A draft Senate joint resolution would strip the troubled Commission, which is the state’s most powerful regulatory agency, of its constitutional authority.

If approved by lawmakers, the proposed amendment would be submitted to voters at “the next general election or at any special election prior to that date that may be called for that purpose,” according to the draft resolution.

Passage of the amendment would open the door to the Legislature passing a companion draft bill that would establish a legislative committee task force to determine how best to dismember the PRC and reallocate its divisions, jurisdictions and authorities to other executive-branch agencies.

Most of the PRC’s divisions and bureaus would be sent to existing executive branch agencies like the Regulation and Licensing Department. The Division of Insurance may become part of a stand-alone insurance regulation agency that would also include the Risk Management Division and other state insurance programs, Task Force vice-chair Rep. Patricia A. Lundstrom (D-Gallup) suggested at a Restructuring Task Force meeting Friday.

Unlike the constitutional amendment, the draft bill to create a PRC Task Force has yet to be formally approved by the Government Restructuring Task Force.

According to the draft bill, if the constitutional amendment is approved by voters, a PRC Task Force would be created April 1, 2013 and would have to conclude the restructuring of PRC divisions by July 1, 2014.

But even if the amendment is approved by voters, the companion bill must pass muster with the Legislature, which convenes in January.

Commissioners were angry that the Task Force had not told them of the bills, they said Thursday.

“We need to let them know we’re finding out about things in a round-about way,” an irritated Commissioner Theresa Becenti-Aguilar said. “I think it’s time we sent a message we would like to see the complete material. Once we’ve seen that, they’ll have our response at their very next meeting.”

The legislative council would appoint 12 members to the committee to divvy up the PRC to other agencies. Six members would be selected from the House and six from the Senate, according to the draft bill.

Especially troubling is the wording in the companion bill regarding the composition of an advisory panel that would assist that committee on technical matters, according to Commissioner Jason Marks.

According to the draft bill:

The legislative council, in consultation with the governor, shall appoint an advisory panel of experts in the areas regulated by the Public Regulation Commission and those knowledgeable about the organizational structure of the executive branch of government. The advisory panel shall assist the committee and make recommendations on technical aspects of the committee’s work.

“That task force (advisory panel) will include people from regulated industry, but the bill didn’t say anything about consumer advocates,” Marks noted. “It’s unusually blatant.”

The Legislature might lose enthusiasm for abolishing the PRC if Susana Martinez is elected governor, Commission chairman David King suggested.

“Every four or five years since we started the PRC, there have been bills to do in the commission,” King said. “I doubt they want to give the new governor a lot of new authority if that governor happens to be Martinez. When I first ran for the Commission, Speaker (Ben) Lujan (Sr.) told me I may not serve a full four years because the Legislature might abolish the PRC. But then after a year or two, his son ran and Lujan really changed dramatically. We grew quite a bit after that.”

U.S. Rep. Ben Ray Lujan served as a Commissioner until 2008.

“I wouldn’t get carried away with restructuring until I saw who the new governor is and who the new legislators are,” King told The Independent. “It doesn’t make any sense.”

Central to legislators’ concerns is the mismanagement of the Division of Insurance, King acknowledged.

“That (Division) is an albatross for us,” King said. “But the process isn’t there for more oversight by us. They’ve tied our hand behind our backs on Insurance. That needs to be changed – but not by creating more bureaucracies. Changing insurance under the PRC is the most responsive thing we can do.”

Commissioners want the Legislature to leave the Division at the PRC, but to empower the Commission to fire the state Superintendent of Insurance at will and to hear appeals of insurance rate appeals rather than those appeals going to district court, as is currently done.

Insisting that the commission is the best agency for all of its divisions and bureaus will “go over with a thud” at the Legislature, Marks warned other commissioners Thursday.

“That won’t be perceived as credible,” Marks said.

Only Commissioner Jerome Block, Jr., was absent during the Commission’s Thursday discussion of the draft constitutional amendment and bill.

Despite live reggae and jazz music, and vendors offering pastries and locally-grown organic farm produce, fewer than 100 visitors were on hand for talks by state Sen. Tim Keller and Public Regulation Commission (PRC) Commissioner Jason Marks.

