PNM Rate Debate Shows Need for Free Market in Energy

The financial market intelligence provider, Standard & Poor’s, has recently changed Public Service Company of New Mexico’s bond “outlook from stable to negative.” (Matt Mygatt, The New Mexican/Associated Press, Mar. 22, 2008) Other financial speculators, including Moody’s and Fitch Ratings, are either considering or have acted on reducing PNM’s bond status.
PNM’s bond status is in jeopardy because it has had to endure the recent increased costs of “fuel used to generate electricity” and of “purchasing electricity that it does not generate.”(AP) These increased costs have created a potential for the company to default on bonds when investors want to cash out.
This is causing problems for PNM. The state’s Public Regulation Commission has allowed PNM to seek a $300,000,000 loan to stabilize its bond status and avoid defaulting bonds, but because of market speculation, it’s finding it hard to secure the funds. To offset these financial woes, the company is also proposing a 13.8% rate increase for all customers, which the PRC would have to approve before taking effect. Many New Mexicans are objecting to the rate increase.
For most New Mexicans, PNM is the sole provider of gas and electricity. Market competition in this sector is nonexistent. Many citizens petitioning for the PRC to reject a rate increase have opined that because PNM is a legal monopoly, investors and company employees should have to bear the burden of increased costs, not customers who have no other option for heat and power. One citizen referenced CEO Jeff Sterba’s $700,000 salary, which the company justified as due for his executive experience. This is a good example of the need for consumer options in a free market. On one hand, a company should have the ability to increase customer prices if it needs to, but not if it’s operating a monopoly.
And for skeptics of utility deregulation, California was not really deregulation at all. Wholesale generation markets were largely deregulated but retail prices were not. True deregulation will not only save PNM and other energy companies the heartburn or having to ask politicians’ permission to raise prices, but it will result in lower prices for consumers due to efficiency and competition in a genuinely free market.