At Week's End; 227; Jerry Geist: PNM; Tim Gallagher: PNM, My Uncle

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.. .. .. .. .. .. .. .. .. .. .. Tonight, after years of being on top of the economic ladder, public service company of New Mexico has fallen on hard times. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. And Tim Gallagher remembers the good old days and a generous uncle. My relationship with my uncle is a lot like New Mexico's relationship with the public service company in New Mexico. P&M kept the state happy for many years by paying handsome dividends to its shareholders

and never saying no when a community group came forth with its handout. Good evening, I'm Neil Boggs at Wixen. For 72 years, P&M, public service company of New Mexico has been one of the state's foremost assets. Employing thousands of New Mexico residents, pumping millions of dollars into the state's economy, giving generously to civic causes. It helped give New Mexico national status by being listed on the New York Stock Exchange, and its ranking among the nation's Fortune 500 companies. The only New Mexico firms so recognized. But the golden glow of P&M has faded. Its current financial condition is regarded as precarious, losses just last year of nearly a third of a billion dollars.

Hundreds of employees laid off its once proud AA bond rating reduced to junk bond status. Its corporate leadership under question about what went wrong and why. P&M's major problem is having too much electricity or excess capacity as it's called in the industry. More than 70% too much, when 20% is the industry standard. The excess came about after P&M moved to meet the needs of New Mexico's then booming extractive industries, specifically uranium mining. To do so, the company bought into the Palo Verde Nuclear Generating Station in Arizona. The New Mexico Public Service Commission approved P&M's $300 million investment in Palo Verde, and P&M moved ahead, despite warnings of a coming collapse of the uranium industry. In the excess power, the company figured could be sold to Southern California. In rapid succession, P&M was hit with a one-two-three punch. The uranium industry hit bottom, a Southern California market for excess power never developed, and due to new safety regulations stemming from three-mile island,

P&M's planned $300 million investment in Palo Verde, mushroomed to $1.2 billion. Then other decisions that went bad left the company with even more megawatts of power that could neither be sold or used. I think the future is probably pretty bright for us. It's a question of timing, but we know right now that we have grown at twice our predictions the last couple of years. We know that California is in 1989 already at their 1992-1494 expected levels of electricity consumption. And we see some clouds on the horizon in the environment with acid rain and the greenhouse effect that our investment in nuclear power will show to have been to be very good in responding to those environmental concerns. So there's a question of making it through a difficult time the next two to five years and some good prospects for growth after that time.

More recently, a battle has raged over who will pick up the bill for P&M's sour investments. P&M once it passed on to the consumers and the Public Service Commission ruled last month that some of the laws can be added to consumer bills. In response to the PSC ruling, the Attorney General's office and consumer advocates objected that this will be an increase in rates that are already too high. No one would dispute that ratepayers should pay for fluctuations in something more than exactly what they need, but they should not be paying for double the kind of capacity that they need now and they're going to need in the future. So the record in the case that just finished showed that P&M was not needed to serve ratepayers until the next century. Obviously, there's something wrong with the kind of planning that puts a nuclear power plant on the backs of ratepayers when they don't even need it until the year 2000. A PSC study showed that P&M's industrial rates are in the top 2% nationally with the company's commercial rates close behind and the cost of electricity to residential users the second highest in the region.

The Public Service Commission also warned P&M that, quote, given these already high rates, any dramatic increase would be an intolerable burden on current ratepayers and could cause the departure of industrial and other large users from the P&M system, end quote. The city of Albuquerque is already considering that solution. It's contract with P&M expires in 1992 and Albuquerque is now talking with P&M competitors. An independent study commissioned by the city determined that over an 11-year period, the Albuquerque metro area could have a projected savings of $100 million in by contracting with other suppliers. With the threat of other electric utility companies eager to supply less expensive power, P&M already in precarious financial states, now has to face possible further erosion of its $16 billion net value. In light of this, the company is energetically pursuing public support and understanding for its situation.