Of 30 state and local policymakers invited to speak, only two elected officials — Keller and Marks — participated, UNM biology professor Bruce Milne told The Independent.

“I would have thought more of them would come share their ideas with the public,” Milne said. “So I’m disappointed in that. But the ones we had were awesome — factually based.”

The gathering was one of more than 7,000 climate and energy policy summits held around the world.

Keller and Marks promoted the potential economic benefits to New Mexico of a green jobs agenda.

“The economic impact of making New Mexico a carbon-neutral state would be profound,” Keller said. “If we acted to produce solar power here, there would be a $240 billion impact annually in our state. That would put us in the top 10 (state) economies in the U.S.”

“New Mexico receives enough solar energy that if we came close to developing it…we could produce more electricity than the entire U.S. uses just here in New Mexico,” Marks told an audience composed primarily of college students. “Nuclear and clean coal have financial and environmental problems. We have much stronger options (with solar) here in the Southwest.”

The U.S. electric sector is the single largest emitter of so-called greenhouse gasses like carbon dioxide, Marks said.

“Three-quarters of those emissions are from coal plants,” Marks said. “It’s pretty simple. We cannot build anymore conventional coal plants.”

But conservative politicians have blocked renewable energy policies for short-term political gain, suggested Marks.
“It’s a combination of greed and selfishness,” Marks said. “Exxon-Mobile makes $45 billion in annual profits but we have people out there saying we can’t afford to go green.”

After the speeches, Milne led a campus tour showcasing UNM’s environmental sustainability initiatives.

“We have a carbon-neutral plan signed and ready to go,” Milne said.

Keller urged voters to elect candidates who support making New Mexico a carbon-neutral state.

“You can use whatever semantics you want, but the question is: Are you discussing public business with this elected body? Yes or no?” said Sarah Welsh of the Foundation for Open Government. ”If that is happening, I think that is exactly what the OMA (Open Meetings Act) was designed to prevent.”

Welsh’s remarks came as State Insurance Superintendent John Franchini has said he plans to meet individually with members of the Public Regulation Commission (PRC) to go over details of a “corrective action plan” put together in response to a recent critical audit of the state’s insurance division.

The agency’s chief legal counsel and one Public Regulation Commissioner defend the action, saying the PRC won’t run afoul of the state’s open meetings law because of a quirk in how the PRC and the state’s Insurance Division relate to each other.

A strange relationship

The PRC doesn’t regulate the insurance industry, and therefore has no jurisdiction over the plan in question. But the PRC supervises the insurance superintendent, who is presenting the plan as a courtesy, officials said.

“This is about keeping the commissioners informed because they are supervisors of the superintendent,” David Barton, the Insurance Division’s chief legal counsel, said in a telephone interview.

Because they lack jurisdiction, Public Regulation Commission members can hear the details of the plan individually because they won’t be taking action on public policy, say Barton and Public Regulation Commission member Sandy Jones.

“We have a superintendent who has proactively come forward … and want to disclose this to the commission so we start to have better communications,” Jones said in an interview.

But Welsh dismisses that as a way to get around the state’s open meetings act.

“There’s a common misconception that as long as a public body doesn’t vote, or doesn’t plan to vote, it’s not a meeting,” Welsh wrote in an e-mail. “That’s simply not true. Any discussion of public business by a quorum is subject to the Act.”

Welsh added, “They may think they’ve figured out a ‘loophole,’ but they’ll lose the public’s trust and confidence in the process. So what have you really gained?”

Welsh appears to have past determinations by the Attorney General’s office to bolster her opinion of the situation.

Serial quorums are a no-no

All meetings of a quorum of members that are held to “formulate public policy, discuss public business or take action are required to be open to the public” and “cannot be circumvented by what are commonly referred to as ‘serial’ or ‘rolling’ quorums,” according to a letter from the Attorney General’s office on a 2007 Open Meeting Act complaint.

Serial or rolling quorums are where a public body’s members discuss public business or take action through a series of contacts “in person, by e-mail, telephone, letter or otherwise” between individual members outside of a public meeting, the letter says.

The 2007 complaint concerned actions taken by Santa Fe County School Board members who spoke by phone about a public issue before a meeting.

