Motivated by numerous consumer complaints regarding substantial, unexpected increases in bills for natural gas service, the New Mexico Public Utility Commission has fined Public Service Company of New Mexico, finding that the utility knowingly understated gas cost data in prior adjustment clause filings to avoid commission review of an ongoing gas price crisis.
The commission suspended the $2.2-million fine, however, in light of its decision to prevent PSNM from collecting more than $1.5 million in purchased gas revenues associated with the understated gas cost projection. The commission found that the utility had relied much too heavily on spot market purchases in planning for its supply needs.
The PUC also: 1) opened a separate inquiry into the utility's gas procurement practices to see whether customers are due a refund for management imprudence; 2) directed the utility to develop plans to exit the merchant segment of the natural gas business; and 3) directed the utility to make a general rate case filing for both electric and gas services.
It said PSNM was "attempting to hide behind regulation" to escape responsibility for deciding to move 99 percent of its portfolio into the spot market. It also noted Public Service had eliminated an existing "meter fee" imposed on transportation customers to foster competition among gas suppliers in the residential market.
According to PSNM, the increase in its monthly gas cost charge of approximately 123 percent was due, in large part, to "dramatic increases in the index prices" applicable to system supply purchases. (The LDC had recently increased its customer gas cost factor from $0.1822 in December 1996 to $0.4064 in January 1997.)
PSNM argued the commission was aware of its purchasing strategy and that the one-month "spike" in prices was no evidence of imprudence. The utility will offer budget billing options and several other modifications to its billing practices to soften the rate shock of the most recent price hike. PSNM said it would also consider: 1) offering sales customers a choice of fixed- or market-based pricing for gas supplies; 2) additional storage options as a way to reduce gas costs; 3) levelization of current gas-cost adjustment mechanism, including possible use of a three-month, rolling-average gas-cost factor; and 4) withdrawing from the merchant function by providing only transportation service to end users.
The commission said it strongly objected to attempts by the PSNM to "blame the commission" for its current crisis. PSNM attempted to attach the blame, the commission said, by asserting that it had been "ordered" to move its supply portfolio into the spot market to optimize its purchasing strategy and avoid new "take-or-pay" liabilities. The commission found, however, that the utility's current supply portfolio was primarily the result of a gas supply contract renegotiation process that followed the acquisition by PSNM of gas operations from the Southern Union Co.
PSNM had acquired the gas distribution operations while settling an antitrust lawsuit against Southern Union, which once was the primary supplier of gas for the utility's electric generating plants. Since acquiring the gas operations, PSNM had claimed the associated supply contracts contained illegal pricing provisions that should be renegotiated.
For the past several years, PSNM had been "playing Russian roulette with its portfolio strategy," pointing the gun at its customers rather than itself, the commission said. The commission rejected PSNM's argument that its reliance on the spot market had "saved consumers millions of dollars" in the past. It concluded, "Simple common sense and accepted business standards of business conduct" should have led the company to pursue methods such as price hedging to limit the risks to ratepayers. Re PNM Gas Services, a div. of Pub. Serv. Co. of New Mexico, Case No. 2752, Feb. 13, 1997 (N.M.P.S.C.). t
Phillip S. Cross is an associate legal editor of PUBLIC UTILITIES FORTNIGHTLY.
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