UPDATED — The state Public Regulation Commission (PRC) voted 3-2 along party lines Thursday to cut the Public Service Company of New Mexico (PNM)’s proposed $85 million electricity rate hike to $72 million.veritas

PNM had originally sought a $165 million rate hike, saying it was necessary to cover fuel and pension costs, system improvements, and to improve the company’s dismal credit rating.

The PRC declared that rate filing “incomplete” last year. After ensuing negotiations with PRC staff and consumer groups, PNM eventually agreed this month to a proposed stipulated $85 million rate hike agreement.

But commissioners refused to vote on that plan Thursday, instead approving a draft proposal by Commissioner Jason Marks that would reduce the rate hike to $72 million.

Marks had not anticipated a vote on his draft proposal this week, he said after the meeting. But he joined fellow Democrats Theresa Becenti-Aguilar and Jerome Block, Jr., in voting to approve his plan.

Republican commissioners Pat Lyons and Ben Hall voted against the plan.

PRC Chairman Lyons said the Marks plan might skirt IRS rules. Hall said any rate hike on PNM customers would be unjustified.

PNM serves nearly 500,000 New Mexicans. The company has already raised electric rates on some customers by 24 percent since 2008.

The final version of the Commission’s order will be completed by next week.

It is not clear PNM will accept the smaller rate hike.

“Clearly we are disappointed that the Commission deviated from the $85 million request that was agreed to by several key parties and was deemed justified and reasonable by a hearing examiner and the Commission’s general counsel,” said PNM President Pat Vincent-Collawn.

But the Marks plan has an inducement for PNM: it allows the company to implement new rates immediately, rather than phasing it in incrementally over time.

“My plan is fair to the company as well as consumers,” Marks said.

“Until we see the final order, we don’t really know what the impact is,” PNM spokeswoman Susan Sponar said Friday. “They were ruling on a stipulated agreement we signed with six other interveners and all the parties have to look at that agreement. Then we can agree, or ask for a rehearing.”

Utility ‘lied,’ commissioner asserts

“I was prepared to start again from square one,” Hall said.

Because PNM is a regulated monopoly, it is guaranteed “cost plus” revenues, Hall pointed out: recovery of their costs plus a guaranteed profit.

“So when they come crying to us that their credit rating is as bad as Greece’s, well, whose fault is that,” Hall said. “Ratepayers didn’t cause that. Your management did. How can you lose when you have a cost-plus deal?”

PNM inflated some figures in its rate filing, Hall and Marks both said.

But the Commission was legally required to allow the company to recoup its documented costs, Marks said.

“It would be nice not to have to vote for an increase,” Marks said. “(But) I think this was the right way to solve it. The hearing examiner had identified some problems with the $85 million. As a utility commission, we have a legal responsibility to allow the company to recoup reasonable and prudent costs; when a company proves up certain costs, we have to allow a rate increase. But we need to make sure they’re not given $1 more than is justified.”

“PNM responded to 3,000 questions and provided thousands of pages of data in response to intervenors in this case,” Sponar said Friday. “There is an extensive record. There were public hearings in May. In the end both the hearing examiner and the general counsel supported the $85 million, as did six customer advocates who initially opposed a rate increase.”

The originally proposed $165 million rate hike was based on a projection of the company’s 2011 costs of service and the stipulated $85 million rate hike agreement was based on 2010 costs, Sponar said.

“Our original filing was our first ‘future test year’ rate case, which would be based o costs in effect when the rates were in effect, rather than on past costs,” Sponar said.

PNM could contest the Commission’s decision, Marks acknowledged.

But “they’re better off biting the bullet and moving forward,” Marks said. “Parts of the original $165 million they couldn’t ask for with a straight face.”

Consumer group Prosperity Works attorney Carmela Starce praised the Commission’s decision as “the best deal possible today.”

The Marks plan would save PNM customers about $60 million over three years, Prosperity Works spokeswoman Stephanie Maez-Gibson said.