Barton, the Insurance Division’s chief legal counsel, said the 2007 case and the current situation involving the PRC are different. In one case the Santa Fe County School Board had jurisdiction over the subject being discussed. In this situation the PRC doesn’t have jurisdiction over the corrective action plan.

Adopting a higher standard than just legality

But Public Regulation Commission member Jason Marks says even if the commission lacks jurisdiction its members should attempt to be as open as possible.

“My position on this is that even if we meet the legal requirements of OMA (Open Meetings Act) and IPRA (Inspection of Public Requests Act), that shouldn’t be our standard,” Marks said. “Our standard should be to be as open as possible.”

Besides, the insurance superintendent should be proud of its corrective action plan, Marks said.

“The draft I saw is a good plan,” Marks said. “It talks about filling vacant positions, about training staff. It had specific classes for specific people, specific curriculum for specific people. It’s detailed. It’s not generic. And it’s got specifics on changing business practices … like how things will be reviewed.”

The National Association of Insurance Commissioners accredited the state’s Insurance Division after a recent audit, but the agency is on probationary status until a corrective action plan is completed to address deficiencies identified by NAIC auditors.

Among other things the auditors found that the state Insurance Division’s Financial Examinations Bureau is understaffed and that financial analysis staff had “marginally sufficient experience” and needed more training on insurance operations, reserves, accounting principles and other areas, according to the nine-page report.

A review of the insurance division staff analyses found them not to “be in-depth and challenging in nature” and staff analyses contained “numerous deficiencies,” the report noted.

Any discussions about a proposed reorganization of the Insurance Division would be conducted behind closed doors anyway, Barton said, because the restructuring would run afoul the state’s personnel code even if the plan doesn’t identify employees.

“Our divisions are so small you are talking about easily identified individuals,” Barton said. “Eventually all of this will be public.”

Barton explained that any reorganization of the Insurance Division that eventually took effect would have to go before the Public Regulation Commission for its approval.

“Retaliation against such a person would be extremely unwise – if they win in court, they are entitled to double back pay, among other things,” Welsh told The Independent.

It should be noted that the Independent obtained the audit report in response to a public records request.

But even if it had been leaked, retaliating against the leaker would be a bad idea, Welsh told The Independent.

“The state’s whistleblower protections become relevant and important when someone is ‘leaking’ unsolicited information that gives evidence of law-breaking or malfeasance,” Welsh wrote in an e-mail to The Independent.

“But no one can ‘leak’ public documents that have been requested under the Inspection of Public Records Act. Quite the contrary – they are obligated by law to provide such documents. In this case, it sounds like the employee providing the documents was just doing his or her job, and following state law.”

But much of Jones’s often-heated debate with Commissioner Jason Marks Tuesday over The Independent’s publication of an audit report critical of the Division, centered around whether or not “draft” documents should be released to the public.

Citing executive privilege, division attorney David Barton said the audit report and a Division corrective action plan written in response to that audit were “mid-process” and should not be disclosed to the public.

“There’s an ongoing dialogue with the NAIC,” Barton said Tuesday.

State law does allow the insurance superintendent to declare third-party documents confidential if the authoring organization states on the document that the record is confidential. The NAIC audit report disclosed to The Independent was indeed marked “confidential,”and could have been legally withheld under state law.

But there is no draft documents exemption to the N.M. Inspection of Public Records Act, Welsh wrote. Barton has argued that the Division’s action plan is a draft document.

“When a document deals with public business and passes from one public employee to another, it clearly fits the definition of a public record and must be released unless a valid exemption applies,” Welsh wrote. “(E)xecutive privilege can sometimes be invoked to shield deliberative processes among high-level policymakers within executive-branch agencies – internal processes, that is. Once a privileged document is transmitted to someone outside of the agency, the executive privilege no longer applies.”

Welsh pointed to the relevant part of the state public records law:

Recognizing that a representative government is dependent upon an informed electorate, the intent of the legislature in enacting the Inspection of Public Records Act is to ensure, and it is declared to be the public policy of this state, that all persons are entitled to the greatest possible information regarding the affairs of government and the official acts of public officers and employees. It is the further intent of the legislature, and it is declared to be the public policy of this state, that to provide persons with such information is an essential function of a representative government and an integral part of the routine duties of public officers and employees.

