Copyright © 2021 Albuquerque Journal
PNM Resources’ top six executives could receive a combined $38 million in executive compensation if shareholders approve the company’s proposed merger with Connecticut-based energy giant Avangrid.
About $12.5 million of that would go to three departing execs as a “golden parachute.” The rest is earnings and benefits the six are entitled to under their employment contracts because of goals they have achieved and is compensation they would receive regardless of the merger.
The company has scheduled a special shareholder meeting for Feb. 12 to vote on both the merger and executive compensation. If the deal is approved, the investment banking firm Evercore will also earn a $36.5 million fee for brokering the deal.
Meanwhile, Avangrid has offered to pay utility customers in New Mexico a collective $25 million credit on their bills, paid out over three years – an amount that some say should be far more, given Avangrid’s financial strength.
Most environmental groups are upbeat about the merger, citing Avangrid’s national reputation as a renewable energy developer and the resources the company would bring to help build a clean energy grid in New Mexico.
But some environmental groups say the $25 million credit is too little, especially when compared with the generous compensation packages earned by PNMR’s leadership.
Intervenors – critics and advocates – will weigh in on the merger in the next few months before the state Public Regulation Commission, which must approve Avangrid’s acquisition.
“$25 million is not a lot, and it’s spread out over three years,” said Steve Michel, attorney with Western Resource Advocates, a likely intervenor in the coming PRC case. “How the utilities compensate management is really between them. What we need to look at is if ratepayers and the state as a whole are receiving the best outcome they can get.”
Stephanie Dzur, attorney for another likely intervenor, the Coalition for Clean Affordable Energy, said her group will urge the company to commit more to local ratepayers and communities, especially those affected by utility plans to pull out of two coal-fired plants in the Four Corners area – “and particularly when they’re talking about a … ‘golden parachute.’ ”
The executive compensation is included in the proxy statement sent to shareholders in advance of the meeting.
That statement describes the payouts in detail in a section titled “Golden Parachute Compensation” – an official Securities and Exchange Commission term – although only a portion of the payments are actually tied directly to the merger. Overall, the compensation represents total earnings and benefits the top six officers are entitled to under their employment contracts already approved in previous years by shareholders, PNMR spokesman Ray Sandoval said.
According to the proxy statement, after the merger, three of the executives would leave the company. Those three are Pat Vincent-Collawn, PNMR chairman, president and CEO; Chuck Eldred, executive vice president for corporate development; and Patrick Apodaca, PNMR’s senior vice president, general counsel and secretary.
Those three would receive a total of $29.5 million in compensation when they leave: $19 million for Vincent-Collawn, $6.8 million for Eldred, and $3.7 million for Apodaca, according to the proxy.
The three other executives who are not leaving would receive a combined $8.7 million.
Only the three departing officers will receive golden parachute payments if the merger is approved, Sandoval said. That parachute is a total of about $12.5 million of the combined $29.5 million in executive compensation assigned to the three, Sandoval said.
The golden parachute is a benefit called “change in control,” which is written into the existing executive employment contracts. It takes effect when executives leave the company through no fault of their own, such as acquisition by another firm, Sandoval said.
The overall compensation packages are not part of any specific terms and conditions negotiated by PNMR and Avangrid. Rather, they’re a basic component of executive-level employment in most publicly traded corporations, where top officers generally agree to “at-risk” pay that they expect to receive in future years if they meet agreed-upon goals and metrics.
The total compensation includes a combination of cash incentives and bonuses, stock equity in PNMR and employee benefits.
No ratepayer money is involved, only shareholder money. In fact, although shareholders will vote on the compensation at the Feb. 12 meeting, that’s only an “advisory” vote that will not affect the payout totals, which Avangrid would be responsible for paying after acquiring PNMR.
“PNMR has had ‘change in control’ arrangements in place with its executive officers for many years, and well before discussions with Avangrid,” Sandoval told the Journal.
Path to approval
Shareholders are already voting on the merger remotely, with final voting to take place on Feb. 12.
PNMR shareholders stand to benefit substantially from the deal, because Avangrid has agreed to pay $50.30 for every share of outstanding common stock, which is a 19.3% premium over the 30-day average price of PNMR shares as of Oct. 20, the day PNMR and Avangrid closed on their deal. That amounts to about $4.3 billion in an all-cash acquisition by Avangrid.
In addition, Evercore would earn $36.5 million for its services as PNMR’s financial adviser on the deal. PNMR contracted the investment banking firm in December 2018, first to seek out companies potentially interested in a merger, and then to broker the Avangrid acquisition through direct negotiations that started in the summer of 2019.
If the deal is executed, PNMR and its two utilities – Public Service Company of New Mexico and Texas New Mexico Power – would become subsidiaries of Avangrid.
However, apart from the vote by PNMR shareholders, the merger must still be approved by the state regulators.
