Creating Energy

New Mexico Business Journal, August, 2001

New Mexico is in a strange situation. As energy prices increase, we benefit with more royalties. On the other hand, the people are not directly benefiting because we're paying the increased prices. It's an anomaly.

You're absolutely right. It was a big frustration for us last year. Our gas prices skyrocketed. We're not allowed to own natural gas. We have to buy it on the market to serve our customers. We had to pay two or three times the usual cost. The state was making incrementally some $300 million in new money Our customers were screaming mad at us because they thought we were overcharging them. It is an anomaly that creates a bit of an interesting challenge.

Let's talk about California. Can you tell us how California got into its crisis?

I can tell you in three words: bad public policy. This is a state that grew 12,000 megawatts over the last 10 years and added about 800 megawatts of generation. They were able to buy power outside the state because the rest of the west had surplus power. But over the last six or seven years, New Mexico, Colorado, Arizona have grown. That surplus isn't there.

Yes, New Mexico has some surplus but the level has dramatically shrunk. Second, the Northwest low hydro conditions have had a dramatic impact in accentuating the problem this year. In the last seven years, northwest hydro has averaged about 125 percent of normal. This year it will have averaged 60 or 65 percent of normal. So now California, which had been able to suck power from the southwest and the northwest in abundance, has a shortage. But public policy did not allow California to build new facilities. They bought from outside the state. They did not add transmission lines. And now the power isn't even available to a great degree. Couple that with a poorly constructed although maybe well intentioned restructuring plan. People that say competition and deregulation are what caused the California energy crisis, I respectfully disagree. It was a fundamental mismatch of supply and demand and a lack of a public policy for the last 10 years. There are things that California did in the design of its restructurin g that are just downright dumb.

I find what California did to be unfortunate because it has had a negative impact throughout the country and particularly in our state about the fear that what happened in California could happen here. That certainly has caused people to have a tremendous fear about restructuring. We had a much better model for restructuring, but at the end of the day that fear was so great the legislature delayed restructuring--at a cost to our company. But it was the right thing to do. We're comfortable with what the legislature did and I really applaud them and particularly Michael Sanchez for their willingness to work with us.

I don't like to see what's happening in California, but I also don't like to see the lack of responsibility and accountability This crisis has been going on for 12 months, but it has only been 20 days (from mid-June) that Californians have been paying higher prices for energy. Now, if you are going to believe in markets, price is an exceptionally important part of a market. It gives a signal to increase supply and it gives a signal to reduce supply California has taken up more time in pointing fingers and going out on head hunting expeditions than it has in dealing with the fundamentals of the problem.