“The greatest possible information – not just the ‘massaged’ information that our elected representatives deign to share with us,” Welsh wrote, alluding to Jones’s comment Tuesday that records should be “worked over and massaged” within the PRC before they are released to the public.

Afterward, Chief of Staff Michael Rivera announced that a new, more restrictive PRC-wide policy about employee contact with news reporters is being drafted.

During the meeting, Commissioner Sandy Jones demanded that Division officials ‘name names’ of employees who had access to what Jones described as a “leaked” document published Friday by The Independent.

“Who gave him the letter?” Jones demanded, referring to the audit report. “Who has access to the letter? Name who has access to that letter. Who? Who? Who? What are the names? I want to know who gave the letter to the press. How do we not know?”

Jones called for the employee responsible for the “leak” to be identified and fired.

In fact, the document Jones referred to, an audit report from the National Association of Insurance Commissioners (NAIC), was given to The Independent by the Division in response to a routine request made under the state Inspection of Public Records Act.

Nevertheless, Division officials listed aloud for Jones the names of employees believed to have had access to the report.

Jones’s demand for names troubled one union official.

“I think he was treading real close to personnel issues,” AFSCME Local 477 public employees’ union president Arcy Baca told The Independent. “You can’t talk about any employee in open meeting, if it’s about a possible personnel action.”

Reports should not be released until ‘worked over and massaged’

Giving The Independent a copy of the audit report was improper, Jones repeatedly asserted Tuesday.

“I don’t think the press has free and open access to everything done in government,” Jones said during the meeting. “There are certain practices that shouldn’t be released to the public until they’ve been thought out and worked over and massaged within the agency. It makes no sense to bring the public in while you’re working on a draft report.”

The audit report given to The Independent was marked “draft.”

But that is no reason to avoid public discussion of the audit findings, Commissioner Jason Marks said.

“This (audit report) is not going to be changed,” Marks said to the other commissioners and staff. “We’ve been told to address it and the press has it already. Why are we trying to hunt down a leak and sweep this under the rug? What do you guys think your job is? Who do you think you work for?”

Commissioners David King, Jerome Block, Jr. and Theresa Becenti-Aguilar remained largely silent during the contentious exchange between Jones and Marks.

The audit report and the Division’s final corrective action plan, written in response to the audit report, should be discussed in public, Marks said.

“Exactly why is this confidential, legally?” Marks asked. “And as a policy issue, what are you guys trying to hide? The purpose of the Open Meetings Act is that the citizens to whom we’re accountable know what their government is up to. … The purpose of the law is not to protect us from being embarrassed.”

But state law allows the insurance superintendent to declare documents from other organizations to be “confidential” and exempt from public disclosure, Division attorney David Barton told commissioners.

The NAIC considers most aspects of its accreditation process to be confidential and objected to the publication of its audit report, NAIC officials told The Independent.

Division officials were not attempting to hide anything, but rather to protect the integrity of the NAIC accreditation audit process, Barton said.

Jones was quick to agree that the PRC’s goal was to protect the “sanctity” of the process.

Citing executive privilege, Barton said the NAIC audit report and the Division’s corrective action plan were works in progress that should not be disclosed to the news media before a follow-up NAIC audit scheduled for next summer.

“I’d say once it’s approved by the superintendent for release to the NAIC, it’s a final document,” Marks said.

The Commission’s discussion of the audit report’s findings and corrective action plan has been delayed three times in the past two weeks.

Last week, Superintendent of Insurance John Franchini was scheduled to present the audit’s findings in public, but that meeting was postponed. Franchini and some commissioners then sought a closed-session discussion of the audit, arguing that personnel issues raised by the audit prevented a public discussion.

But after The Independent published the audit, which did not name any staffers, Franchini asked to meet separately with each commissioner rather than addressing the audit findings at a Commission meeting.

“I have real concerns when the insurance superintendent wants to meet with us individually instead of in public,” Marks said.

New policy will force PRC employees to seek permission before speaking to reporters

Currently, PRC employees are supposed to tell the chief of staff about conversations they have with reporters.

“The policy doesn’t necessarily prevent employees from talking to the media but we have to tighten that up a little,” Rivera said.