The next key phase for P&M undoubtedly will be the coming Albuquerque mayoral race. A major issue in that campaign will be whether the city should continue the P&M franchise or go a more economical route. P&M's President and Chairman Jerry Geist has come to us to talk about the company's problems, promising an open discussion of the situation, and will follow this conversation with consumer and city advocates joining the talk with Mr. Geist. Thank you for coming, Mr. Geist, and the first question. You've been very accessible to the media of late where you have not always been in the past. Now you've asked to appear here, could this be considered part of a damage control plan? Well, I disagree with your assessment. I've always been available to the media. It seems to me that if I'm not well-known, I don't know who is in the business community around here, but Neil, you're quite right. I am more anxious and available to get our story out now that we have taken the very tough steps to put our company back on the road, or turn around situation, put ourselves on the road back to both economic health and competitive health. So I appreciate the chance to visit with you.

You indicated, as you watched the little report that preceded the interview, there were some points in there that you disagreed with, such as the rates. Well, it always depends on who is explaining what, but let me tell you something. People don't pay rates, number one, they pay bills. And let's just take residential customers, because rates are more important to industrial customers, since they're more like the national average. But on a residential customer, for instance, whereas our rate, the rate that we charge for each kilowatt hour is high. And it's high because we are paying for environmental cleanup in this state that our citizens really treasure. That 80 miles of visibility is because we run clean coal plants. But despite that rate, the bills that you pay in New Mexico are below the national average. The national average residential electric bill is $57. The average New Mexico residential bill is $47. It's 18% below that. Our rates are in the top one third, but the bill doesn't matter factor in the bottom one third.

That's an area that I'd like to go into further when we have our other two guests on the program. And I'll be fine. Go along with your presence here. There seems to be a lack, a general lack of public trust and P&M huge investments in diversification that didn't go well, costing the company a lot of money, highly paid management, some people say for a public utility, loss of jobs for long time employees. The rate question, how can that trust be regained? But we're going to work at earning that trust back in your right whenever you have trouble. People say, why do you have trouble? And who caused it? One of the things that we're working towards is let's solve the problem as opposed to looking around for blame. We're not on a head hunting mission here. And as a matter of fact, what we have done is looked within our own company to say, we're to blame. So what do we do to fix it? And what we have done is an enormous, serious, difficult, cost-cutting job. That's been accomplished.

We're down over one-third in our employment. We're leaner. We're leaner. We're flatter. And we're available to really be a competitive organization going forward. As a matter of fact, we're in a position where we can respond to things like Mr. Childers who alleged on the first part of the show that the customers are paying for double look capacity. That's wrong. The customers are paying only for the electricity for the plant that's delivering the electricity that they use. Right, areas will have an opportunity to explore further with Jerry Geist when we continue this discussion in a moment as we're joined by our other two guests. Marco Steadman is an assistant city attorney who is looking into Albuquerque's energy question.

And Wayne Shirley, also an attorney, represents the New Mexico industrial energy consumers here now to join in our discussion with Mr. Geist. Mr. Steadman, you told us that other electric companies in the region charge six cents per kilowatt hour while P&M charges nine cents. Can you see P&M continuing to be competitive on that basis? Well, Mr. Boggs, one of the things you have to do is to look historically at public service company of New Mexico and what's happened to their rates over time. Not only is our P&M's rates close to the nine cents per kilowatt hour cost, but we see those costs increasing. P&M's proposed competitors are at six cents or even under six cents and moving downward. Whether it's the gap between what P&M is charging and we expect them to charge in the future and what their competitors are charging is widening. Whether or not the company can bring its operational costs and its capital costs sufficiently low to breach that gap is a heroic charge to their management at best. Mr. Shirley, do you think it can be done?

