Public Service Company of New Mexico's (PNM) transition plan filed Wednesday with the New Mexico Public Regulation Commission includes $782 million in stranded costs and a proposal to split distribution and electric generation into two separate subsidiaries.
Earlier, the PRC set Oct. 1, 2001, as the final date for approving the transition plans filed by PNM and other New Mexico utilities. Customer choice for schools and residential and small business customers is scheduled to open Jan 1, 2002, with all other customers having access to competing power suppliers July 1, 2002. The plan includes the company's proposals for:
� Assuring orderly implementation of customer choice and open access to the PNM transmission and distribution system by competing power suppliers beginning in January 2002.
�Recovering stranded costs, nuclear decommissioning costs, and other expenses associated with transition to a competitive market.
� Establishing a "safety net," referred to as the Standard Offer Service, for customers who do not choose to shop for a competitive supplier. Power supplies will be purchased on behalf of these residential and small business customers through a competitive bidding process.
� Setting rates for retail distribution services, which will continue to be regulated by the PRC.
� Providing for continued reliability of the PNM distribution and transmission system.
Stranded, transition costs
PNM says its stranded costs�the difference between what the company's generation assets would return under continued regulation compared to what they are expected to earn in a competitive market�total $691.6 million, excluding $44.4 million in nuclear decommissioning costs and $46million in other costs. New Mexico's restructuring legislation allows utilities the opportunity to recover a minimum of 50%and up to 100% of stranded costs.
PNM said it is seeking full recovery but faces potential limitations. Under the law, no more than 50% of stranded costs can be recovered if residential and small commercial customers' rates rise. PNM said the impact can't be determined until the cost of procuring power for those residential and small business customers that do not select a supplier is known. PNM Pres. Jeff Sterba also noted the law limits stranded cost recovery to a 5-year period.
Costs associated with decommissioning PNM's portion of the Palo Verde nuclear plant total $44.4 million, the company said. PNM proposes to recover these costs through a separate wires charge over the life of the plant.
Transition costs associated with modifying the utility's billing and customer information systems to accommodate competing suppliers and other costs associated with preparing for competition are estimated to total another $46.0 million. Under the terms of the New Mexico restructuring law, transition costs are fully recoverable, the company said.
PNM plans to establish its regulated electric and gas utility as a separate subsidiary under a holding company structure, with distribution rates set by the PRC. The distribution utility will have a substantially smaller equity base than a proposed generation and marketing company, with a capitalization composed of 60% debt and 40% equity. Due to competitive risk, PNM is seeking an allowed rate of return on equity of 14.01% resulting in an annual revenue $145.4 million.
PNM power plants, together with the company's power marketing and energy services businesses, will be placed in a separate subsidiary under the holding company. In a written statement, Sterba called the proposed transition plan fair and equitable to customers, investors, and the public.
"Sustaining a safe, reliable transmission and distribution delivery system is dependent on PNM's ability to attract capital. Protecting our shareholders' investment and allowing us the opportunity to earn a fair return on that investment will help ensure the continued flow of capital to meet New Mexico's future needs," he said.
PNM operates a combined electric and gas utility serving approximately 1.3 million people in New Mexico and sells power on the wholesale market.