The new policy will require that employees get prior permission from Rivera before talking with reporters, Rivera said.

“One thing we’re looking at is having reporters visit with employees in the office next to my office,” Rivera said. “I may or may not chose to sit in on those meetings.”

But Rivera should bargain with the public employee’s union if he’s going to change a policy affecting the terms and conditions of employment at the PRC, according to Baca.

“There’s already a policy on talking to the media, first of all,” Baca said. “The policy hasn’t changed in six or seven years. If they want to change the policy, they need to bargain with the union. They’ve got to bargain in good faith.”

Division Compliance Director Johnny Montoya had called for the chief of staff to improve transparency and ethics at the PRC. Montoya was not available Tuesday to comment on Rivera’s plans for stricter control of employees’ contact with reporters.

“It was like the Nixon White House in there today,” Marks commented after the meeting. “We shouldn’t be chasing after whistle-blowers.”

“They’re trying to cover it all up and keep it from being released to the public,” Marks told The Independent before Tuesday’s Commission meeting.

Last week, Commissioners Jerome Block Jr., Sandy Jones and David King all voiced support for discussing the report in private.

The National Association of Insurance Commissioners (NAIC), a national accrediting organization, has placed the Division on probationary status, The Independent reported last week. The Division is the only state insurance-regulating agency in the U.S. currently facing probationary accreditation, Superintendent of Insurance John Franchini acknowledged

The Independent last week published a scathing draft NAIC audit report describing inadequate staffing, staff training and oversight of the insurance industry by the state Insurance Division.

The Division has not yet disclosed other, related records requested by The Independent Aug. 17 under the state public records law.

Franchini said last week his failure to convey the NAIC audit findings to the commission had been “inadvertent” and asked that he be allowed to present the findings to the commissioners Tuesday in a meeting that would not be open to the public.

The PRC has already twice delayed public discussion of the report, which was on the commission’s agendas for Sept. 21 and Sept. 23.

“Originally, we were going to discuss the corrective action plan today (Sept. 28), but it’s not on the agenda,” Marks said before Tuesday’s meeting. “I asked why and the General Counsel said it’s because we don’t want to discuss the audit in an open meeting. I said I wanted it on the agenda.”

The Commission is scheduled on Tuesday’s meeting agenda to discuss Franchini’s request for a closed-hearing discussion.

Photo by Rick Z.

Just a week after the San Bruno blast, Mountainair, N.M. town officials appearing before the PRC Tuesday found commissioners reluctant to approve what they had expected to be a routine regulatory waiver for town pipeline fittings that do not comply with federal pipeline safety requirements.

“We’d hate to see the town blow up,” PRC chairman David King said at the hearing.

Commissioner Jason Marks said utilities needed to do more to ensure public safety.

“There’s this pattern of companies doing something but not doing enough, not taking things seriously enough,” Marks said. “It’s not that they don’t care. The problem is that the responses aren’t sufficiently large, given the scale of the dangers.”

Federal pipeline safety regulations can be waived by state regulators under certain circumstances, but commissioners tabled the proposed waiver pending further review and research by Pipeline Safety Bureau staff and the town.

The commissioners were overly cautious, Mountainair officials complained.

“They’ve been in the ground since 1988,” Mountainair Mayor Chester Riley said of the polyethylene pipeline fittings in question. “We’ve never had a problem with anything in this town. I’ve been here a long time. I’ve just took over in March, but everything was OK.”

“I think we need to look at things objectively,” Marks said. “We did that on the PNM gas leak. That was an extremely dangerous condition, according to all testimony – an explosive combination of gas in a heavily traveled area. Mountainair is a potential problem. I suggested we look into the fittings and whether they’re robust. We also heard that the Pipeline Safety Bureau has identified and addressed leaks in the (Mountainair) system that were not connected to these polyethylene fittings.”

“We need to approach all these things objectively but we cannot compromise on safety,” Marks said.

Public Regulation Commission (PRC) regulators recently fined PNM a record $371,000 for a potentially explosive 2008 PNM pipeline leak in Albuquerque.

As in the case of the two-month long 2008 leak at the busy intersection of Albuquerque’s Carlisle and Montgomery Blvds, gas company workers in California repeatedly visited the site of the San Bruno leak without fixing it — and failed to warn locals of the explosive hazard, according to press reports quoting outraged San Bruno residents.

