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News ReleaseFeb. 22, 2007 PNM Seeks First Electric Rate Increase in Two Decades
This news release and some documents linked from this page were updated Feb. 15, 2008 to reflect changes in projected rate increases. Albuquerque: PNM yesterday filed with the New Mexico Public Regulation Commission for its first electric rate increase in more than 20 years, seeking to raise its rates by about 13.8 percent to keep up with escalating costs and rapidly growing customer demand. PNM electric rates have been reduced four times since 1994, making them among the most competitive rates in the region. Even with the proposed increase, PNM's proposed rates would be 28 percent below regional and 19 percent below national averages. PNM's low rates, combined with New Mexico's mild climate, contribute to PNM residential customers having among the lowest average electric bills in the nation. The increase is needed because current rates are insufficient to recover the costs incurred to provide customers with reliable electric service. PNM has been able to maintain and even reduce rates by increasing operating efficiencies through technological innovation and process improvements. "New Mexico is entering a new era in which we will have to invest substantially in new electric generation, transmission and other expensive infrastructure to keep up with rapidly increasing customer demand," said Jeff Sterba, PNM Chairman, President and CEO. "Energy efficiency can and will play an important role in addressing this challenge, but we cannot avoid the need for new electric supply to serve growing demand." Capital expenditures such as new transmission and distribution facilities, as well as generating facilities, represent a significant portion of the costs PNM has incurred. For example, growing demand necessitated the expansion of the natural gas-fired Afton Generating Station, a construction project that accounts for approximately 30 percent of the $76.9 million in new revenues PNM is seeking to recover. Load growth on PNM's system in 2006 was 4.2 percent, compared to the latest national average of 2.5 percent. Operating and maintenance costs represent about 30 percent of the proposed increase. This is driven in part by rapidly rising costs of basic commodities such as copper, steel, cement and aluminum, which are found in many of the finished products used in large quantities by electric utilities. Some of these commodities have increased by 34 to 360 percent in recent years. Rising costs of generating fuels such as natural gas, coal, and nuclear represent 24 percent of increased costs that require PNM to seek a rate increase. Encouraging energy efficiency PNM is proposing to change its rate structure in order to better reflect the true costs of providing electricity by introducing prices that increase with higher usage and during peak demand times. This rate structure is expected to promote energy efficiency and conservation, which would slow demand growth and help PNM and its customers avoid some of the associated costs in the future. PNM is proposing three rate "blocks" in which the cost per kilowatt-hour (kWh) increases based on how much electricity a customer uses in a given month, with higher rates for customers who use more than 700 kWh in a month. Residential customers use an average of 600 kWh per month. (See attached fact sheet, "New Rates Encourage Energy Efficiency"). In addition to the increasing rates for higher consumption, the new rates would also be based on season to reflect the higher cost of electricity during peak demand from summer cooling loads. The higher summer rates would be in effect from June through August. "The energy choices customers make have a direct impact on the cost of providing electricity, but our current rates do not adequately reflect this," said Sterba. "Because it costs more to provide peak power, our proposed rates ensure that the smaller percentage of residential customers who use considerably more electricity than average are asked to pay more for that choice." (See attached fact sheet, "Demand Growth: A New Energy Era"). PNM is also seeking PRC approval of a comprehensive energy efficiency plan as part of a previous filing in order to address growing demand for electricity. To help low-income customers, the energy efficiency plan would provide funding to help these customers make their homes more energy efficient. Adjusting for fuel costs PNM is proposing to return to the use of a fuel adjustment clause, which would pass through the costs or savings associated with changing prices for fuel used to generate electricity. Most of fuel cost would be recovered through regular electric rates based on what PNM fuel costs are expected to be in future. Variations from that cost would be recovered through a separate charge when costs exceed that amount, or credited when costs are lower. PNM is proposing to assess fuel costs and make monthly adjustments, as it currently does for its natural gas customers. All adjustments would be subject to PRC approval. PNM has not had a fuel adjustment clause since 1994. Utilities in virtually every other state, including the two other regulated electric utilities in New Mexico, use fuel adjustment clauses. PNM is seeking the fuel cost adjustment so that customer bills reflect changing fuel costs and send appropriate price signals that would encourage energy efficiency. Environmental improvements PNM is proposing a mechanism that would allow the timely recovery of costs incurred for environmental improvements through a bill surcharge. The amount of the surcharge would be determined by a hearing process and would require PRC approval. Environmental improvements are important to make PNM electricity cleaner and more protective of the environment, but they do not increase power supplies or increase revenues for the company. In order to encourage more environmental improvements in the future, PNM believes it is important for the company to be able to manage the financial risk of these projects. PNM is seeking approval to implement the new rates and rate structure in 2008. Information about the proposed rate case is available at PNM.com. PNM is a subsidiary of PNM Resources, an energy holding company based in Albuquerque, N.M. PNM provides electric utility service to 487,000 customers and natural gas service to 492,000 customers in New Mexico. The company also sells power on the wholesale market in the West. PNM Resources stock is traded primarily on the NYSE under the symbol PNM. For more information, see the company's Web site at PNM.com.
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