Copyright © 2021 Albuquerque Journal
Consumer and environmental advocates want regulators to require much more direct public benefits in the proposed merger between Public Service Company of New Mexico and Connecticut-based energy giant Avangrid.
The state Public Regulation Commission set Friday as the deadline for all parties intervening in the case to file written testimony laying out their positions in preparation for open public hearings scheduled for early May. Many intervenors were still making final changes to their documents on Friday before filing. But many told the Journal they plan to push for significant changes to the merger proposal that PNM and Avangrid jointly submitted to the PRC in November to guarantee that ratepayers and local communities receive significant net benefits.
The Attorney General’s Office, for example, may push for PNM’s parent firm, PNM Resources, to share a substantial part of what may be $700 million-plus in premium profits expected from the sale with its customers, rather than just distribute those proceeds to shareholders.
The Journal obtained a partial copy of draft testimony prepared by one expert witness representing the AG in the case, which recommended the PRC start out with a 50/50 base presumption as fair compensation for ratepayers. That would mean PNM’s roughly 530,000 consumers would potentially share about $350 million in sale proceeds, possibly as a credit on their monthly bills.
Avangrid, which is majority-owned by international energy company Iberdrola, S.A., has offered to buy PNMR and its two utility subsidiaries – PNM and Texas New Mexico Power – at $50.30 per share, or about $4.3 billion on nearly 86 million outstanding shares.
The share price offered represents nearly a 20% premium over PNMR’s volume-weighted average stock price calculated over six months prior to the merger announcements, according to the AG’s expert witness, Maryland-based attorney Scott Hempling. That extra 20% would total about $713 million.
But those additional profits, which Hempling terms a “control premium,” don’t reflect extra value created by shareholders. Rather, they reflect the value that Avangrid places on purchasing a state-regulated monopoly that guarantees a captive customer base with no competition from other utilities. As a result, the extra value should be shared with ratepayers, Hempling said in his draft testimony.
“Iberdrola/Avangrid is paying this amount to get control of PNM’s franchise – the government-assisted privilege of providing essential electric service for profit,” Hempling said. “The value that Iberdrola/Avangrid sees in that franchise was not created by PNM Shareholders; it flows largely from regulatory actions – actions that compel customers to support PNM financially by paying commission-set rates. Since those rates have already provided PNMR shareholders fair compensation, giving them the control premium is overcompensation.”
As of early Friday afternoon, the attorney general’s official filing was still unavailable, and it was unclear if Attorney General Hector Balderas would support Hempling’s recommendation. The AG’s office was still discussing its final position with different parties in the case.
“I strongly support the transition of the state’s largest utility to Avangrid, a leader in clean energy,” Balderas told the Journal in an email. “But I remain concerned that the deal results in overwhelming profit leaving the state, and leaving ratepayers no benefit for having allowed PNM to monopolize the energy market.”
Other intervenors are also pushing for PNMR to share proceeds with ratepayers, although the amounts advocated differ among parties. In part, that reflects different calculations on the actual premium total that PNMR shareholders will receive through the sale.
Among others, for example, the Albuquerque Bernalillo County Water Utility Authority’s expert witness, Mark E. Garrett of Garrett Group Consulting, recommends that up to $226 million be returned to PNM customers as a rate credit.
So far, Avangrid has only offered $25 million in total rate credits for PNM customers to be paid out over three years following the merger. If divided among 530,000 PNM customers, that would amount to about $15.47 per year per customer, or about a $1.29-per-month savings on bills.
Avangrid has also offered to invest $2.5 million in shareholder money for local economic development over two years, and to continue financing PNM’s low-income assistance programs for three years. In addition, it promises to create 100 new full-time jobs, plus no involuntary employee terminations and no reduction in wages or benefits for two years.
But some parties want a lot more assistance for low-income consumers, and for communities impacted by the transition from fossil fuels to clean energy. That includes significant investment in energy efficiency programs, such as subsidies to help weatherize low-income homes, allowing families to cut consumption and lower their bills.
Avangrid is a leading renewable energy company, ranking as the nation’s third-largest wind developer. The company has operations in 24 states with $35 billion in total assets, plus the financial backing of Iberdrola, a global energy mammoth ranked as the world’s third-largest electric company.
Many environmental organizations support the merger with PNM on principle, because it could mean an acceleration in renewable energy development in New Mexico. But they want guarantees from Avangrid that it will make significant investments with substantial benefits for ratepayers and the state in general, said Stephanie Dzur, attorney for the Coalition for Clean Affordable Energy.
“Avangrid says it can bring significant benefits, and it has an obligation to serve New Mexico with just and reasonable rates,” Dzur said. “But we don’t want empty promises. We’re saying ‘show me the money,’ rather than just take things on faith.”
That means writing commitments directly into any PRC orders approving the merger, said Noah Long, Natural Resources Defense Council western director for climate and energy.
“We want clear commitments on energy efficiency, electrification programs for transportation, and investments in renewable generation,” Long said. “We believe that’s Avangrid’s intent, but we need to secure those commitments in writing.”
Coal at issue
Environmental groups also want to include discussion of PNM plans to exit the coal-fired Four Corners Generating Station in December 2024 – more than six years ahead of schedule – to be part of the merger hearings. PNM filed for plant abandonment in January, which the PRC is now reviewing as a separate case.
But Avangrid has conditioned its merger agreement on PNM efforts to depart Four Corners because it doesn’t want coal on its books when it takes over the utility. And many environmental groups oppose PNM’s current abandonment plan, which calls for selling its Four Corners stake to the Navajo Nation, which could then continue running the plant with other co-owners until 2031.
Sierra Club Rio Grande Chapter Director Camilla Feibelman said her group and others want to discuss those plans directly with Avangrid in the merger case to push not just for PNM’s exit from Four Corners, but to get the plant shut down before 2031.
“Four Corners is a different case, but we believe the PNM-Avangrid merger should be stipulated on not allowing PNM to do anything that could extend the life of Four Corners after it exits the plant,” Feibelman said.
PNM said Avangrid will help New Mexico in its transition to renewable energy, and the PRC regulatory process will ensure that the merger brings benefits to customers and the state.
“We believe that each of the intervening parties in this regulatory process shares with us an interest in our state’s future,” PNM spokesman Ray Sandoval told the Journal. “We look forward to reviewing their responses and working with them throughout the proceeding.”