Avangrid-PNM quagmire: Debate over proposed merger expected to flare up as PRC seeks to rehear case - Albuquerque Journal

Avangrid-PNM quagmire: Debate over proposed merger expected to flare up as PRC seeks to rehear case

Public controversy over Public Service Co. of New Mexico and Connecticut-based energy giant Avangrid’s proposed merger could soon explode again as the state Public Regulation Commission seeks to rehear the case.

The PRC joined PNM and Avangrid last week in a joint request to the state Supreme Court to remand the case back to the commission for a “rehearing and reconsideration” of a previous commission decision in December 2021 to reject the merger.

PNM and Avangrid appealed that rejection last year at the Supreme Court, which could now take up to 30 days to respond to the request, although last week’s joint motion asked the court to expedite the process to just 10 days.

But assuming the request is approved, it’s bound to reignite intense public debate over the reasons why the prior, five-member elected commission decided against the merger, with supporters and opponents who participated the first time likely to line up again to litigate the pros and cons before the new three-member commission that took office in January.

Gov. Michelle Lujan Grisham, who supports the merger, chose those three new commissioners under a constitutional amendment that converted the PRC from a five-member elected tribunal to a three-member body appointed by the governor and confirmed by the state Senate.

Speculation has swirled for weeks over whether the new commission would opt to rehear the merger case, prompting the Journal in January to begin a series of interviews and investigative reporting in preparation for the merger’s possible return to the PRC.

Most positions by parties in the case remain unchanged from 2021. But Journal inquiries shed more light on some of the basic disagreements over the merger, and additional insight into what supporters allege are irregularities and errors committed by the previous commission.

What’s it all about?

If allowed to merge, Avangrid and its parent firm, Spanish company Iberdrola S.A., would acquire PNM Resources and its two utility subsidiaries — PNM and Texas New Mexico Power — in a $4.3 billion all-cash transaction. The deal would impact about 800,000 electricity customers in New Mexico and West Texas.

Iberdrola, a global energy mammoth with operations in dozens of countries, owns an 82% stake in Avangrid, its U.S. subsidiary. And Avangrid, in turn, has two divisions, including Avangrid Networks — which owns eight electric and gas utilities in four northeastern states — and Avangrid Renewables, which builds and operates renewable energy facilities nationwide.

In the 2021 hearings, 23 of the 24 parties intervening in the case either directly supported or did not oppose the merger, after negotiating dozens of commitments and benefits promised by Avangrid if allowed to acquire PNM.

Those concessions amounted to $334 million in direct economic and consumer investments. That includes $94 million in ratepayer-related benefits — such as $67 million in rate relief for PNM customers — plus $40 million in economic development spending, and creation of 150 new jobs with an estimated $200 million local economic impact.

Among other things, it also included checks and balances to ensure that PNM ratepayer interests were safeguarded against undue corporate interest by Avangrid and Iberdrola, plus commitments to maintain post-merger grid reliability, with automatic penalties for violations.

Avangrid negotiated those commitments almost right up until the PRC rejected the deal in December 2021, with some opponents waiting nearly to the end before dropping their opposition.

Who was the lone opponent? And why?

In the end, one party, Santa Fe-based New Energy Economy, remained opposed to the deal, based on what it alleged to be chronically poor performance and mismanagement at Avangrid’s utility subsidiaries in the Northeast.

During the case, NEE outlined a litany of regulatory proceedings against Avangrid utilities for things like poor infrastructure upkeep, extensive blackouts during storms, systemic billing problems and poor customer service. It also cited a criminal investigation in Spain involving one top-level Iberdrola executive as alleged evidence of egregious corporate misbehavior.

NEE Executive Director Mariel Nanasi says such regulatory issues — which generated a combined $64 million in fines against Avangrid utilities by 2021 — continue today.

“Extensive evidence (shows) that where Iberdrola/Avangrid has acquired American utilities, those utilities have provided poor service, ignored or evaded regulatory control, and sacrificed basic standards of service in order to meet investors’ profit expectations,” Nanasi told the Journal last week.

Those allegations echoed throughout the 2021 PRC hearings, culminating in a recommended decision by the hearing examiner, Ashley Schannauer, for commissioners to reject the merger. Schannauer concluded that the merger was not in the public’s best interest given the likelihood of PNM’s quality of service deteriorating under Avangrid, and the difficulty commissioners could face in regulating the new utility owner.

Schannauer said Avangrid and Iberdrola’s “corporate culture” showed a clear tendency to put profit over customer interests, based on consistently “poor performance” by Avangrid’s northeastern utilities, and through Iberdrola’s actions in other countries.
All five commissioners agreed, leading to a unanimous vote against the merger.