San Bruno residents’ anger echoed complaints by business owners in Albuquerque, where PNM work crews failed to warn residents and businesses of the explosive hazard posed by a gas leak beneath the intersection.

“I smelled gas in the back and thought there was a leak at the meter, so I called it in,” recalled Albuquerque florist Robert Torres of the 2008 leak. “Nobody took smoke breaks out back, thank God.”

The crater left by the San Bruno explosion was 15 feet deep.

The Montgomery and Carlisle leak in Albuquerque could have left a “huge crater” in the intersection had a lit cigarette have been dropped on a manhole, state Pipeline Safety Bureau chief Jason N. Montoya recently told The Independent.

New Mexico has one of the nation’s deadliest pipeline accident records, according to a recent report by the National Wildlife Federation. In 2000, a campfire near a leaking natural gas pipeline southeast of Carlsbad caused an explosion that killed 12 campers, including five children. The following year, a small gas pipeline leak in Santa Fe led to an explosion that leveled a business building after an employee lit a cigarette.

After a pipeline fire in northwest Albuquerque at Paseo del Norte and Golf Course Road last month, Montoya noted that companies commonly wait until a pipeline fault causes problems to locate and repair corrosion issues.

“The first lesson of San Bruno is the terrible cost of being complacent. We all feel a lot of remorse over what’s happened out there. A guy from PG&E was on television the other night saying money cannot bring back lives and lost homes and disrupted lives. You just cannot afford complacency. When leaks are identified they need to be dealt with immediately. That’s the message we sent a few months ago with the fine against PNM,” Marks said.

The Commission cut PNM’s proposed construction of new solar photovoltaic plants from a proposed 84 megawatts down to 45 megawatts, citing an original $40 million project price tag that would have been passed along to consumers. The approved projects will cost much less — about $15 million.

Electric utilities in New Mexico must generate 10 percent of their power from renewable sources by 2011. At least 20 percent of renewable energy must come from solar sources.

PNM will meet its state-mandated renewable energy requirements with purchases from a solar electric thermal facility in Belen and for a solar storage demonstration.

“PNM’s original plan came in way too expensive,” Commissioner Jason Marks said. “Commissioners reached a compromise rather than throw the whole plan out and start from scratch. I think it’s a win-win solution because it moves us forward while keeping it under our reasonable-cost threshold.”

Limiting PNM’s investments in solar plants now will encourage the company to invest in other solar and renewable generation capacity in the near future, Marks said. Photovoltaic plants cannot efficiently store energy over night or during overcast days, Marks said.

Marks has championed efforts to build solar-thermal plants in the state. Solar-thermal plants are a younger and currently more expensive technology that allows storage of solar-derived electricity for non-peak production times – a system better suited to conditions in the desert Southwest, Marks said.

Solar thermal plants’ costs are expected to drop over coming years, as the technology becomes more widely used, Marks said.

PNM’s original proposal met fierce opposition from consumer and environmental groups because the company had planned to reduce its support for rooftop “distributed production” solar systems.

“In the end, we’ll get more solar for less money,” Marks said. “We’re protecting the ratepayers from excessive cost impacts right now and also leaving some money available under our cost caps to implement new programs, as opportunities arise.”

The $1 million fine is higher than any previously assessed by the Commission. The previous record was the $371,000 PNM was fined July 7 for an unreported and potentially explosive gas leak at a busy Albuquerque intersection.

Among other violations, the utility has failed to build a waste water discharge pipeline to the Rio Grande. Currently, treated waste water from the sewer treatment facility is stored in the Picacho Hills Country Club golf course ponds and is used to irrigate the golf course greens.

The $950,000 fine could be interpreted as excessive and as representing a personal “vendetta” against Blanco, Commissioner Jason Marks warned. The Picacho Hills utility is small, with only 800 customers.

But Commissioner Sandy Jones said ”It’s justified. …He has a year to pay it.”

Blanco has until Sept. 1, 2011 to pay his $950,000 fine, but most of the water company’s $50,000 fine — $35,000 — is due Sept. 15, 2010.

