State of Deregulation: N.M., Nev. looking to return their deregulation packages

Kathleen Davis, Associate Editor

While California remains on the front burner of the deregulation hot plate, a number of states have been quietly reconsidering their restructuring plans behind the scenes. With New Mexico and Nevada having effectively halted deregulation, this powerful industry train could be facing a few unscheduled whistle stops.

Powering the land of enchantment

Even before New Mexico passed SB 266, bumping back electric restructuring in the state for another six years, the Land of Enchantment had traveled a deregulation path fraught with delays.

New Mexico began its foray into deregulation in January of 1998 with a report on restructuring presented to the legislature which called for legislative adoption of deregulation standards by the autumn of 1999 and full retail competition by January of 2001. In February, the New Mexico Public Regulation Commission (PRC) submitted a proposal to give the Public Utilities Commission (PUC) authority to resolve deregulation issues. At that time, the PUC was hard selling retail competition; however, in May, the discussion was tabled until the next session.

A draft bill to restructure was developed by the interim committee in January of 1999 with plans to submit it to the legislature in the 60-day 1999 session, and in April the “Electric Restructuring Act of 1999,” SB 428, was enacted. It slated the opening of the power market to consumer choice beginning in 2001 when residential and small consumers would gain retail access. All other consumers would have retail access by January 2002, according to the 1999 bill. SB 428 split the responsibility for stranded costs between consumers and stockholders, allowing utilities to recover at least 50 percent of stranded costs through charges to consumers over a five-year period.

In March 1999, however, deregulation in the Land of Enchantment had already hit its first snafu (although the official act had yet to be stamped “approved”): the State Supreme Court ruled that the PUC had exceeded its authority when it ordered Public Service of New Mexico (PNM) to open its power lines to a competitor.

In April of 2000, New Mexico’s investor-owned utilities (IOUs) themselves asked the PRC to delay the start of competition for a year. They claimed to be unprepared to implement new billing and computer systems. In response, the PRC knocked retail access for schools, small businesses and residential consumers to January of 2002, providing the time requested by the IOUs.

In August, even before the delayed date could come into play, New Mexico’s attorney general, the New Mexico Industrial Energy Consumers, and the New Mexico Rural Electric Cooperative Association bulked at the fallout from California’s crisis and asked the PRC to postpone a pending decision to authorize the state’s IOUs to begin unbundling. (The groups cited time to review the possibility that price spikes and supply problems evident in the Golden State could pop up in the Land of Enchantment as well; they decided the delay would allow them to “revisit” restructuring issues before the state legislature convened again in January 2001.)

And in December, the PRC released their annual report, which hinted at the need for a delay of “at least two years” for New Mexico’s electric restructuring. However, this first “draft” of the report was recalled and a new version issued without recommendations. The office of the attorney general confirmed receipt of the first document and it’s subsequent withdrawal, but a spokesman from the office told the Albuquerque Journal that the document was not, in any way, labeled a “draft.”

“The first draft was published before the commissioners had a chance to consider the recommendation,” stated John Hiatt, PRC chief of staff in a Christmas Day Journal article. “It was not a recommendation,” he added.

Whether or not the PRC report contained an official recommendation for delay, in May of 2001, SB 266 was enacted, which delays the opening of the retail electricity market to competition. Customer choice for residential customers, which had already been bumped back to 2002, was further delayed until January 2007. Nonresidential customers will be waiting until July 2008. Other measures of the law will delay Public Service of New Mexico’s unbundling of its distribution from its generation and marketing businesses and will allow the utility to proceed with plans to build new generation and form a holding company, according to the Energy Information Administration. (Some reports stated that PNM pushed for the ability to build new power plants during the delay, claiming that they would otherwise face possible financial instability.)

Sen. Michael Sanchez (Dem.-Belen), who was the author of the original restructuring act for the state in 1999, sponsored SB 266. PRC commission chairman Tony Schaefer stated that this new legislation gives the commission an opportunity to evaluate national, regional and state markets to determine whether deregulation is appropriate for the state.

“California showed us what can go wrong if we don’t have a good understanding of these markets and how they are evolving around the country,” Schaefer said.

The PRC pointed out that the bill contains other provisions as well as the delay:

  • Utilities that have not already formed holding companies may do so by July 1.
  • Utilities are authorized to build unregulated power plants as long as the plants are not intended to serve New Mexico customers and providing that the cost of those plants is not charged to New Mexico’s electric consumers.
  • The PRC will continue to “study” the market and report again to the state legislature by December 15, 2002.

The new bill allowed “continued progress toward assuring New Mexico’s energy future,” stated Jeff Sterba, chairman, president and CEO of PNM.

PNM plans to double its electric generation resources over the next five years, and the company believes that SB 266 will permit PNM to invest as much as $800 million to add 1500 MW of owned or contracted generation by reducing regulatory barriers.