Well, it's an interesting question, Mr. Boggs. The company is often pointed to the fact that these comparisons aren't always on apples and apples bases. The competitors that the city has looked at have quoted prices at what they call the bus bar where the energy comes out of the generating unit. Those prices are usually in the four to six-cent range. P&M's bus bar cost for Palo Verde, for example, runs about eight cents for the plants that have been sold and leased back to about 11 cents for the plant that they own. So there's a clear disparity in the so-called bus bar cost and I don't think P&M can meet the price. Mr. Geist, is it apples and apples? Well, no, it really isn't and it's sort of like saying a bus bar means where the plant is. It's sort of like talking about getting a barrel of oil. Now, you can get a barrel of oil in the Middle East for maybe 19 cents, but you have to get it there. It has to be in a decent production facility. You have to do all those things in order to deliver it to a customer.

In our instance, it is true that we're doing everything we can to hold and get our costs down. Most people don't realize that we have not had a rate increase in over five years. That being aside, we are working hard to hold our cost down and I repeat again what I said earlier, that the average bill is what residential customers pay is still below the national average even though the rates that we pay because it is a clean plant from which we are delivering adds to that cost. That is the pollution free atmosphere we have. Mr. Shirley, P&M's position is that it has been a good corporate citizen and a reliable provider of electricity. Would you disagree with that? Well, the company has a history of doing a good job of public relations. They give a lot of money out to charitable organizations and they've got that good citizen image. But the fact is that they've done that on the back some rate pairs and they've done it with high rates. The reliability of the power that they provide is no different than the reliability that you get from any other utility or that you would get from any competitor that would come in here.

Providing electricity is not some black magic. It's a known engineering process that many people are at their qualified to do and I'm confident that other competitors can do just as good a job and maybe better than P&M has. Mr. Guy, Star consumers paying for the good works that P&M got credit for. Well, the assumption behind that is absolutely wrong. First of all, when we make donations, those are not included in rates and we don't recover any of those costs. Take them out of your operating expenses. They come out of our own investors, our stockholders pay for those. That and not one dime of rate payer money goes into that. So it's not on the back. Secondly, it presumes that goodwill and citizens can be bought and that's just wrong. Our participation in this community has been with energy from our employees as well as dollars. And I think we will do a better job with that, continue to do a better job in that. And we continue to earn that reputation.

We've got good folks and we'll stay really interested involved in Albuquerque and New Mexico. Mr. Blogs, the bottom line is, is that rate payers pay for everything. Mr. Al Robeson, a former Vice President of Public Service Company, is under oh saying that in fact rate payers pay for everything. And every time you take something out of shareholders' profits, shareholders demand a higher return. And when you have monopoly and that return gets translated into higher rates, the rate payers are the ones that have been underwriting P&M's corporate charity. Mr. Geist, P&M's P&M has had difficulty selling its excess power. If you do find a market for that excess, then would rates go down. Well, certainly rates are made to cover all the costs supposedly in a company except this last effort of the Commission. Said, look, what we're going to do is to separate those elements in your production plant that are used to sell power to New Mexico. And we will only make rates on the basis of what is in the rate base based upon this decision.

Therefore, there are no excess capacity which is rendered and charged into New Mexico rate payers. So the sale of any excess that we have is purely on the company's back and on the shareholders back. It will have nothing to do with charges to our own customers. Mr. Edmund, do you see it that way? It's not clear what is going to happen in terms of the effect of the sale of excess capacity. The Commission in its last order separating the assets that are going to be used for jurisdictional purposes and used for non-jurisdictional purposes. That's a question open. But did say that there was going to be an equitable sharing in some fashion. It's not a question I have a clear answer to right now. Mr. Sherry, you represent industrial users, what do you see? Well, in the last rate case that the company had, the rate making methodology used by the Commission is something that's been called inventory. Under that methodology, P&M's excess capacity was basically excluded from rates, except that the operation and maintenance expense on that plant is in our rates.