Does that criticism have merit?

Merger supporters and industry experts in both New Mexico and the Northeast say Avangrid’s regulatory issues were blown out of proportion in the PRC hearings.

While fines have been levied against many of Avangrid’s utilities, those service violations are generally no worse than most competing utilities throughout the northeastern states. Other companies have, in fact, faced much larger fines than Avangrid.

Following Hurricane Isaias in summer 2020, for example, state regulators fined Con Edison in New York $100 million for storm-related outages. Two other New York utilities also received $35 million in combined fines, and Eversource Energy in Connecticut paid $30 million for its storm failures in that state.

Those fines combined total $165 million just for outages that occurred during the 2020 hurricane. That compares to $64 million in total fines levied on Avangrid in the six-year period from 2016 to 2021.

PRC hearings particularly highlighted Avangrid problems in Maine, where its utility, Central Maine Power, installed a new billing and customer service system in 2016 that led to widespread problems and took years to fix. As a result, CMP has in recent years ranked lowest on industry consultant J.D. Power’s annual survey of residential customer satisfaction.

That encouraged New Mexico opponents to label Avangrid the “worst of the worst” in the utility industry, creating a mantra frequently repeated by PRC commissioners themselves.

David Littell, a former member of the Maine Public Utility Commission from 2010 to 2015 — and before that commissioner of the Maine Department of Environmental Protection — called that label unfair.

“From my perspective, after serving on the PUC where I regulated CMP, it’s a very competent company,” Littell told the Journal. “That doesn’t mean everyone likes what it does and how it does it. But in terms of running a utility, there’s not much evidence to paint it as incompetent.”

Littell — now a full-time energy and environmental attorney in Maine — has directly advised commissions and regulators in more than 20 states, including nearly every commission in the Northeast.

He said the CMP billing problems were, indeed, “fairly atrocious,” and it ravaged the utility’s local reputation. “But calling CMP the ‘worst of the worst’ is simply untrue,” Littell told the Journal. “It’s a competent, well-run company that has to be regulated like any other utility, and if regulators do their job, the company will comply.”

Can regulators safeguard NM?

In fact, while Avangrid’s other electric utilities have faced regulatory issues as well in New York and Connecticut, their public standing differs significantly from Maine.

J.D. Power, for example, ranked Avangrid’s Rochester Gas & Electric utility in New York No. 1 in customer satisfaction among midsize utilities in the East in its December 2020 survey.

Doug Howe, a utility economist and 35-year veteran of the utility industry who previously served as a PRC commissioner, says that shows Avangrid faces varying performance issues in places it operates like any utility, and that it can fix problems that arise with proper regulatory oversight.

Such regulatory oversight is critical for utilities, which are for-profit companies that seek to maximize return on investment, said Howe, who is also the former vice president for customer services at GPU Inc., a public utility holding company whose eastern subsidiaries served some 2 million customers when Howe worked there.

“A cost-cutting mentality is ingrained in the culture of nearly all utilities,” Howe said. “… But with Avangrid, it seemed to me that that whole issue was overblown by opponents to deliberately tank the merger. It struck me that the PRC commissioners had so little experience working with or observing other utilities across the U.S. that they were unable to see this in a realistic perspective — that they didn’t know about how the industry basically operates everywhere — and they concluded that Avangrid was the worst possible operator.”

In addition, some issues that directly influenced commissioners in the hearings — particularly the criminal investigation involving Iberdrola in Spain — have since evaporated. That case was dismissed in mid-2022.

“There was nothing there, simple as that,” Howe said.

What will be different this time?

NEE says Avangrid and Iberdola’s emphasis on profit is precisely why they should not be allowed to take over PNM.

“Their concern is about return for investors, not running an efficient utility that provides beneficial and reliable customer service,” Nanasi told the Journal

And that makes it difficult for effective PRC regulation, she added.

“Avangrid hasn’t met the regulatory burden of proving it will be a reliable, law-abiding company in New Mexico,” Nanasi said.

But supporters say Avangrid never got a fair shake at the PRC, which ignored all the commitments and benefits that Avangrid agreed to in negotiations with parties in the case. That includes explicit checks and balances to firmly safeguard customer interests, said Noah Long of the Natural Resources Defense Council, which supports the merger.

“The PRC commissioners dismissed all the economic, environmental and consumer benefits in the settlement agreement as insignificant, and instead focused on their own misgivings about the company, which are no more or less warranted than any other company that might invest in New Mexico,” Long told the Journal. “The commission needs to look at this case again on its merits with the full suite of negotiated benefits.”

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