“With our planned increase in generation supply, New Mexico will be in a better position when competition begins here,” Sterba said.

Nevada is “battle born”

Nevada’s state slogan reflects more than its “birth” during the Civil War. With a fate similar to New Mexico’s, Nevada’s deregulation process is yet another casualty in the California skirmish.

Nevada enacted their restructuring legislation, AB 366, in the fall of 1997. The act directed the Public Utilities Commission (PUC) to establish a competitive electric market no later than New Year’s Eve 1999. In August, the PUC opened the door to restructuring investigations, and, by November, the PUC had already issued an order for Nevada Power and Sierra Pacific Power Company to submit filings on unbundled costs for the utilities. Hearings were set to begin on the subject in December. In March, the PUC had drafted a report on the subject.

By late summer 1998, the PUC issued another order, this one defining which utility-related services-aside for selling electricity, of course-could be open to competition. (They expected that metering, billing and customer service would all be opened as well.)

The initial din of a forthcoming deregulation battle sounded in February of 1999. The PUC decided to delay the electric restructuring set to begin at the end of 1999 (according to AB 366). The legislation and the PUC cited a list of “unresolved issues” as the reasons for this action. In April a senate committee approved a bill to allow consumers retail access by March 2000, with rates frozen until 2003.

SB 438, an amendment of AB 366, followed the senate’s actions by two months. Besides supporting the retail date of March 2000, it also gave the governor-rather than the PUC-the authority to change the date for deregulation if he deemed it “in the best interest of consumers.”

In 2000, the March start date was scrapped by the governor, who cited still more “issues” to be resolved: the funding of the Mountain West Independent Scheduling Administrator and decisions that the PUC needed to make on unbundling, stranded cost recovery and rate freezes.

In April 2000, Sierra Pacific Resources (the parent company of Nevada Power and Sierra Power) dealt deregulation another blow by filing suit in federal court claiming that the 1999 Nevada restructuring law was “unconstitutional.” It was predicted that the suit could once again delay the opening of the Nevada retail electricity market to competition. The disagreement stemmed from the PUC’s denial of a Nevada Power-suggested rate increase prior to the rate freeze mandated by deregulation. (Sierra Pacific dropped the suit in March 2001.)

Initial rumblings about a return to regulation began in July, with some legislators letting it be known that they intended to introduce such legislation in 2001, in response to California’s problems with deregulation. By August, however, the PUC had set a schedule for opening the market: the largest commercial customers coming into play by November 1, with medium commercial customers slated for April 2001 and small commercial customers seeing an open market in June. Residential customers would be phased in from September through the end of 2001, according to this timeline.

In October, however, Nevada Governor Kenny Guinn extended the deadline for retail competition for the second time in 2000, shifting it from November 1, 2000 to September 1, 2001 for all customer classes. By January of 2001, the governor’s energy panel recommended that only large customers be allowed retail choice until supply and wholesale prices stabilized in the western markets. (Residential retail access was put on hold indefinitely.)

Governor Guinn confronted deregulation again in March of 2001, issuing the “Nevada Energy Protection Plan,” which included an overall indefinite halt to electric utility deregulation.

“I have an obligation as Nevada’s governor to be proactive on this all-important issue, to come up with a plan that will protect the average ratepayer and help stabilize the energy situation in Nevada,” Guinn stated. “Along with nuclear waste storage, this is the single most pressing issue facing us as a state.”

According to the governor’s office, the “Nevada Energy Protection Plan” included a conservation strategy, a re-examination of utility divestiture, a plan to accelerate the construction of new power plants and the construction of a new transmission line.

“The success of this strategy depends on a cohesive effort by state lawmakers, cities and counties, small business, major power users and single-family ratepayers,” Guinn stressed. “This crisis began in California, but I’m hopeful that-with this plan in place-we will avoid the mistakes made in California and not subject our citizens to the runaway energy costs seen there.”

On top of the governor’s plan, in May, the legislature decided to revise and repeal certain provisions of the Nevada’s restructuring law. AB 369 returns electric utilities to regulation and bars the sale of their power plants before July 1, 2003, effectively squelching AES’ plans to buy 14 percent interest in the Mohave Generating Station in Laughlin from Nevada Power. (Retail rates will remain at April 2001 levels according to the bill, which includes the rate increase of over 17 percent approved in March. Adjustments may be made in 2002 in accordance to procured power costs.)

Such regulation turmoil has led to legal action: at press time, Sierra Pacific Resources has stated they will file both general rate cases and to recover unreimbursed power costs totaling $525 to $900 million on behalf of their utility subsidiaries.

“This is not an ambiguous recovery,” stated Mark Ruelle, president of Nevada Power and acting chief financial officer for Sierra Pacific. He pointed out that AB 369 reverts the company into a “plain, old integrated, regulated utility.”

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