Is Too! Is Not!
In the August 1995 Mailbag, Mr. Michael Yokell claims our May 15, 1995, article ("It Ain't in There: The Cost of Capital Does Not Compensate for Stranded-cost Risk") "is...
New Mexico's PUC goes down in flames.
This story has everything: politics, favoritism, a stock price crash, extortion (a long-ago crime by a certifiable nut), a utility rate case (I love'em), Ivy League economists (like moths to a flame), and finally, a last minute stay of execution, perhaps saving the utility from default on its revolving line of credit. Heck, even Enron's involved.
What's missing, however, is a clear understanding of who the good guys are.
The tale plays out in Santa Fe, capital city of the land of enchantment, where the state utility commission has long had a "thing" about Public Service Co. of New Mexico. In between bouts with Albuquerque or Las Cruces over electric franchise rights, PNM over the years has had to deal with regulator complaints of high rates - first on the electric side, stemming from failed diversification efforts, as I recall, and most recently on the gas side, when a strategy of buying short-term contracts in spot markets backfired when the weather went haywire.
Lately, the PUC has zeroed in on electric competition. In the past few months, in a series of cases that made news in financial circles, the commission has really put it to PNM, handing down orders the utility didn't want and seemingly dragging its heals on PNM requests. First, in August, the PUC imposed a pilot program for retail competition in Albuquerque, blind to PNM claims that the pilot was illegal without state legislation. Second, on Nov. 30, the PUC ordered a massive rate cut in a rate case that seemed to break all the rules. Third, on the same day, the PUC awarded a certificate of public convenience as a competing electric utility to Residential Electric Inc., an upstart electricity vendor, and granted REI's request to force PNM to open up its lines to REI for retail cream-skimming.
During all of this PNM had twice sought (unsuccessfully) to block the PUC moves in court. It finally succeeded however, when, on Dec. 15 and 16, it won stay orders from the state supreme court enjoining all three PUC orders - the pilot, the killer rate case, and REI's certificate.
And not a moment too soon. The rate case had sent PNM's stock reeling, falling from 191/2 at November's close to 171/2 on Tuesday, Dec. 1. The first round of PUC-ordered rate cuts was set to go on Dec. 28. PNM claimed the losses would upset its debt-equity ratio so badly as to end its credit line and force old debt to come due. But more than that, the PUC was racing its own internal clock. As of Jan. 1, the old three-seat Public Utility Commission would fade into the sunset, replaced by a new five-person Public Regulation Commission, formed of the merger of the PUC and the state Corporation Commission, which regulated telecommunications. The PUC aimed to settle as many accounts as it could before the clock could strike its demise. All the more to preempt any action by the state legislature, which was set to go to work on legislation to