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PNMR, Avangrid promise benefits in proposed merger

Copyright © 2020 Albuquerque Journal

Public Service Company of New Mexico customers could collectively receive a $25 million credit on their electric bills over three years if state regulators approve the utility’s merger with Connecticut-based company Avangrid.

That temporary service discount – plus commitments to hire an additional 100 employees, retain the current workforce for at least two years, maintain charitable contributions and programs and pump $2.5 million in new money into local economic development – are contained in a new filing for Public Regulation Commission approval of the proposed merger.

Avangrid and PNM’s parent firm, PNM Resources, announced an agreement Oct. 21 for Avangrid to acquire PNM Resources for $4.3 billion. But the merger first needs approval from the PRC, and from state regulators in Texas where PNM Resources operates a separate utility, Texas New Mexico Power.

The two companies filed documents and testimony for approval last week with regulators in both states, providing the opening salvo for public hearings that the companies expect to culminate in merger approval in the second half of 2021.

If approved, PNM will continue to be regulated by the PRC after the merger, and the utility will remain locally managed and headquartered in Albuquerque, said PNM Senior Vice President for Public Policy Ron Darnell.

“Both PNM and its customers and New Mexico as a whole will benefit from the proposed merger,” Darnell told the Journal in an email. “… Avangrid will strengthen PNM’s financial health, improve PNM Resources’ capital structure, and pay a fair price to shareholders.”

Environmental and consumer advocacy organizations had mixed initial reactions. Most are generally upbeat that Avangrid, an industry leader in renewable energy, will bring critical expertise and needed capital to New Mexico’s goals for transitioning from fossil fuels to carbon-free generation over the next two decades.

But some said they’ll use PRC hearings to push for greater public benefits beyond what’s contained in the initial merger filing.

“We need to carefully examine their proposals,” said Stephanie Dzur, attorney for the Coalition for Clean Affordable Energy. “We see their filing as an opening offer, and it’s really not so impressive at this point.”

The companies listed numerous “benefits and protections” in their filing, including:

• $25 million in collective “rate credits” to customers over three years following the merger

• $2.5 million in shareholder money for local economic development over two years

• Continuation of charitable donations at “historical levels” by PNM for at least three years, with an expectation that the PNM Resources Foundation will do the same

• Continuation of existing low-income assistance programs for at least three years

• Creation of 100 new full-time jobs and no involuntary employee terminations for at least two years, except for cause or layoffs associated with coal plant closures

• No reduction in wages or benefits for two years

Avangrid also promises to maintain ownership of PNM for at least five years, extinguish all PNM Resources’ debt after the merger to improve its credit metrics, and retain control by local management over operations.

PNM Resources chairman, president and CEO Pat Vincent-Collawn will step down after the merger, paving the way for current Chief Financial Officer Don Tarry, a 25-year PNM employee, to oversee utility operations.

Retaining experienced local management could generate support for the merger with PNM, a homegrown utility with century-long roots in the state.

“Avangrid recognizes the value that local management’s knowledge and expertise bring to serving communities in which PNM operates,” the company said in the regulatory filing.

Avangrid is a national company with operations in 24 states and $35 billion in assets. It manages two subsidiaries: Avangrid Networks, a holding company that owns eight electric and gas utilities in the Northeast, and Avangrid Renewables, a wind and solar development firm.

Global energy giant Iberdrola, S.A. – a Spanish firm that ranks as the world’s third-largest electric company – controls an 81.5% stake in Avangrid.

That financial muscle, plus Avangrid’s renewable development experience, could significantly boost PNM’s efforts to transition to carbon-free generation, the companies said.

“Avangrid is uniquely situated to support PNM’s transformation of its generation portfolio,” they said. “… As part of Avangrid, PNM will have the support of a well-qualified, financially strong parent with greater access to capital markets.”

That makes the merger attractive to environmental groups.

“The renewable development benefits generated a lot of initial enthusiasm,” said Dzur of the Coalition for Clean Affordable Energy. “We’re excited that big companies like Iberdrola and Avangrid recognize the value of investing here.”

Western Resource Advocates attorney Steve Michel said Avangrid can help advance the state’s energy transition.

“I’m hopeful that, at the end of the day, it can be approved with appropriate conditions,” Michel said.

But the CCAE and the Sierra Club Rio Grande Chapter, which intend to intervene in PRC hearings, said appropriate conditions mean significantly more public benefits than what’s been offered so far.

The $25 million credit is one point of contention. The reduction amounts to a 2.5% discount on customer bills, but that’s spread over three years, meaning just over $8 million per year, or less than a 1% annual credit on bills.

“That’s a drop in the bucket,” Dzur said. “They can do better.”

CCAE also wants longer-term guarantees on workforce retention, and more economic development assistance, such as funding for low-income consumers to weatherize their homes to cut electric consumption.

Sierra Club may ask Avangrid and PNM to seek early closure of the coal-fired Four Corners Power Plant before the current coal contract ends in 2031. PNM said in late October that the Navajo Transitional Energy Co. agreed to acquire PNM’s 13% stake in the plant, allowing PNM to exit Four Corners in December 2024, but Sierra Club and others criticized that as offloading its asset onto the Navajo Nation while allowing the plant to keep operating another seven years.

PNM will seek PRC approval for the NTEC deal separately from Avangrid merger proceedings, but Avangrid’s acquisition of PNM is contingent on PNM having a plan in place to exit Four Corners before the merger closes.

“If Avangrid is really committed to clean energy and decarbonization, then it needs to work with PNM to exit the plant in a way that leads to its closure,” said Sierra Club Rio Grande Chapter Director Camilla Feibelman. “They need to find a better way out of the plant that ensures it’s shut down.”


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