Ken Glozer, President, OMB Professionals Inc.: “The Geopolitics of the Grid” was well done. I enjoyed reading it. Regarding the paragraph raising questions about why there are major...
The CEO Forum: The Ultimate CEOs: Jeff Sterba
Chairman, President, and CEO, PNM Resources
Fortnightly: What are your views on retail competition as a viable concept and your view of Texas as a viable market for growth?
Sterba: In the face of all of the things that have happened with natural gas, I view retail competition as still being a viable path under the appropriate market structure and the right regulatory discipline. By that, I mean the discipline not to mess with the market. Texas is probably the best model that I know of [that] has a long-term chance of success. Not without pain. Obviously, rates have moved up sharply in Texas, but through those price signals we start to see consumers changing behavior. It is one of the few markets where you have many competitors. There are 55 or so competitors in the marketplace.
As the price-to-beat come off at the end of 2006, the marketplace will demonstrate those customers who have previously not chosen to go to the competitive market are still going to get a fair shake and find a reasonable deal. But also, the market is seeing immediately the affects that natural-gas price movements are having.
Fortnightly: What is your view of recent state movements to extend rate caps or even reverse deregulation where it previously existed? Do you think retail competition is possible in a high-priced commodity environment?
Sterba: I do believe it is possible in a high-priced commodity environment. And I think that’s where commissions and legislators really have to resist the urge to control an outcome. If I think about what we see happening in Maryland, frankly, what was done in the past has created a problem that must be dealt with in the future. And having some form of phase-in to get to full market, given what has happened to market prices, is probably appropriate, as opposed to just dunking people into the market all at once, given the delays that have been brought about by regulatory and legislative action.
I look to California as one of the poorest examples of a market structure, where, in order to make everyone feel as though this was the greatest thing since sliced bread, they forced the 10 percent rate reduction and froze rates. Which does what? It completely masked what’s happening in the marketplace. In order for a market to work, demand has got to be able to respond to price. You don’t have a market. So, these well-intentioned mechanisms that tried to regulate or legislate an outcome [are] by definition inappropriate and wrong headed. Those states that might be about to go back to regulation—well, OK, go back to a form of regulation that’s sensible, that will help ensure capital can be raised, [where] prudency will be evaluated, but [where] if something is approved by a regulator, its costs will be recovered so you hold down the cost of capital. And don’t get into the trap of thinking, “Let’s go to market forces when prices are low, and when prices move up,