Wakeup Call For Electric Consumers In Eastern New Mexico
by Lance Adkins
Legislators, regulators, utility managers, business owners, and homeowners in New Mexico are responding with concern to recent news reports of summer electric bills having more than doubled in the San Diego, California area.
Why the concern? San Diego is the first electric market to be completely open to deregulation or restructuring in the way electricity is purchased, and the time clock for New Mexico’s electric restructuring is already running. Proponents of restructuring across the nation have long touted the benefits of restructuring: greater reliability, more services, and lower costs. However, it is now evident that these claims are not borne out uniformly in all areas of the nation.
Those who are capitalist purists would tell you that the San Diego experience is exactly what can happen in a deregulated market. Supply and demand dictate the price of products, and in San Diego, the supply of electricity is low and demand is very high. The drivers behind San Diego consumers’ electric price spike are more complex than just deregulation or restructuring.
Historically, California regulators have been reluctant to allow utilities to build additional generation capacity due to concerns about the impact of power plant emissions on the environment. California utilities have compensated for their generation shortfall by implementing conservation programs and purchasing additional electric energy from surrounding states. Electrical consumption in surrounding states has continued to increase and now there is less additional generating capacity available for sales to California consumers. Someone should have seen this coming!
In light of the substantially higher electric rates in parts of California, and serious doubts cast by California legislators and regulators as they respond to angry consumers, many in New Mexico are wondering if anything can be done to prevent similar problems in New Mexico.
To date, the Investor-Owned Utilities (IOU’s) in New Mexico have filed plans on how their utilities will transition into restructuring. Utility Division Staff with the New Mexico Public Regulation Commission (NMPRC), the Attorney General of the State of New Mexico and others have formally requested that the commission delay approval of the transition plans until after legislators have a opportunity to address consumer’s concerns during the 2001 legislative session.
Portions of the IOU transition plan deals with how the companies will physically separate into regulated and unregulated business units. Under restructuring, the transmission and distribution of electricity will remain regulated by the NMPRC, and the generation of electricity will become deregulated and subject to competition.
Restrictions on how much a generator can charge for electricity will be the laws of supply and demand only. If the NMPRC takes action to approve IOU transition plans now, it would be very difficult for regulators or legislators to halt or alter the process. As some have said, “the Genie will be out of the bottle.”
We on the eastern side of New Mexico have for years enjoyed electric power from one of the regions lowest-cost electric energy providers, Southwestern Public Service Company (SPS). As proponents of restructuring proclaimed changes in the industry would bring competition and lower rates in our state, most in eastern New Mexico didn’t get excited. A few, mainly those of us who purchase wholesale power from SPS for electric cooperative members, were concerned that eastern New Mexico could suffer from increased rates under restructuring. Still, proponents said we were old-fashioned and set in our ways. They said we were afraid of competition.
Now, as SPS has announced the sale of over 70% of their most efficient generation assets, consumers in eastern New Mexico must prepare for substantial increases in their electric rates. Today, consumers in eastern New Mexico enjoy relatively low rates. This is due to the fact that as many of the nation's utilities embraced nuclear power in the late 70’s and early 80’s, SPS built efficient coal-fueled power plants. Rates for power out of these plants were regulated and based on the actual cost of operation and depreciation of the power plant assets, with a modest rate-of-return for investors set and monitored by the NMPRC.
Under restructuring, SPS will be able to sell the plants to the highest bidder, pocket the cash (estimated at $1 billion plus), and charge consumers market-based rates for power purchased out of those plants or other generators in the region.
Unfortunately for consumers in eastern New Mexico, constraints on the transmission system make it difficult for power from other suppliers to be imported into this area. In our region, we will continue to purchase power from the new owners of the old SPS generation assets. Instead of regulated rates, the cost will be the maximum the market will bear.
Of course I could be wrong; but if I’m correct, eastern New Mexico will lose one of our greatest assets in promoting economic development in our area: low cost electric power.
Lance Adkins is the General Manager of Farmers' Electric Cooperative in Clovis, New Mexico, providing electrical service to approximately 10,500 meters in New Mexico.
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