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Merger could speed up renewable energy development

FILE – This Dec. 29, 2012, file photo ,shows the exterior of Spanish energy company Iberdrola is seen, in Madrid, Spain. The parent company of New Mexico’s largest electric utility will become part of energy giant Iberdrola’s global holdings under a multibillion-dollar merger. Under the agreement announced Wednesday, Oct. 21, 2020, Iberdrola’s majority-owned U.S. subsidiary Avangrid will acquire PNM Resources and its assets in New Mexico and Texas. The merger will require approval from a number of state and federal regulators in a process that’s expected to take the next 12 months. (AP Photo/Andres Kudacki, File)

Copyright © 2020 Albuquerque Journal

Avangrid’s acquisition of PNM Resources could accelerate Public Service Company of New Mexico’s transition to clean energy, including an early PNM withdrawal from the coal-fired Four Corners Generating Station near Farmington, PNMR executives said Wednesday.

PNMR and Avangrid – a Connecticut-based utility operator and renewable energy company – announced early Wednesday that Avangrid will acquire PNMR for $4.3 billion. The transaction, which is expected to close in the second half of 2021 if state and federal regulators approve the deal, will substantially boost PNMR’s access to financing to support PNM – its local utility subsidiary – in efforts to replace fossil fuels with carbon-free generation over the next two decades, PNMR executives told investors in a conference call.

Under the state’s Energy Transition Act, PNM must convert its grid to 80% renewables by 2040 and 100% carbon-free sources by 2045. That conversion includes the current plan to abandon the coal-fired San Juan Generating Station in 2022 and replace that electricity with new solar generation and battery storage. The state Public Regulation Commission approved the project this summer.

PNM is now also looking to exit the Four Corners facility before that plant’s co-ownership and coal-supply agreements expire in 2031. PNM owns a 200-megawatt stake in the plant.

But replacing coal with renewables requires sizeable new investment in the grid, including construction of wind, solar and other facilities, and a lot more transmission.

That’s a key reason why PNMR agreed to merge with Avangrid, said PNMR chairman, president and CEO Pat Vincent-Collawn.

“This (merger) is the right move for PNMR to advance our company’s transition to clean energy and to continue providing reliable electric service,” Vincent-Collawn told investors. “Exiting out of coal, developing clean energy and investing in the grid create exceptional challenges that we can better manage as part of a larger organization.”

Avangrid’s energy goals are wholly aligned with the transition to clean energy, Vincent-Collawn added.

Heavyweight player

Avangrid is the country’s third-largest wind developer. It already operates the 298-megawatt El Cabo Wind Farm in Torrance County near Encino, and it’s now building the 306-MW La Joya Wind Farm just south of El Cabo. That project is expected to come online by December.

“Avangrid is a leading sustainable energy company in the U.S.,” Vincent-Collawn said. “It’s goal is to be carbon-neutral by 2035.”

And Avangrid brings substantial resources to the table, said Chuck Eldred, PNMR executive vice president for corporate development and finance. Avangrid, which trades on the New York Stock Exchange, has the financial backing of Spain’s Iberdrola, S.A., which owns an 81.5% stake in the company.

Iberdrola, which ranks as the world’s third-largest electric company, already provided a financing commitment letter to Avangrid to support the acquisition of PNMR.

Avangrid currently has a market capitalization of $16.7 billion and assets worth $35 billion. The market capitalization of the merged company will top $20 billion, and assets will be worth more than $40 billion.

Avangrid also has $5.5 billion in credit facilities it can draw on, Eldred said.

“For a stand-alone company of our size with all the challenges we face in executing on the transition to clean energy, Avangrid presented a great opportunity to merge with a company that really aligns with ours,” Eldred said. “It gives us the benefit of a healthy balance sheet and financial strength going forward.”

Both Moody’s and Standard & Poor’s told PNMR they were raising PNMR’s outlook to credit positive after the merger announcement, Eldred said.

Regulatory hurdles

The merger must still be approved at the state level by the PRC, and also by a number of federal entities. But Avangrid is fully committed to pursuing PRC approval. In fact, the merger agreement includes a “break-up fee” of $130 million that Avangrid would have to pay PNMR if Avangrid does not put forward its “best efforts” to win PRC approval, resulting in commission rejection of the deal, Eldred said.

Making an early exit from the Four Corners coal plant may be the first boost related to renewable energy resulting from the merger by helping PNMR to navigate its withdrawal and replace the electricity with renewable resources.

“We are actively pursuing an early exit from Four Corners now, although I can’t discuss specifics,” Eldred told investors. “… We’re well underway with a plan to position ourselves to file for (Four Corners) abandonment before the (merger) with Avangrid is even approved.”

Still, environmental organizations and renewable advocacy groups expressed mixed reactions to the merger.

Pat O’Connell, Western Resource Advocates’s senior clean energy policy analyst in New Mexico, called the merger “positive news.”

“Avangrid is a leader in clean energy development in the U.S. and worldwide, and it can help PNM and the state move forward on carbon-free generation,” O’Connell told the Journal. “… To the extent that both companies help each other move the renewable ball further down the field, it’s positive.”

But Sierra Club Rio Grande Chapter Director Camilla Feibelman said a lot of due diligence is still needed to fully assess Avangrid’s plans in New Mexico.

“Overall, we want to see them lead – even double down – on the Energy Transition Act to move as fast as possible on renewable energy,” Feibelman said. “We also have concerns about how the merged company would manage an early exit from the Four Corners plant, because it’s not enough to just offload their shares and leave behind potential liabilities. We want them to commit to cleaning up afterwards through a well-planned transition to renewable resources.”

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