So Mr. Geis isn't telling you the full story when he says that excess capacity is not in rates. Now, Palo Verde has not yet been placed into rates. But the Commission has now said that two units of Palo Verde can be placed in rates. P&M's already high rates are headed higher when you add those extra costs. That's over $100 million a year in extra costs that we're going to have to bear. Mr. Edmond shouldn't P&M really be commended for its long-range policies considering the political and economic situation of the late 70s when the decision was made to invest in nuclear power. What if the economy had taken a different turn and would come up short on power needs? The answer is no. They shouldn't be commended for it. And the reason is, is because we're talking about some major decisions that affect one of the lowest per capita states in the United States. This is not a big company. It's a big company for New Mexico, but it's not a big company on a national level.

And when you have decisions which are made, which have the, if you lose, if you lose, and guess wrong, if your judgment is either biased or incorrect, the stakes for a community of our size with our limited economic base means that there should have been, and there was an opportunity along the way to rethink the direction that P&M took. If there was no opportunity to rethink, and if they didn't have information which would have suggested they could have taken a different path, then maybe my answer would have been different, but that's not the case. Your answer, Mr. Shirley. Well, Mr. Boggs, back in the late 70s when the company was looking at Palo Verde, they were justifying the use of that plan on the basis of mining loads that they forecast to be coming online in New Mexico. Those mining loads were not in P&M service territory. They were basically out in the middle of nowhere where nobody was serving, but if there was anybody close by, it was the co-ops in this state that should have served those loads. P&M went out and they made deals with the co-ops where by P&M would get any loads above two megawatts, and the co-ops would get the small loads.

Well, the co-ops went out and they planned for some mining loads too, and it turns out that they have excess capacity now. So the fact is that P&M had no obligation to go after those loads, and they chose to do so so they could build Palo Verde. Mr. Geist. Well, once again, you're in a situation where you have a company, a company that is responsible for and has the legal responsibility and has the ethical and moral responsibility to see that New Mexico has adequate energy. In the period of time that we committed to and began building Palo Verde, we forget about the oil embargoes that we're going on at that point in time. The bottom line is New Mexico now, whereas the rest of the nation is now wondering what's going to happen with escalating oil prices. What's going to happen with energy shortages, electrical shortages on the east coast. New Mexico is really in very good shape in terms of the type of energy sources that it has that is 30% nuclear and part coal and where, whereas we are now experiencing one of the greatest industrial development years that we have had because there's adequate energy. These folks say nothing's happening and that we are charging excess.

That's just nuts. We are having major success in Albuquerque because of this planning. Related topic, Mr. Shirley, P&M is using lower rates and city of rates to help bring new industry to New Mexico. Is there anything wrong with that? Well, there's certainly nothing wrong with low rates. The problem is that the company wants to discriminate. They want to offer a new rate, a low rates to new customers, and they want our existing customers to pay for that. And we think that's not fair to have a monopoly. We have no choice. We have no other alternative right now to turn to, to be able to go out and cut special deals for customers on the back. So the people that have already come here and made the investment in New Mexico and have hired people in New Mexico. And it's simply not fair. Mr. Geist, we've heard in city of rates described as discriminatory. Well, as a matter of fact, when you have a sale out of your excess capacity, any excess capacity that you have, in fact, the person that comes in and takes advantage of that sale, they get a better deal. But it's discriminatory in terms of building load and job opportunities for New Mexico.

And we're absolutely out to encourage people to utilize this incentive rates from surplus capacity. And by the way, that is available to expanding New Mexico businesses, just not from anybody else coming in into town. And we have found, as a matter of fact, that it was the key component in closing the deal on a recently announced industrial client that is bringing 400 jobs into the Albuquerque area. So it works. It's not theory. It's how can we build New Mexico? Do you have another view, Ms. Steadman? Two comments. One is, if we could be convinced that by adding low, we would see reduced costs. You might rethink the issue of subsidized rates. But Mr. Geist on his own admission has said we've seen an increase in electrical usage in the Albuquerque area. And we haven't seen one cent of reduction in the cost. The current rate payers are paying. But more importantly than that, it's kind of appalling not to treat our current employers, commercial industrials, who are here and who have committed to this tax base for a long period of time and who have borne the hard, the high rates fairly. When you have a subsidized rate, someone is paying less than the cost of this.

