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GUEST ESSAY:

New Mexico electric industry deregulation legislation: A primer in political deception

By Charles Bensinger

Have you ever encountered a salesman so slick he was able to sell you something you didn't want, couldn't use, and already owned — at an exorbitant price? If you live in New Mexico and buy electricity from the state's largest investor-owned utility, you have. But New Mexico is not unique. This outrageous public rip­off is happening all over the country.

The scam is technically referred to as "electric utility deregulation" or "electric utility restructuring," and it takes the form of big business and electric utilities pressuring a state legislature or public utility commission to rewrite a state's public policies regarding how electricity will be generated, transmitted and distributed for the next 20 to 50 years. Electric utility restructuring is promoted as a benefit to the public because it will "introduce competition into the marketplace," and proponents insist that it will lead to lower electric bills. But for whom? The primary beneficiaries will be large power users who can negotiate with a power supplier for the lowest possible prices, leaving small residential and commercial users stuck with the highest priced electricity.

Large power users already receive the cheapest power — often priced 50 percent to 75 percent less than that sold to residential consumers. The large power users anticipate that under a nationally competitive power market they could receive even lower prices for their electricity, and so are the driving force for utility restructuring. Not surprisingly, consumer groups are highly skeptical of any pricing benefits reaching anyone other than the big guys.

But in an open and competitive marketplace, utilities that have investments in expensive nuclear power plants cannot compete with those who don't. So, in order for nuclear plant­owning utilities to compete, they need to find someone to bail them out from under their long­term debts. The fancy name for these nuclear plants or assets that can only be sold at deep discounts (roughly ten cents on the dollar) in the marketplace is "stranded assets." Nationally, utility stranded assets amount to $200—$300 billion. Each state, then, must wrestle with the issue of how much, if any, of these stranded asset costs should be borne by the public. So far, all 18­odd states that have passed electric deregulation legislation have allowed utilities to collect up to 100 percent of their stranded assets costs from the ratepayers.

Some argue that utility shareholders should pick up the tab since they assumed the risk of potential financial losses when they invested in a private corporation and that ratepayers have already paid for these facilities through years of paying monthly electric bills. In New Mexico's case, PNM's (Public Service Company of New Mexico) half-billion-dollar stranded cost estimate is attributable to its ownership in the Palo Verde Nuclear plant in Arizona. Consumer and environmental groups vehemently opposed purchasing Palo Verde at the time, saying it was unnecessary, dangerous, and too expensive, but PNM got it anyway. It's turned out that because New Mexico has plenty of coal-fired power plant capacity, the nuclear power is not really needed. Therefore, most of the power is sold to out-of-state buyers at bargain basement prices. But New Mexicans are legally committed to paying off the facility debt and, worse, are required to pay into a fund to cover the eventual decommissioning costs of the plant.

How did all this happen? Beginning in the summer of 1997, utilities and industrial users who stood to make or save lots of money, and public activist groups concerned about consumers and the environment receiving the short end of the stick, engaged in extensive, ongoing electric utility restructuring discussions held in Santa Fe and Albuquerque. The participants included Public Service Company of New Mexico, the rural electric co­ops, a group of large and small industrial and commercial users, the University of New Mexico, the State Attorney General's Office, the New Mexico Public Utility Commission and an assortment of environmental and consumer groups that became the Coalition for Clean, Affordable Energy (CCAE). The intent of the discussions was to draft proposed restructuring legislation that would describe how stranded costs would be defined and recovered and to address the myriad of other utility, consumer, and environmental concerns. But not all the stakeholders shared the same agenda. Indeed, many of the stakeholder's goals were in direct conflict with each other. Public interest groups wanted money set aside for consumer and environmental protection and renewable energy while industry groups and utilities wanted only lowest possible rates.

A major CCAE concern was that residential and small commercial electric customers would find their bills increasing as large power users exited the system in search of lower electricity prices. CCAE also worried that because New Mexico receives 89 percent of its electricity from coal, the environment would be placed at risk from increased coal burning, as expanding demand for cheap coal power will likely prompt utilities to run New Mexico's power plants harder, thus increasing air emissions.

To address these concerns, CCAE proposed setting aside moneys generated through a small "System Benefits Wires Charge" to fund additional power plant pollution controls and to promote increased energy efficiency and conservation at the consumer level and the use of renewable energy. The CCAE also sought inclusion of a "Renewable Portfolio Standard" (RPS) in the legislation that would have required all power marketers in the State of New Mexico to provide a minimal percentage of their power from renewables such as solar, wind, geothermal, or biomass.

Unfortunately, for a year and a half, the stranded costs issue dominated the discussions. Talks broke down repeatedly over how stranded costs would be calculated and paid. The environmental provisions of the proposed legislation encountered fierce resistance from the utilities and the industrial and business groups. During the late summer and early fall, a tentative compromise was reached regarding a minimal package of consumer and environmental benefits. But just before the 1999 state legislative session began, the consumer and environmental package was summarily jettisoned by the utility and business stakeholders.

The CCAE concluded that the other parties to the discussion never intended to negotiate in good faith but had instead chosen to divert the environmental and consumer advocacy groups from engaging in a process of public education until it was too late to muster the necessary opposition. During the closing stages of the legislative debate, several minor amendments favoring the environment were restored by sympathetic legislators, but the final bill is one that provides abundant potential financial benefits to utilities and big business but offers only small compensation to consumers and the environment.

Electric utility restructuring is an issue containing many critical and complicated subcomponents. It is replete with highly legal and technical language and concepts that easily befuddle the average person and common legislator. Lessons learned during the New Mexico experience seem to be:

• Don't expect other negotiating parties to act in good faith;
• Expect diversionary, deceptive, and manipulative tactics from large stakeholders;
• Expect most legislators to serve corporate rather than public interests;
• Strong media and public support is not sufficient to counter utility control of the legislative process.

Electricity is part and parcel of our everyday lives and will be so for the foreseeable future. The way power is bought and sold in the world will be changed dramatically in the years to come as states and the federal government set the rules through state and federal restructuring legislation. So far, the big players are winning big time. If electric utility restructuring is to benefit the small consumer and the environment, a much stronger public participatory process will be necessary, and a more vocal public outcry will need to be heard.

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Charles Bensinger is a renewable energy consultant working on energy­related public policy. Most recently he was co­director of the Coalition for Clean, Affordable Energy, which served as advocate for environmental and policy groups during the utility deregulation debate and subsequent legislation passed by the New Mexico Legislature. He currently works on solar hydrogen research and can be reached at (505) 989-4750; e-mail: newworld@timewindow.com.

For more information on the New Mexico legislation and continuing policy issues, contact the New Mexico Conservation Voters Alliance at (505) 986-1454 or (505) 920-4350, and the Public Regulatory Commission at (505) 827-6940.

Editor's Note: Look for The Workbook's upcoming feature article in the Fall 1999 issue exploring what citizens and ratepayers need to know about utility deregulation.