The New Mexican: Groups Target PNM Profits

February 2012

Public Service Co. of New Mexico has raised rates, made a healthy profit and increased executive compensation over the last three years while the company’s customers were losing jobs and struggling to pay their bills during a recession, according to a report released Tuesday by five nonprofit groups.

A spokesman from PNM’s parent company, PNM Resources, says the report oversimplifies and misrepresents the company’s financial picture. “It’s unfair to the company and it’s unfair to the customers not to provide them with accurate information,” spokesman Frederick Bermudez said.

PNM released its 2011 earnings report this morning. The company reported ongoing earnings of $67.5 million, or $0.76 per share for last year compared with 2010 earnings of $53.6 million, or $0.58 per share.

The nonprofits’ report, “Perspective on PNM,” looks at PNM’s rate revenues, profits and executive compensations from 2008 to 2012. It was compiled by the Sierra Club, New Energy Economy, San Juan Citizens Alliance, Diné Care and Southwest Organizing Project. All five have fought PNM over a range of issues — from the company’s coal-fired power plant to renewable-energy credits.

“To me, [PNM] is just extremely focused on financial performance at the expense of other things that benefit New Mexicans, such as more investments in clean energy, energy efficiency and clean coal plants,” said David Van Winkle, a former financial analyst with Texas Instruments who reviewed PNM’s financial filings for the report as a member of the Sierra Club.

PNM kept rates stable or decreased them from 1994 until 2007, according to Bermudez. Subsequent rate increases approved by the state Public Regulation Commission for the company in 2008, 2010 and 2011 brought in a total of $182 million in additional revenues during those years.

The rate increases were needed to cover the costs of utility system upgrades, maintenance and improvements, according to the company. The company has spent $250 million a year for capital improvements, according to PNM.

The company’s financial health was among the factors that sank the values of its shares from $34 in 2008 to $8 a share in 2010, Bermudez said.

Van Winkle said his group knew the company was barely breaking even or was losing money when it asked for the first rate increase. “We knew that was not a financial situation that could continue. But the magnitude of the increased profits [over expenses] was much larger than we expected,” he said.

The rate increases couldn’t have come at a worse time for customers. The three rate increases mean the average New Mexico residential customer is now paying about $250 a year more than in 2008 for electricity — a 41 percent increase. At the same time, from 2007 to 2011, New Mexico lost 45,000 jobs and average personal income declined.

Bermudez concedes the timing for the rate increases was bad, but no one predicted the size and depth of the recession, and the company couldn’t continue the financial free-fall it was in. Without more revenue coming in from ratepayers, the company was losing investors. “If a company isn’t financially healthy, investors are going to go elsewhere,” he said.

He and other PNM staff take issue with the financials represented in the nonprofits’ report. The report says PNM’s pre-tax corporate profits increased by $144 million in the last four years, which the report says is a 25-fold increase.

Bermudez said the company made $15.7 million in earnings after taxes in 2008 and $53.6 million in 2010. That’s a 241 percent increase. But under the PRC’s approved rate increase, it could have been higher. “If we overearn, the PRC can pull us in and give us a haircut, make us return the money,” he said.

Bermudez said the other way to look at that number is from the investment point of view. PNM has about $1 billion in investor equity in the company. The earnings mean investors are only making about a 5 percent return on their money. The PRC approved a 10 percent return on their investment.

Shareholders currently are paid a 50-cents-a-share dividend, reduced from an almost $1-a-share dividend paid in 2008.

The nonprofits’ report also pointed out that PNM’s chief executive officer, Pat Vincent-Collawn, had doubled her pay in 2010. According to PNM’s information, she made $551,635 in 2010. Of that, about $237,000 was from PNM rate revenues. Former PNM CEO Jeff Sturba’s base pay in 2008 and 2009 was more than $830,000 a year.

Vincent-Collawn also received $1.2 million in compensation, all of it from the shareholders’ earnings. Bermudez said that’s written in her contract. “She has target points to receive that compensation. If the company does better financially, she is compensated. If she doesn’t perform, she loses the compensation.”

The other top four PNM executives made between $228,000 and $419,000 in base salary in 2010. They made between $250,000 and $1 million in stock options and other compensation.

Van Winkle said while those executives may earn their money, the more general point is that “at the same time the rest of the economy and PNM customers are struggling, PNM’s executives are doing well.”

The nonprofits’ report also criticized PNM for not investing more in energy-efficiency programs and renewable-energy projects. By 2014, the company is supposed to save 5 percent of its energy sales through energy-efficiency programs such as rebates to help customers purchase appliances that use less electricity.

Bermudez said the company’s energy-efficiency programs grow every year, but each one has to be approved by the Public Regulation Commission.

He said the Sierra Club and other groups are complaining that PNM has raised rates and at same time are complaining that the company is not investing in renewable-energy projects. But those projects are expensive to build. “Only a financially healthy company can invest in things like wind and solar,” he said. “It only behooves [these groups] to advocate that this company be healthy.”

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