‘Look out for other large players:’ How a potential international energy acquisition could affect New Mexico

The potential international acquisition of a Connecticut-based energy company could send shock waves through New Mexico’s energy market if merger action pops up later in the Southwest.

European energy giant Iberdrola is trying to fully acquire and privatize Avangrid, a company that tried and failed in the past to merge with the state’s largest electricity provider, the Public Service Company of New Mexico. This Connecticut acquisition could change the game for any potential New Mexico merger in the future, for better and for worse.

“New Mexico in particular, we have to look out for other large players in this market,” said utility expert Reilly White, speaking to the limited opportunities available for utilities to grow in New Mexico, given their regulatory nature and the state’s stagnant, even declining, population that consumes energy.

Iberdrola, based out of Spain, has a presence around the globe through its work, and its slew of subsidiaries. Iberdrola operates in the U.S. so far through its 82% ownership of Avangrid. Iberdrola is now looking to buy the other 18% of Avangrid at $35.75 per share, fully privatizing the company.

While that doesn’t seemingly have a direct impact on New Mexico, even though Avangrid is the parent company of the largest active wind farm in the state, it could mean later consequences — mainly if Iberdrola in the future again seeks out PNM for a merger.

“I wouldn’t say it’s a 100% slam dunk rate increase, but there will be pressure to bear with a large international utility provider and the local regulatory commission,” said White, an associate finance professor at the Anderson School of Management at the University of New Mexico.

Avangrid and Iberdrola both declined to comment.

A merger is likely in PNM’s future, White said. It’s not a cheap task to overhaul infrastructure under a state-mandated clean energy transition and modernize an antiquated power grid.

“The pressure is going to be on for mergers in the future,” White said.

That’s partly why PNM tried to merge with Avangrid before, especially considering parent company Iberdrola’s significant renewable energy presence. However, the New Mexico Public Regulation Commission in 2021 rejected the merger, fearing local price increases and turned off by scandals surrounding Iberdrola.

While PNM and Avangrid appealed the decision with the New Mexico Supreme Court, Avangrid ended up dissolving the merger agreement in January instead of waiting for an outcome.

The rejection doesn’t mean PNM can survive without merging in the future, and New Mexico, with some of the lowest energy costs in the nation and its aggressive renewable energy generation goals, is an attractive target for acquisition, White said.

Mergers don’t always equate to price jumps, White said, but in watching Iberdrola’s activity since the 2021 rejection, there are signs that could point to potential price increases if an international merger happens here. Large international acquisitions make it harder for state-level regulatory agencies to “push back” against changes, he said.

In Rochester, New York, for example, state regulators last year approved a double-digit increase in utility costs because that utility’s parent company — Iberdrola — needed to balance out and cover electricity costs among all the different states it oversees, not just New York.

“(I see) no direct effects to New Mexico right now, but in the future, this is very, very important to watch,” White said.

Trusting Iberdrola to oversee Avangrid

Iberdrola has an aggressive strategy in the U.S. market, seeking partners and potential acquisitions. “And Iberdrola has a less-than-sparkling record of corporate governance,” White added.

The energy giant in recent years has been embroiled in different lawsuits, including for alleged price manipulation, and its CEO, Ignacio Sánchez Galán, in 2022 appeared before Spain’s High Court for allegations of bribery, fraud and breach of privacy.

So losing the scrutiny a public company like Avangrid has, if fully bought out and made private by Iberdrola, “does not bode well in situations like that,” White said.

Though Iberdrola is publicly traded, the acquisition would delist Avangrid from trading on the U.S. stock exchange and is already approved by the Federal Energy Regulation Commission, according to Iberdrola; Iberdrola would stay on the stock market.

Losing Avangrid’s individual FERC reporting is concerning, said environmental attorney Mariel Nanasi with New Energy Economy.

“Not that they’re so onerous, but there’s a lot of disclosure there about risks, company performance and all sorts of stuff,” she said.

She thinks that’s also the cause for some recent filings at the New Mexico Supreme Court.

After Avangrid terminated its merger agreement with PNM, the parties gave notice to the court, and the case to appeal the PRC’s 2021 rejection was dismissed in January. There’s been little movement in the case since then, until Avangrid and Iberdrola submitted a new filing last month.

The companies allege the PRC violated the separation of powers, not correctly following the 2024 court decision on the case, by reissuing its final order from 2021 without reevaluating the record and by concluding that the Supreme Court didn’t overturn a discovery sanction imposed on Avangrid.

Nanasi called the filing an attempt by Avangrid and Iberdrola “to whitewash the company’s record.”

“There’s no legal basis for it,” she said.

Iberdrola’s move to take Avangrid private matches a tendency in the past 15 years of companies going private, White said. Two years ago, a $44 billion buyout by tech giant Elon Musk led to X Corp., formerly Twitter, going private. Other examples include Panera Bread, which went private in 2017, Dell, which went private in 2013, and Burger King, which went private in 2010.

Of course, if PNM ever wanted to attempt another merger, they would need the approval of the PRC. The still relatively new overhaul of the PRC — switching from a five-member elected commission to a three-member appointed commission in 2024 — hasn’t yet dealt with a full merger case of that scale.

“Although the New Mexico Public Regulation Commission is paying attention to how utility regulation is conducted in other states, we remain focused on making sure New Mexico’s energy needs are moving forward to the benefit of the public interest,” PRC spokesperson Patrick Rodriguez told the Journal.

The merger market has cooled down recently, but White expects it to come back with large companies looking to increase their portfolios. “The real question is, for a state our size, can we maintain electricity delivery at reasonable prices?”