, saving New Mexicans about $58 million over the next three years. The final verdict was a total rate increase of $72 million without the extra $20 million additions rider.
All of which brings us back to my original point. While it is hard to consider a 9 percent increase in electric bills a victory, the reality is the three commissioners who voted for this plan did the best they could under the current law.
Do I wish the commissioners had just voted NO to any increase on principal and sent PNM away to run a better, leaner company? Indeed, one commissioner, Ben Hall, did just that and his inclination to do so was understandable. Anyone who has seen PNM in action and knows of its track record of outrageous spending surely gets it.
However, after participating in the case, I am more inclined to agree with the action taken by Commissioners Marks, Aguilar and Block. They made a tough choice to grant an increase – even a greatly scaled back one – because to have flatly denied any increase would have been futile. PNM would have appealed to the Supreme Court and very likely would have won.
I wish to extend a heartfelt thanks to the three commissioners who opted not to waste taxpayer and ratepayer money or pander for votes. The most effective elected officials are the ones who strive to achieve the fairest result under the law. And once PNM proved that its expenses outweighed its revenues, the law was on its side.
Time for reform
All of this underscores an important takeaway lesson. This PNM rate case provided ample evidence that the law is due for revision and reform. Companies should not have a statutory right to a guaranteed profit. Rather, profits should be earned by responsible corporate actions.
That said, at the end of the day, the law is the law and elected officials are sworn to uphold it. And while I appreciate Commissioner Hall’s vote against any increase based on principal, I appreciate much more the tough but responsible choice Commissioners Marks, Aguilar and Block made to give PNM the best deal possible for consumers.
Starace is lead council for Prosperity Works, which worked on the PNM rate case before the PRC.