TNMPE Acquisition Update

5/29/05 - PRC Grants Regulatory Approval <click link to skip to update>
 
Background on the Issue
In September 2004, PNM filed a request with the PRC for approval to acquire Texas-New Mexico Power Company.   Under the filed acquisition plan, TNMP would remain a separate corporate entity (whose stock would be wholly-owned by PNM), and the two utilities’ New Mexico operations would not merged.  Right now, PNM sells wholesale electricity to TNMP, which then resells it to retail customers in Southern New Mexico, at higher rates than PNM retail customers pay. Continuing this (which is PNM’s plan) not only seems unfair to Southern New Mexico electric customers, but also sets up a situation where New Mexico consumers could find themselves subsidizing PNM’s unregulated wholesale business, or TNMP’s retail Texas business.

In its request for PRC approval, PNM identified $25 million in “synergy” savings that it proposed to allocate to TNMP electric customers (in Texas and New Mexico), and to PNM Electric and Gas Customers, which would be realized in the form of rate reductions.  Most of the savings would go to New Mexico customers, reflecting the greater size of that customer base.
 
Status
On February 28, 2005, the parties to the acquisition case filed a stipulated agreement with the PRC.   The parties to the agreement were PNM, TNMP, PRC Staff, N.M. Industrial Energy Consumers, and the N.M. Attorney General.   This stipulation would require PNM to file a plan for integration of TNMP New Mexico operations with PNM retail electricity operations.  It requires that PNM utilize allocate 100% of the Synergy Savings to New Mexico.   And, it specifies some rate reductions to TNMP New Mexico Customers.

In addition to approval from the New Mexico PRC, the acquisition requires approval from Texas regulators and the Federal Energy Regulatory Commission (FERC).   FERC issued an order approving the deal, with respect to the interstate transmission and wholesale power sale issues over which it has authority, on March 2, 2005.

The Rate Equalization Issue
Current PNM and TNMP retail residential rates in New Mexico are as follows in cents per kilowatt hour (kwh):

            PNM                                                                TNMP
            6.9415 cents per kwh for first 200 kwh            11.44 per kwh for all
            8.0952 cents per kwh for additional usage

Under the stipulation, TNMP Rates would be reduced in three phases as follows:

                                             current rate      11.44 cents per kwh
                                            January 2006    9.589
                                            January 2008    9.489
                                            January 2009    9.389

 As can be seen, even after the proposed reductions, TNMP New Mexico customers’ rates will still be higher than PNM rates.   The parties to the stipulation will soon be submitting testimony in support of the stipulation.   I will be looking closely at the justification for continuing rate disparities.

PRC Grants Approval to the Acquisition Plan

At a Special Open Meeting on Friday, May 27, 2005, I joined Commissioners Lujan, and Baca in voting to approve the certification of stipulation, and thereby granted approval to the Acquisition Plan. (Commissioner King had been participating in the meeting telephonically and had indicated his support for approval, but his connection was lost prior to the vote.)

In response to my written and oral questions regarding the justification for the continuing rate disparities, the parties to the stipulation were able to clearly demonstrate that transmission and distribution costs were higher in the TNMP-NM service area. They also demonstrated that there was some marginal cost impact on generation. They proved that the forecast demand for existing PNM customers plus the TNMP-NM customers cannot be met solely with existing PNM "jurisdictional" generation resources. Serving the approx. 110 megawatts of additional peak load for the TNMP-NM service area will require PNM to incur new costs above their average current costs per kwh for generation; however, the parties to the stipulation never introduced anything into the record to quantify the marginal cost impact.

The parties rejected my suggestion, supported by Comm. Lujan, that TNMP-NM rates be examined in 2007 and reset at a traditional cost-based rate if that turned out to be less than the Stipulated rates shown above. By this rejection, one can presume that PNM believes there is at least a liklihood that the stipulated rates are higher than they'd be allowed under a cost plus reasonable rate of return standard. The Attorney General, a party to the Stipulation, disclosed that a "lesser-of" approach had been proposed in the negotiations, but the parties had been unable to come to an agreement on such a basis.

Although it is my suspicion that the rates locked-in for TNMP-NM service area through 2011 are a little higher than they could be, by maybe 2 or 3 tenths of a cent per kwh, the deal overall is very much in the public interest and on that basis I gave my full support to the favorable vote. TNMP-NM customers will receive a significant rate reduction, beginning next January, with no adverse impacts on existing PNM customers. In fact, existing PNM customers will see modest benefits from the synergy savings, both in their gas and electric rates.

Other information: 
(1)    Press Release from February 2005:    “Jason Marks orders PNM to address questions of rate equalization for Southern N.M. customers of TNMP and regulatory concerns as part of PNM's acquisition case”

(2)     PNM Response to Marks' Bench Request  (360K file, may take some time to download on a dial-up)