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Avangrid to acquire PNM Resources in $4.3B deal

Copyright © 2020 Albuquerque Journal

Public Service Company of New Mexico high-voltage power lines extend across the West Mesa. (Journal file photo)

New Mexico woke up Wednesday morning to the jolting news that PNM Resources – the parent firm of Public Service Company of New Mexico – has reached an agreement to be acquired by Connecticut-based utility and renewable energy development company Avangrid for $4.3 billion.

The deal, which the boards of both companies have unanimously approved, could represent a major change in the state’s electricity industry. PNM is the largest electric generation, transmission and distribution utility in New Mexico, serving more than 530,000 customers around the state. Its history dates back more than a century to 1917, when it was originally incorporated as the Albuquerque Gas and Electric Co.

Apart from PNM, parent firm PNMR also owns Texas New Mexico Power, a transmission and distribution utility that delivers electricity to about 260,000 customers in West Texas.

Under the newly announced deal, both utilities would be merged into Avangrid, which will acquire all outstanding stock in PNMR, paying shareholders $50.30 per share in cash. That’s a 19.3% premium over the 30-day average price of PNMR shares as of Tuesday.

Both PNMR and Avangrid are public companies whose shares are traded on the New York Stock Exchange.

PNMR and its utilities are being acquired by a national and international energy powerhouse. The majority of Avangrid’s stock is owned by Spanish company Iberdrola, S.A., a global mammoth ranked as the world’s third-largest electric company.

Avangrid operates across the U.S. It owns eight electric and natural gas utilities serving about 3.3 million customers in New York and three other Northeastern states. And it’s a leading renewable energy firm, ranking as the nation’s third-largest wind developer, with more than 7.4 gigawatts of installed wind and solar facilities around the country. That includes about 1.9 GW of wind generation in New Mexico and Texas.

Mixed reactions

Reactions to the news were mixed, generating many questions about PNMR’s future direction after the merger. Avangrid’s reputation as a clean energy-focused company brought praise from some groups, although most said they still know little about the company and its plans in New Mexico.

Some are concerned about whether PNMR’s long history of charitable giving and assistance for local communities would be affected by moving from a homegrown, locally based company to a firm that’s based in the Northeast and is largely controlled by a multinational company based in Spain.

PNMR said in a news release that after the acquisition, the newly merged entity will maintain the company’s “historical charitable contribution levels” through its existing programs.

But Paul Gessing, president of the Rio Grande Foundation – a free market think tank that focuses on public policy issues in New Mexico – said that remains to be seen.

“For better or for worse, PNM is the main benefactor for organizations like the Greater Albuquerque Chamber of Commerce and many other community groups,” Gessing told the Journal. “PNM is one of the biggest charitable giving organizations here, but it’s different when it’s a multinational corporation. I’m not sure the new company will have the same amount of commitment to the community.”

For their part, the companies involved said the acquisition will bring major financial resources to PNMR, supported by the global wealth of Iberdrola. That, in turn, can help facilitate efforts by PNM to replace its fossil fuel generation in New Mexico with renewable resources over the next two decades under the state’s Energy Transition Act, which requires the local utility to derive 50% of its electricity from renewables by 2030, 80% by 2040, and carbon-free generation by 2045.

In fact, the companies stressed their “continued commitment” after the merger to push forward with abandoning the coal-fired San Juan Generating Station near Farmington in 2022, and to pursue an early exit from the nearby Four Corners coal plant before 2031, when that facility’s co-ownership and coal-supply agreements expire.

PNM owns a 200-megawatt stake in the Four Corners plant. The utility sees potential for additional customer savings by exiting the plant sooner than 2031, opening the door to bring more renewable resources onto the grid in support of the Energy Transition Act, the companies said.

“We are excited to be part of this transaction that provides so many benefits to our customers, communities, employees and shareholders,” Pat Vincent-Collawn, PNMR chairman, president and CEO, said in a statement. “Our combined companies provide greater opportunities to invest in the infrastructure and new technologies that will help us navigate our transition to clean energy while maintaining our commitments to our local teams and communities.”

PNM Resources Chairman, President and CEO Pat Vincent-Collawn

Leadership shifts

Vincent-Collawn will step down from the company after the transaction closes sometime over the next year. So will Chuck Eldred, executive vice president for corporate development and finance, and Patrick Apodaca, senior vice president and general counsel.

Both PNM and TNMP will keep their headquarters in New Mexico and Texas, and PNMR will continue to be managed locally, the companies said. PNMR Chief Financial Officer Don Tarry will continue to oversee PNM and TNMP operations after the acquisition.

No layoffs are expected at either PNMR or its two utility subsidiaries, which together employ about 1,700 people, company spokesman Ray Sandoval said.

“We don’t anticipate any changes in the workforce at all,” Sandoval told the Journal.

Rather, the merger could offer more jobs as Avangrid brings additional resources to finance investments in renewables, transmission and other infrastructure.

“The electric industry has gotten more challenging with the transition to clean energy, and for a company of our size, the investments needed to get there are harder to manage,” Sandoval said. “The merger benefits us by offering access to a lot more resources to pursue the transition.”

Regulatory steps

The acquisition must still be approved by shareholders, the state Public Regulation Commission, regulators in Texas, and a number of federal agencies, including the U.S. Justice Department. That process could take from six to 12 months.

PRC Chairman Stephen Fischmann said he looks forward to learning more about Avangrid when the merger proposal is adjudicated at the commission.

“I know too little right now to have any particular opinion one way or another about the merger,” Fischmann told the Journal. “It appears to be a good deal for PNMR shareholders, and that’s good for them. But I need to learn a lot more about what they’re proposing.”

Commissioner Cynthia Hall said that she also knows little about Avangrid but that the company’s reputation for prioritizing clean energy bodes well for New Mexico’s transition to carbon-free generation.

“Investment in renewables appears to be a big part of Avangrid’s business, and that’s good,” Hall said. “I think ownership by a large corporation with extensive experience in developing clean energy will help with a smooth roll out of renewable resources in the state.”

For Avangrid, acquiring PNMR and its two utilities will offer that company a platform to expand its renewable energy development in the Southwest, said Avangrid CEO Dennis Arriola.

“This merger between Avangrid and PNM Resources is a strategic fit and helps us further our growth in both clean energy distribution and transmission, as well as helping to expand our growing leadership position in renewables,” Arriola said in a statement. “Our two companies also share the same values as we both are passionate about our customers, employees and the communities we serve.”

Avangrid’s support for clean energy drew praise for the merger from Gov. Michelle Lujan Grisham spokeswoman Nora Meyers Sackett.

“The support of Avangrid will bring more resources to the table to assist the state in reaching the essential benchmarks set by the landmark Energy Transition Act, a top priority of the governor and her administration,” Meyers Sackett told the Journal in an email. “New Mexico continues to work to build additional energy transmission infrastructure, enabling New Mexico to export renewable energy to states across the West, and this agreement will bolster those efforts.”

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