PNMR and Avangrid filed together in November for approval by the PRC, which has since assigned the case to hearing examiner Ashley Schannauer. A week of public hearings with case intervenors is scheduled for May 4-12, preceded by one day of open public comment on May 3.
The $25 million ratepayer credit Avangrid offered as part of its request for regulatory approval would be divided among 530,000 PNM customers over three years, amounting to about $15.47 per year per customer – or about a $1.29-per-month average saving on bills.
Dzur, with the Coalition for Clean Affordable Energy, said her organization wants more direct benefits for customers.
“We see that $25 million as an opening offer,” Dzur said. “We hope that PNMR and Avangrid will continue to discuss with us what they can do for ratepayers.”
Most environmental groups see Avangrid’s considerable resources as a boon for New Mexico in achieving its renewable goals. Under the state’s Energy Transition Act, PNM must convert to 50% renewables by 2030, 80% by 2040, and 100% carbon-free generation by 2045.
Avangrid’s financial might was key to encouraging merger negotiations with PNMR, which started seeking potential buyers in January 2019 to boost the company’s resources, according to PNMR’s proxy statement.
In fact, four other companies passed on a deal with PNMR, in good part because they believed the company’s shares on the New York Stock Exchange are overvalued, according to the proxy. And despite that, PNMR was seeking a premium on its stock price from potential buyers.
Avangrid, however, is a powerhouse with strong international backing. It’s 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 firm that now ranks as the country’s third-largest wind developer.
Global energy giant Iberdrola, S.A. – a Spanish firm touted as one of the world’s largest electric companies – holds an 81.5% stake in Avangrid.
Avangrid is primarily interested in expanding its renewable development in the Southwest, and sees the PNMR acquisition as a key beachhead for building wind and solar here for local consumption and for export across the region. That’s the central goal driving its merger with PNMR, said George Fisher, a former investment adviser and now founder and editor of the monthly publication Guiding Mast Investments.
Despite Avangrid’s national standing as a wind developer, its renewables business currently accounts for just 19% of its annual revenue, compared with 81% from its northeastern utility holdings, so it’s looking to pursue a lot more wind and solar development, Fisher said.
Most new wind development opportunities in the Northeast are for offshore generation, which is far more expensive than land-based wind or solar.
“The Northeast is a very difficult place to generate large quantities of renewable power onshore,” Fisher told the Journal. “Avangrid’s European parent clearly wants access to less expensive, land-based renewable development, and New Mexico is primed for more wind and solar. I think that’s the driving factor.”
Given Avangrid’s financial strength, intervenors in the PRC case say they’ll seek more commitments to assist ratepayers and local communities, especially in the Four Corners region, where hundreds of workers face layoffs when PNM pulls out of the coal-fired San Juan Generating Station, near Farmington, in 2022. PNM also filed in early January for PRC approval to abandon the nearby Four Corners Generating Station in December 2024, seven years ahead of schedule.
Avangrid conditioned its merger with PNMR on that early withdrawal from Four Corners because it doesn’t want coal generation on its books when it takes over.
The Coalition for Clean Affordable Energy and others say Avangrid should accept a bigger role in buffering the impact of abandoning coal.
“We want a just transition for those communities as we shift from fossil fuels to renewables, especially with Avangrid demanding an early withdrawal from Four Corners,” Dzur said. “We’d like to see more money for that, particularly when they’re talking about a … golden parachute. What about a just transition for all the other PNM employees at the coal plants who have also worked for the company for years.”
CCAE will also push for new assistance for low-income consumers to upgrade and weatherize their homes to improve energy efficiency, allowing them to cut consumption and lower their bills.
Sandoval said comparing pre-existing executive compensation to the rate credit and other customer financial benefits from the merger is like comparing apples and oranges.
“No customer funds are used to fund these executive compensation agreements,” Sandoval said. “Customer financial benefits from the merger extend far beyond the proposed rate credits.”
In addition to the $25 million customer credit, Avangrid has also offered to pump $2.5 million into local economic development initiatives if the merger is approved. And it’s committed to hiring 100 new employees, retaining the current workforce with no reductions in wages or benefits for at least two years, and maintaining current levels of PNMR charitable contributions and programs for at least three years.
PNMR says customer benefits from the merger outweigh the costs, including leveraging the financial strength of Avangrid to lower operational costs through bulk purchasing of inventory such as poles and transformers, and from improved credit metrics to reduce the cost of debt.
“Our new parent company’s balance sheet will help achieve lower interest on debt, and the state’s economy will benefit from the jobs that are created by the merger,” Sandoval said.
Still, Sierra Club Rio Grande Chapter Director Camilla Feibelman called Avangrid’s offer of $2.5 million in economic development assistance “a pittance.”
“It’s encouraging to see a renewable energy company committing to New Mexico,” Feibelman said. “But they also need to commit to assist the economy, especially in such stark economic times that average folks are experiencing now through the pandemic.”