I'm sorry, Neil, that is not a subsidized rate. Excuse me, Mr. Buzz, I think that was, you know, the ground rules have been set. And I think that was an inappropriate interjection on Mr. Geist's part. And if I may, I'd like additional time because of that comment. We only have about 20 seconds. Well, let me summarize very quickly. What we need to tell industrial employers is that we're not going to subsidize their operations in here. And that's the promise that when they come, we're not going to ask them to subsidize the next guy. That should be the fair treatment we're offering. Time has cut up with this, I'm sorry. Thank you, Jerry Geist, President and Chairman of the P&M, Margot Stedman, Assistant City Attorney for Albuquerque, Wayne Shirley of the New Mexico Industrial Energy Consumers. Thank you. Thank you. However, you view it, the P&M situation is perplexing for the company, for the people who invested in it, and for the people who buy its product. Here is guest commentator Tim Gallagher. When I was growing up, I had a knuckle who was everyone's favorite relative.

He rewarded each of our birthdays with a crisp $10 bill. Each winner, he'd vacation in Florida and return with lively stories about the great racetracks of the South. He continued his lavish spending after his retirement until one day after he'd fallen seriously ill. We checked his bank account to learn that it was empty. My relationship with my uncle is a lot like New Mexico's relationship with the public service company of New Mexico. P&M kept the state happy for many years by paying handsome dividends to its shareholders, and never saying no when a community group came forth with its handout. The Symphony, the University, the Albuquerque Community Foundation, the Museum, whenever they rang, P&M answered. Until a couple of years ago, that's when troubled times came to P&M. The hands of the community groups found P&M's pockets empty, so did the shareholders. We shouldn't be surprised by any of this.

After all, P&M is the company that, a couple of years ago, paid $500 million to produce electricity. It sold for $400 million, and then it paid its shareholders a $3 shared dividend. But I am not supposed to talk about the warts on P&M. Otherwise, I become a member of the dreaded P&M bashing society. This is a cult comprised of the media, big electricity users, and others who have not had a P&M handout in the past decade. We wear hooded robes and tie inverted knots, and burn them in a bonfire on Tuesday night when the moon is full. Come on, let's get serious about this. P&M is a big boy with a major investment in New Mexico. It plays hardball to protect that investment. Certainly, it deserves praise for its philanthropic efforts. A poor state such as New Mexico needs the donations of private companies. But let's not forget that money is a calculated move to keep the right people in P&M's corner.

In the opposite corner has been the media, and P&M and its friends would like to keep it that way, painting the media as the reason for P&M's troubles. While the media has overdone it occasionally, the fact remains that P&M is in trouble because it bought a lot of power ten years ago and hoped the economy would grow. It did not. With the warning signs on the horizon, P&M continued to play the big spender in the community until finally this emperor of New Mexico has had to make some admissions about his wardrobe, just like my uncle. It's a media simply does its job to thoroughly and fairly report the activities and the rate cases of the electric company, and P&M does its job to provide power at the most economical rates than what a wonderful world this will be. And New Mexico will still love P&M, just like I still love my uncle.

The recent examination of population growth and its effect on our environment prompted a Santa Fe viewer to write, I decided that growth freaks chambers of commerce, politicians, merchants, real estate peddlers, and similar half-wits should be force fed, the tapes of that program. We invite your views about at weeks end commentaries, please write at weeks end, K&M-E-TV, 1130 University Boulevard, Northeast, Albuquerque, New Mexico, H7102. I'm Neil Boggs at weeks end. Good evening. Thank you.

Thank you.