Moody’s says PNM rate-case delay ‘credit negative’
Utility’s ratings hold, but agency is closely watching PRC actions
Moody’s Investors Service said a decision by state regulators to delay until late August a final ruling in Public Service Company of New Mexico’s rate case is a “credit negative” move that could affect the utility’s finances.
Last week, the Public Regulation Commission scheduled another three days of hearings for late June on PNM’s request for a 14.4 percent rate hike, thus pushing back a final decision in the case from late July to late August. The additional hearings will examine new information provided by PNM on costs it incurred to acquire ownership over 64 megawatts of electricity from the Palo Verde Nuclear Generating Station in Arizona.
But the delay prompted a written comment from Moody’s on Monday about the impact of various procedural delays in the case since PNM first filed for a rate hike in December 2014. The commission ordered the utility last year to re-file its request with additional information, which PNM did last August. In February, the commission postponed public hearings by a month to collect more information about financial savings from renewable energy and how fuel costs are distributed among different classes of customers.
Commissioners and intervenors in the case say the additional scrutiny is needed because PNM has changed estimates on Palo Verde costs.
With the latest delay, the earliest date any new rate hike can now take effect is September — nearly two years since PNM first started seeking rate recovery for costs and investments.
For the 12-month period ending March 31, Moody’s said the one cash flow measure ratio of
in relation to PNM’s debt fell to 15.8 percent, down from a three-year average of 20 percent. As a result, the utility is earning below its authorized return on equity, and that will continue into 2017, the agency
said.
Moody’s did not lower PNM’s ratings. But the “Issuer Comment” shows rating agencies are watching the PRC case closely, said PNM Resources Vice President and Treasurer Elizabeth Eden.
“It’s displaying early concern for what’s happening here in New Mexico,” Eden said. “It’s an indication that this could lead to lower credit ratings.”
That’s of particular concern to PNM, which was rated by both Moody’s and Standard & Poor’s as below investment grade, or junk-bond status, from 2008 to 2013, when the utility regained investmentgrade ratings.
“Lower credit ratings means higher-cost debt and higher customer bills,” Eden said. “That’s really the bottom line.”
Nevertheless, the commission and intervenors in the case say extra hearings are critical to determine the real costs of PNM’s purchase of ownership rights to electricity from one of Palo Verde’s generating units.
The utility wants to recover $163.5 million it spent to acquire 64 MW of generating capacity. But that’s about $60 million more than the net book value for Palo Verde electricity, which PNM originally estimated at about $102 million. Then, during the hearings in April, discrepancies about even that value led hearing examiner Carolyn Glick to order PNM to provide more written details on its cost estimates.
PNM filed supplementary documents after the hearings ended that revised the net book value down even more, to $83 million.
The hearing examiner and case intervenors want PNM to explain why its cost estimates have changed. And, once the case goes before the full commission, most intervenors want to show that only the net book value is justified as cost recovery, not the $163.5 million that PNM wants to charge customers.
“We think there’s a strong case that PNM has overstated its revenue needs,” said Peter Gould, general counsel for the New Mexico Industrial Energy Consumers. “But we need to get PNM witnesses in front of us to clarify all that.”