Thoughts on the future of PNM

The Public Service Company of New Mexico kicked off 2024 with the fallout of a massive company merger proposal and many rejections from the state’s Public Regulation Commission on what the company can charge its customers.

It forced the utility to change plans at a time when zero-emissions standards required by the state loom closer and closer. New Mexico’s Energy Transition Act sets a carbon-free electricity requirement by 2045 for investor-owned utilities, and PNM is committed to achieving emissions-free generation by 2040.

So what’s next for PNM?

Reilly White is an associate professor of finance at the University of New Mexico who has consulted in the public utility field. He said there will likely be other merger offers down the line for PNM in the next five or 10 years.

The companies making those offers can learn from the rejection of a merger with Connecticut-based Avangrid, he said, adjusting the scope to better fit what the PRC might approve.

White said if there aren’t additional offers, it’ll likely be because the perception is the regulatory environment makes the effort unfeasible.

“It’s going to be telling if there are no offers down the line in the next 10 years,” he said.

PNM Resources Chair and CEO Pat Vincent-Collawn said in a statement to the Journal PNM doesn’t speculate on any merger plans.

“We are focused on delivering reliable and affordable power to our customers. With a supportive policy environment and continued technology advances, we will meet the state’s clean energy goals,” Vincent-Collawn said.

White said if PNM finds it impossible to operate without a merger under the company’s current structure, there would be signs, such as power outages that are difficult to repair or delays in infrastructure projects.

White also said if PNM faces increased capital costs, that would likely come in the form of future rate increases.

“There could be a case where PNM might suffer a decline in service,” he said. “We’ve seen that happen in other states and invarious ways.”

That would almost force PNM, he said, to seek outside partners “to help shoulder the burden.”

New Mexico is a unique state for power, White said, not just with the ETA standards for investor-owned utilities that need to be met — 50% renewables by 2030 and 100% carbon-free by 2045 — but the landscape of the state itself.

White said New Mexico has a relatively small population over a large area, creating more infrastructure-related expenses than what’s required in many other states.

“So to affordably deliver electricity is a challenge,” he said. “And it will continue to be a challenge for PNM to be able to come up with capital, to come up with resources and to come up with everything required to meet the state’s clean energy goals.”

He said the vast stretch of state land also provides power grid and new technology opportunities. He said there’s a lot of land open for wind or solar companies.

Additionally, he said, the state has a more or less stable population that creates a regulated and predictable power structure.

“But we just need the money,” he said. “We need the investment, and we need the capital. We need the resources.”

White said over the last 10 years, utilities have been looking at merging across state lines with larger companies that tend to have bigger and more diversified access to capital — like Avangrid. Avangrid also has a speciality in clean energy, he noted.

On the other hand, he said, under a merger, a utility like PNM becomes one piece of a much larger utility system and might not have the flexibility to adjust to a localized framework.

The PRC ultimately denied the PNM-Avangrid merger request in 2021 over concerns about how it would impact New Mexicans. Avangrid and PNM tried to appeal the denial to the New Mexico Supreme Court but Avangrid decided not to renew the merger agreement while waiting for an answer.

White said regulators’ denying mergers before 2016 were pretty rare, but since then, state officials have been asking a lot more questions about how mergers would affect utility customers.

“So utility commissions have been more and more unafraid to engage in denials of this magnitude across the country,” he said.