In March 2020, the five elected members of the state Public Regulation Commission unanimously approved a J.P. Morgan-backed buyout of El Paso Electric Co. with virtually no controversial issues raised in the case.
Nine months later, the commission opened a year-long public hearing process on Avangrid’s proposed acquisition of Public Service Co. of New Mexico that put Avangrid and its parent firm, Spanish company Iberdrola, S.A., through the regulatory wringer.
In most respects, the two cases included very similar issues that regulators needed to address. But the PRC took a strikingly different approach to the J.P. Morgan-backed buyout of EPE, approving that deal with little discussion of controversial issues raised in Texas.
Now, Avangrid-PNM merger supporters are asking why the PNM buyout was treated differently from EPE, and whether the commission applied a different standard when rejecting the PNM buyout.
Former Commissioners Stephen Fischmann and Cynthia Hall said they weren’t aware of controversial issues regarding J.P. Morgan when they voted to approve the EPE acquisition because organizations intervening in the case never raised significant concerns, and nothing in the evidentiary record from the hearings raised red flags.
“I hadn’t heard about any issues when the J.P. Morgan hearings were underway,” Fischmann told the Journal. “I have to plead ignorance. Maybe we would have looked into concerns if the hearing examiner or case intervenors like the Attorney General’s Office had brought them up.”
The opposite occurred in the Avangrid-PNM case, where PRC hearing examiner Ashley Schannauer examined minute details of Avangrid and Iberdrola’s corporate structure and their business practices elsewhere after merger opponents brought up regulatory problems with those companies.
That included Avangrid’s management of utilities it owns and operates in the Northeast, claims about excessive Iberdrola control over Avangrid decision-making, and a criminal investigation in Spain involving some Iberdrola executives that the Spanish courts ended up dismissing.
That process ended in December 2021, after commissioners concluded that the PNM acquisition was not in the public interest. They cited alleged Avangrid mismanagement of its northeastern utilities — including a cumulative $64 million in regulatory fines paid by those companies over the years – plus Iberdrola’s corporate control over Avangrid operations that could make it difficult for commissioners here to regulate.
At the time, Fischmann said “huge opportunities” for conflict of interest seemed “built into” the merger deal.
“(Their) unethical behavior makes me concerned that the structure of Avangrid and Iberdrola is antithetical to promoting public interest,” Fischmann said in a public meeting.
EPE treated differently
In the EPE acquisition case the year before, similar issues were raised by regulators and buyout opponents in Texas and in Washington, D.C. None of that controversy was discussed by New Mexico’s PRC, which also had to approve the deal alongside Texas and federal regulators because EPE serves more than 100,000 electric customers in southern New Mexico.
At the time, the EPE proposed buyout was facing significant issues. The Infrastructure Investment Fund (IIF), a $12 billion private investment vehicle that’s advised and generally managed by J.P. Morgan, paid $4.3 billion to acquire EPE in July 2020 after receiving all regulatory approvals, despite extensive public concern that J.P. Morgan’s involvement could create serious conflicts of interest in future financial transactions with EPE.
During regulatory hearings in Texas, J.P. Morgan insisted that IIF was a completely independent entity, and that it only provided “advisement services” to the fund. Yet in the discovery process, Washington, D.C.-based consumer watchdog Public Citizen revealed that 48 of J.P. Morgan’s paid employees were IIF executives who provided fundraising, asset management and acquisition services to the fund, basically managing everything IIF does.
That raised concerns in the U.S. Senate about potential “self-dealing” by J.P. Morgan at the expense of EPE ratepayers.
In March 2020, Sen. Bernie Sanders and Democratic Sens. Ed Markey of Massachusetts and Jeff Merkley of Oregon sent a letter to the Federal Energy Regulatory Commission calling for an evidentiary hearing before the FERC ruled on the acquisition.
“El Paso’s customers deserve to know who is purchasing their utility,” the letter said.
Public Citizen and others said the IIF-control issue was critical given past J.P. Morgan regulatory violations. That included a $410 million FERC fine in 2013 for manipulating electric power markets for its own profit in California and the Midwest.
And, during the EPE hearing process itself, the U.S. Justice Department conducted a criminal investigation into J.P Morgan’s manipulation of precious metals markets and unlawful trading practices. That investigation culminated in a $920 million fine and criminal convictions against top J.P. Morgan executives months after the EPE acquisition closed.
Despite those issues, New Mexico joined Texas and federal regulators in approving the acquisition after J.P. Morgan and the IIF agreed to appoint a majority of independent representatives to the EPE’s 10-member board of directors to ensure nonpartisan decision-making.
PNM independence proposals ignored
In the PNM acquisition, Avangrid also agreed to an independently controlled PNM board, plus explicit checks and balances to safeguard against corporate self-dealing. But the PRC did not consider those commitments when rejecting the PNM buyout because hearing examiner Schannauer omitted them, saying that they were submitted past deadline for new evidence to be considered in the case.
Merger supporters now want to know why independent utility control was welcomed for EPE but rejected in the Avangrid-PNM deal.
“If the settlement in the EPE case was considered acceptable, why wouldn’t that also be considered workable in New Mexico with Avangrid and Iberdrola?” asked utility industry veteran and former PRC commissioner Doug Howe. “That was never even brought up by the PRC for consideration.”
In addition, Avangrid promised $334 million in economic benefits if allowed to acquire PNM, including $67 million in direct rate credits for PNM customers. In contrast, EPE ratepayers received $130 million in benefits, which included $30 million in rate credits.
But the PRC dismissed the Avangrid negotiated benefits as insignificant.
During one PRC open meeting, Fischmann called the benefits “fool’s gold” that didn’t address the underlying risks of the merger.
The negotiating parties, Fischmann said, “kind of ignored the fundamentals to get … their little piece of fool’s gold,” reflecting “special deals” that favor individual interests, not public interest.
PRC emphasis on the significance of Spain’s judicial investigation of Iberdrola executives also contrasts with the way the commission viewed J.P. Morgan’s fines and penalties for regulatory violations and criminal conduct.
During PRC open discussion, then-commissioner Cynthia Hall said the Spanish investigation was particularly problematic because it indicated an “aggressive modus operandi” by Iberdrola. Despite the Spanish courts dismissing the case in June 2022, some former commissioners still cite the investigation as valid justification for rejecting the merger.
“I stand behind my vote to deny this merger,” said former commissioner and now State Auditor Joseph Maestas in a recent Facebook post. “The confidential Spanish investigation report regarding Avangrid’s parent company, Iberdrola, shined a light on their alleged nefarious corporate behavior and practices that seemed to cascade down to Avangrid.”
Howe said such positions smack of bias.
“Iberdrola wasn’t even formally accused of anything — it was just an investigation — and the case was dropped, yet it rose to the center of everything during the merger hearings,” Howe said. “Contrast that with the J.P. Morgan case, which wasn’t just an accusation, but a Justice Department investigation that resulted in nearly a $1 billion settlement and criminal convictions.”
Still, while the PRC didn’t discuss the J.P. Morgan issues raised in Texas, Fischmann said Avangrid and Iberdrola’s resistance to accepting an independent board of directors until the very end of the hearing process generated mistrust among commissioners.
“In contrast, J.P. Morgan was extremely cooperative about accepting protections for EPE independence,” Fischmann said. “That made commissioners feel better about PRC ability to work with them.”