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Fortnightly Magazine - January 15 1999

enact electric competition, and in fact was circulating circulated draft legislation in late December.

The PUC took absolutely outrageous positions in the PNM rate case. It outlawed all stranded cost recovery: "Because PNM has a legal duty to charge efficient prices, it is not entitled to avoidance of financial jeopardy as a matter of right." The rate case mechanics were frankly all fouled up. The PUC revalued PNM's generating plants at PUC-adjusted "market prices" (essentially long-run incremental cost), ignoring PNM's claim that no competitive exists. PNM recruited a stream of experts, including Lawrence Kolbe (The Brattle Group),and Paul Keglevic (Arthur Andersen) to testify that the PUC had violated all manner of accounting, legal, and ratemaking principles.

In the REI case, Consultant James Wilson joined Greg Sidak, both from the Law and Economics Consulting Group, Inc., to question the plan for competition. In his affidavit, Wilson saw the REI case as "seriously deficient" compared to retail access proposals in other jurisdictions. Wilson said REI lacked a policy framework or any approved, detailed, utility specific restructuring plans to coordinate with REI's market entry.

They're right, of course. REI tried to beef up its case. Michael Maloney (Clemson U.) testified for REI, as did J. Patrick Keene, rates and tariffs manager from Enron Energy Services, Inc.. Keene showed how to unbundle PNM services and design a distribution services tariff, with help from an Enron "white paper." Yet the legal analysis seemed dead set against REI and firmly on PNM's side.

Nevertheless, I find it difficult to fault the PUC for stirring the pot. No solution ever comes out of the same process that spawned the problem. The PUC may well have gotten its rate base scrambled in the rate case, and it may lack authority to mandate retail competition on its own, without legislation, but I say there's something noble about what it tried to do.

Many paths cross in the small world of New Mexico politics. Some say that the Republican Governor Gary Johnson saw the PUC simply as vehicle to press his own agenda, perhaps at the expense of the state legislature. Consider this exchange between PNM lawyer Patrick Ortiz and commissioner Beatriz Rivera (appointed by Johnson), in a deposition taken in May 1997:

ORTIZ: What we're asking here is don't put your values and belief aside, but let's lay down the weapons ¼

RIVERA: Speaking for myself as a commissioner, I don't see myself in any war with anyone. When our Governor appointed me, he said, 'I'd like for you to make sure that you lower rates and bring in competition.'

ORTIZ: This may be perceived by the legislature as an attempt to usurp their authority. You have never used the term 'usurp' ¼ but there have been public comments in the newspaper about the commission's authority to move forward regardless of what the legislature feels.

What about PUC chairman Wayne Shirley, another Johnson appointee? In the rate case, PNM had tried unsuccessfully to ask Shirley to remove himself, owing to Shirley's work ten years earlier as a lawyer representing the New