The Commission has referred possible witness intimidation and perjury charges against Blanco to the state Attorney General’s office, and will ask the district court in Las Cruces to force the utility into receivership, replacing Blanco with a court-appointed trustee.

If Blanco quickly surrenders control of the utility and the utility builds the discharge pipeline, portions of the fines may be rescinded, Jones and PRC chairman David King said.

Blanco has said the fines are a personal attack intended to force his surrender of valuable water rights. Blanco will appeal the penalties and efforts to force his utility into receivership to the Supreme Court, he has told The Independent.

“This is a dog and pony show,” Santa Fe resident Vance Ley told The Independent at the state Division of Insurance hearing in Santa Fe. “It’s very unlikely they’ll rescind the increase.”

The company said it had to raise rates because it has lost $20 million on New Mexico policies over the past three years.

Rates have steadily gone up, despite billions in reserves

But this year’s rate hike was just the most recent in a seven-year string of annual premium increases on Blue Cross policyholders who purchase their own health insurance, Division records show.

During that time, Health Care Services Corporation, of which Blue Cross Blue Shield NM is a division, has accumulated $7.2 billion in surplus reserves, according to new second-quarter corporate earnings reports, Consumers Union attorney Sondra Roberto said.

That would be enough money to absorb Blue Cross’s claimed losses for 1,000 years, a policyholder pointed out.

“This is a very profitable company,” Roberto said. “Its surpluses since 2009 have grown from $6.7 billion to $7.2 billion. Any of its relatively small losses pose no threat to the company.”

The company should use some of its surplus to absorb losses and avoid raising rates on policyholders during a recession, Roberto and several policyholders argued.

But state Division of Insurance staff, the Attorney General’s office and Blue Cross attorneys all asked Division hearing examiner Alan Seeley to reaffirm the rate hike.

Even the Attorney General’s office’s expert witness Allan Schwartz – who reiterated earlier testimony that Blue Cross had not sufficiently documented its claimed cost figures, and whose analysis found the insurer’s rate filing had exaggerated company losses – said the 21 percent increase was “reasonable, given the circumstances.”

Blue Cross’s rate hike had been unfairly singled out for scrutiny, attorney Paul Bardacke argued.

The rate hike “is in line with a 24 percent increase the state approved for Presbyterian – Blue Cross’s major competitor in the New Mexico market – just last year,” Bardacke said. (The Independent requested Division of Insurance records on Presbyterian’s rate history in July, but Division staff did not locate the records until Wednesday evening. The records confirmed Bardacke’s claim that Presbyterian was granted a 24 percent insurance rate hike in 2009.)

Opposition to Blue Cross’s rate hike was only heard after the hearing, during a public comment period.

“I came to this hearing under the impression this was still under discussion and public opinion would be taken into account, but obviously, I was mistaken,” Santa Fe resident Jack Huberman said after the hearing. “Now I’m wondering what we’re all here for. Last September – not even a year ago – we had another 24 percent rate increase. Now there’s another increase for 21 percent. I hope that’s taken into consideration.”

Of the five Public Regulation Commission (PRC) commissioners, who oversee the semi-autonomous Division and pushed for public hearings on Blue Cross’s rate hike, only Jason Marks attended the majority of the all-day hearing. AG Gary King was not present.

Blue Cross executives brought bodyguards to hearing

The outspoken audience of more than 100 people repeatedly hissed, groaned and shouted at Blue Cross attorneys during the hearing.

The audience was peppered with at least ten armed plain-clothes security officers, including at least five bodyguards hired by Blue Cross to protect the company’s executives and attorneys. Other Blue Cross bodyguards were deployed throughout the building, monitoring stairwells and exits.

Several PRC insurance division fraud investigators provided security for Superintendent of Insurance John Franchini.

Blue Cross executives left the hearing before the public comment period, surrounded by their security contingent.

“Where are you going? Why are you leaving now?” audience members shouted during the Blue Cross executives’ exodus.

Commissioners expect the increase will be reaffirmed

The 21 percent rate hike resulted from an April settlement between Division staff, the AG’s office, Blue Cross and policyholder Jody Neal-Post, who had filed a lawsuit in response to the Division’s earlier approval of a 24.6 percent increase.

