More opposition to merger proposal
Watchdogs, government entities argue shareholders, not public, stand to benefit the most
Public Service Company of New Mexico’s proposed merger with a Connecticut company is good for shareholders but of scant benefit to customers, numerous watchdogs and government entities say.
Hearings on PNM’s and Avangrid’s merger before the New Mexico Public Regulation Commission are scheduled to start May 3 and may continue through much of the month. Testimony already filed with the commission reflects skepticism, at the least — and in many cases opposition.
Stephen Fischmann of Las Cruces, chairman of the Public Regulation Commission, said there could still be an agreement reached between the “intervenors” — entities that have weighed in on the merger — and PNM and Avangrid. The commission would have to approve such an agreement.
“It’s a complicated issue that’s going to take a lot of review by all parties involved,” Fischmann said. “There’s all kinds of potential outcomes, and as commissioners, we have to keep an open mind. … And our charter is the public interest.”
Although the criticisms vary, one that stands out comes from the New Mexico Attorney General’s Office and other entities: the big benefit PNM
shareholders will enjoy compared with the slight rate change customers are expected to see.
Building their arguments from the merger application and a question-and-answer discovery process, critics also expressed concern about environmental issues, lack of competitiveness in the market and high payouts for officers, directors and departing executives.
“This merger is not in the public interest,” said Mariel Nanasi, executive director of Santa Fe-based New Energy Economy.
Nanasi said “this might be the biggest change in the electric industry in 50 years in New Mexico.”
An expert for Nanasi’s group, former utilities attorney Christopher Sandberg, said if PNM has about 80 million shares outstanding, with an expected increase per share at $3.29 in the merger, the 7,902 shareholders (as of Feb. 19) would profit by an average of more than $32,000.
Meanwhile, he said, the merger applicants propose “trickling out” $24.6 million of rate credits to hundreds of thousands of customers, including business customers, over 36 months. The benefit would average 59 cents per month per residential customer, he said, based on a usage formula provided by PNM.
A consultant for the attorney general called the customers’ gain of $24.6 million minimal. But shareholders’ gain of $713 million is a different matter, said Scott Hempling, a Maryland attorney and public utilities analyst speaking through testimony submitted for the Attorney General’s Office.
“Customer benefit was nearly irrelevant,” Hempling said of the proposed merger. He contended “the sole goal was value for shareholders; customers were relevant only as sources for that value.”
Avangrid will pay $4.3 billion to shareholders as part of the agreement, he said.
Adding to the complexity of the deal is the fact that Avangrid is largely owned by Iberdrola, an energy company based in Spain.
Attorney General Hector Balderas said in a statement: “I strongly support the transition of the state’s largest utility to Avangrid, a leader in clean energy, but I remain concerned that the deal results in overwhelming profit for PNM” — profit that will largely leave New Mexico.
Balderas said he remains committed to “equitable distribution of clean energy to underserved New Mexicans and ensuring benefits to consumers.”
Ray Sandoval, a spokesman for PNM, said in a written statement: “PNM Resources shareholders own the 86 million shares of PNM Resources stock, and this merger involves the purchase of all of the PNM Resources stock by Avangrid shareholders. PNM customers receive electricity services and pay for the services they use, but do not own any of the business or its infrastructure — similar to paying for mobile phone services or wireless internet.
“PNM customers will continue to receive services,” his statement continued, “and Avangrid has made significant commitments to continue PNM’s operations and contributions to the community, and to add 100 new jobs and provide additional economic development funding. In addition, Avangrid has committed to pay customers rate credits as a gesture of goodwill and demonstration of its good intentions for this transaction.”
Sandoval also said that each party commenting on the proposal “shares with us an interest in our state’s future. We look forward to working with them throughout the proceeding.”
PNM’s partner in the plan supplied a statement late last week that said in part: “Avangrid has a record of bringing jobs, rate credits and better service to the communities we serve. We are committed to doing the same in New Mexico. … We are ready to partner with ratepayers, workers and communities to benefit the entire state.”
Critics see various problems with the proposed merger. Some scoff at what they view as small concessions to the state in the giant deal.
For instance, the proposal mentions creating 100 jobs in the state — critics ask where and what kind of jobs — and giving $2.5 million to economic development, which one analyst described as “parsimonious,” or stingy.
Avangrid already has two wind-energy projects in New Mexico, in the Encino area of Torrence County. A commission staffer has said in both cases, full compliance with orders wasn’t achieved.
Avangrid said it corrected documentation issues on one of the projects this month when it learned about the concerns.
Groups including the Sierra Club, the city of Albuquerque, Bernalillo County, the San Juan
Citizens Alliance and Tó Nizhóni Ání, a Navajo community organization, have filed analyses and critiques with the PRC.
The Sierra Club criticized an element of the merger in which Avangrid requires PNM to unload its stake in the Four Corners Power Plant. PNM intends to transfer its interest in the plant to the Navajo Transitional Energy Co., which plans to keep the plant operating for at least a while.
“PNM shouldn’t get out of Four Corners by prolonging the life of a dirty, polluting power plant,” Matt Gerhart, a Sierra Club attorney, said by email. He said PNM “is planning an exit that harms everyone else, including everyone who breathes air in that area as well as our children.”
Larry Blank, a New Mexico State University faculty member and consultant in utility industry policy, said PNM holds a monopoly in electric service over much of New Mexico. New technology will emerge for production and storage of renewable energy, he said.
But with Avangrid and PNM involved in alternative power in the state, Blank said, they could chase off competitors and “stifle adoption of the most innovative ways” for New Mexico to procure alternative power.
Analysts also criticized payouts that are expected to go to executives.
Andrea Crane, a financial consultant testifying for the Attorney General’s Office, said the merger is expected to lead to the termination of three officers who will be compensated with “golden parachutes” totaling about $31 million. Two others will get “golden parachute compensation of $3.17 million and $2.99 million respectively,” Crane said.
She also said that based on shares held, six corporate officers and 10 directors anticipate compensation totaling between $84.3 million and $94.3 million.
The commission’s own staffers also found the commission shouldn’t approve the plan in its current form. John Reynolds of the commission’s utility division observed, as Blank did, that the presence of Avangrid and PNM in the renewable energy market here “would likely chill a competitive climate.”
Reynolds said: “There will undeniably be a loss of independence for PNM as well as additional risk exposure to Iberdrola’s global activities and investments that will bear little connection to PNM’s local mission.”