CAPTURING COOPERATIVE PRINCIPLES IN RESTRUCTURING LEGISLATION: THE NEW MEXICO BELLWETHER CASE.

• Author: Cody, Eric P.

Wayfinder Group, Inc. [1]

Executive Summary

Several states have since early 1998 opened competitive electricity markets, with varying degrees of success. The early movement to competition had its epicenter in the high cost regions of New England and California, where the number of electric cooperatives is small. However, many states have since enacted restructuring legislation or commenced regulatory rulemakings with the intent of making electricity supply competitive. While these market transition processes are often deliberate and painstaking, the central focus is often the investor owned utilities, which serve the bulk of the state's customer population. Electric cooperatives, serving a segment which is relatively smaller but especially critical to the economy, have often not received equal attention in market design. In fact, the question of whether electric cooperatives should be treated differently in market rules remains unanswered. What is clear is that consumer protections are generally more important to the cooperative, where the consumer an d the owner are one. And to the extent that the market perceives cooperatives to be different from IOUs, they may be treated differently by market stakeholders, notwithstanding any actions by legislators or regulators.

Significant insights can be gained by studying the process followed successfully by New Mexico electric cooperatives, who sought over a period of several years to identify principles underlying electricity competition for cooperatives and to influence proposed legislation accordingly. Restructuring legislation has now been enacted, and new challenges have emerged, yet New Mexico cooperatives have the opportunity as a result of their forward thinking and well timed efforts to design their own future. New Mexico's Electric Utility Industry Restructuring Act of 1999 enab1es cooperatives to choose from among four different business methods. The rest of the nation's community of electric cooperatives will benefit by watching how this unique opportunity is realized and converted into value for cooperative members.

This case study describes the journey taken by New Mexico cooperatives to reach this highly flexible and forward thinking legislative framework for retail electricity competition.

Introduction

On February 5, 1999, New Mexico Senator Michael Sanchez (D) introduced his utility restructuring bill (S.B. 428) in the state legislature. However, this highly visible move toward electricity competition in New Mexico served mainly to illuminate issues and policies which had long been on the table for active consideration. In fact, New Mexico's legislature had been the first in the country to formally consider retail wheeling in early 1993.

Senator Sanchez's 1999 restructuring bill also represented the culmination of an intense period of analysis and self-reflection by New Mexico's electric cooperatives, which through the New Mexico Rural Electric Cooperative Association (NMRECA) had for years participated actively in the work of two interim legislative committees set up to investigate the issue. Senator Sanchez also served as chair of those committees. The cooperatives worked closely with him to help the committees understand the flexibility co-ops would need to meet their unique needs. His legislation created a legal framework for that flexibility. In April of 1999, S.B. 428 was enacted into law as the Electric Utility Industry Restructuring Act of 1999. The law contains far reaching provisions enabling electric cooperatives to adopt business methods according to their specific members' needs.

The message presented to NMRECA's sixteen distribution cooperatives, one G&T cooperative and their members at the Association's 1999 annual meeting (June, 1999) encapsulated the key themes under which New Mexico's cooperative leaders had labored during this period of significant change:

"New Mexico cooperatives believe the decision to implement customer choice in a workable fashion is the responsibility of the member owned co operative and the locally elected boards. The cooperatives have spent much time and effort in an attempt to develop a one size fits all solution for cooperatives. The result of this endeavor is the realization that a one size fits all solution is infeasible. However, there are still potential solutions. The following [load aggregator, customer directed supplier, customer class direct access, and customer direct access methods] are business methods from which cooperatives may choose to operate in a restructured electric utility industry. We believe the business method approach will work for the rural people of New Mexico."

Environment for Change

New Mexico cooperatives appear to represent a cross-section of the nation in many respects which are relevant to industry restructuring:

* NMRECA's sixteen distribution...