The rate settlement — reached the weekend immediately before a scheduled public hearing on the rate hike –outraged policyholders and PRC commissioners, leading to insurance superintendent Morris “Mo” Chavez’s resignation.

Acting superintendent Johnny Montoya subsequently suspended the rate hike pending Wednesday’s public hearing.

But many policyholders in the audience said they held out little hope that suspension would survive.

Their pessimism was reasonable, two PRC commissioners told The Independent.

“I don’t want to get people’s hopes up,” Marks said. “The fact is, this is an uncontested settlement.”

“I expect the rate increase will be reaffirmed,” Commissioner Jerome Block, Jr. said before the hearing. “The data is there. The insurance division staff – their work was not flawed. At least the public has a chance to vent its opinion and hear why the rate (hike) is justified. If it’s granted, at least they’ll know why it is.”

Block briefly attended the hearing Wednesday morning but did not return after lunch, to the consternation of some of his Santa Fe-area constituents.

Attorney General defended rate increase compromise as ‘a bird in the hand’

Although Assistant Attorney General Brian Harris asked Seeley to reaffirm the rate hike, he emphasized the AG’s agreement to the April settlement had not been the result of confidence the hike was justified.

The settlement cut the rate hike from 24.6 percent to 21.3 percent, on average, for 40,000 New Mexicans, Harris said.

“It was very much a matter of the bird in the hand versus two in the bush,” Harris said. “I believe the AG got the best result he could under the circumstances.”

AG Gary King felt “honor-bound” to support the settlement, Harris said.

“One has to wonder, if the AG thought there was insufficient support (for the rate hike), why he’d approve it,” Bardacke said.

“It wasn’t a question of having enough data – we knew we didn’t,” Harris responded. “We also knew doing anything about that would be difficult. We had a bird in the hand worth $3 million a month to New Mexican policyholders.”

Cost containment efforts questioned

Illinois-based Health Care Services Corporation (HCSC), of which Blue Cross Blue Shield New Mexico is a division, has pushed to contain rising costs to mitigate rate hikes’ impacts on patients, its attorneys argued. Corporate layoffs and the construction of a new headquarters building in Albuquerque have saved the company more than $1 million a year, they said.

But Blue Cross and HCSC executives’ salaries and bonuses have not been cut, Blue Cross Vice President Kurt Shipley conceded, to howls from the audience.

Top HCSC officials have received bonuses of up to $15 million a year, according to filings with the Illinois Department of Insurance.

“I’ve heard so much mumbo jumbo this morning my head is spinning,” said Santa Fe physician Timothy Wong. “Mark my words: next time this year, they’ll come back to ask for another rate increase.”

Many policyholders have had to increase their deductibles to help minimize annual rate hikes, they said. But Blue Cross officials have said they will no longer be allowed to do that, policyholders complained.

Health insurance costs more in rural areas, Blue Cross says

Insuring rural New Mexicans is more expensive than insuring urban policyholders, Blue Cross Blue Shield officials and attorneys repeatedly argued when explaining losses on individual market policies over recent years.

“But I didn’t hear evidence the rate of increase is higher in rural than urban areas,” Commissioner Marks noted. “If that was the case, it would buttress Blue Cross’s case. I also did not hear questions or any analysis of whether operating expenses factored into these rates – or whether they depending on anything but wishful thinking. One could ask whether the company has behaved prudently in incurring expenses (such as) office buildings they’ve built, executive compensation.”

State senator calls for an independent analysis

Sen. Dede Feldman, D-Albuquerque, called on the Division to seek an independent analysis of Blue Cross’s rate filing from a contract actuary.

“This proceeding’s been somewhat awkward since all the testimony is in defense of the settlement,” Feldman said. There’s been no opportunity for those who disagree with the 21.3 percent to ask questions. … It would behoove us all to take a deep breath and get a truly independent actuarial opinion.”

Incoming insurance superintendent John Franchini said that was a good idea for future cases, but that it was too late to do so in this case.

But several policyholders liked Feldman’s idea.

“I received rate increases in 2005, 2006, 2008, 2009 and 2010,” policyholder Ed Oppenheimer said. “When I try to change plans, I start from scratch – preexisting conditions, the whole thing. But if Blue Cross wants to change my rates, I just get a letter in the mail.”