Government entities, utilities and watchdog groups say a merger between Public Service Company of New Mexico and Avangrid could harm both ratepayers and the environment unless protections are included.
These entities filed testimony in a New Mexico Public Regulation Commission case evaluating the merger. This merger is subject to the PRC approval as well as approval from the Federal Energy Regulatory Commission.
PNM’s parent company, PNM Resources, is seeking to merge with Avangrid, a U.S. subsidiary of renewable energy giant Iberdrola, which is based in Spain.
The PRC hearings related to the merger are scheduled to start on May 3 and testimony has been filed expressing a variety of concerns.
“Our proposed merger transaction with Avangrid, a national leader in renewable energy, will help realize New Mexico’s clean energy potential,” said Kelly Renae-Huber, a spokesperson for PNM, in an emailed statement to NM Political Report. “The New Mexico Public Regulation Commission’s regulatory process ensures that our merger will benefit customers and the State of New Mexico. We believe that each of the intervening parties in this regulatory process shares with us an interest in our state’s future. We look forward to working with them throughout the proceeding.”
PNM and Avangrid have reached an agreement with some of the parties that initially said more protection was needed including the New Mexico Attorney General’s Office, Western Resource Advocates, Dine Citizens Against Ruining our Environment, International Brotherhood of Electrical Workers Local 611, San Juan Citizens Alliance, Tó Nizhóní Ání and Nava Education Project.
The stipulation filed on this week increases the local representation on the PNM Board of Directors, requires that following the merger PNM will hire a chief environmental officer and increases the amount of rate credits customers will receive.
Not all the opponents signed on to the stipulation. New Energy Economy Executive Director Mariel Nanasi argued that it goes against the precedent set when El Paso Electric was acquired by a fund tied to J.P. Morgan Chase.
One of the conditions from the El Paso case required the board of directors to be made up by a majority independent directors. While the majority of the PNM Board of Directors would be New Mexico residents under the stipulation, they could still be financially connected to PNM or Avangrid. Only 40 percent of them would be independent directors.
Customers could see a credit on their bill, but critics say it might not offset potential rate increases
While detractors expressed a range of concerns, one common critique is that the merger will benefit shareholders and company executives more than it will ratepayers and that the various benefits touted in the application are not enough to offset the risk.
For example, if the merger is approved, PNM customers will receive a credit on their bills. The merger application states this credit will be a total of $24.6 million that would be distributed over three years. This was increased to $50 million in the stipulation.
Nanasi said that credit will not mean much if the rates increase as a result of the merger.
Nanasi is not alone in that feeling.
“The rate credit is minuscule compared to the risk the ratepayers are assuming with this transaction,” Mark Garrett, a consultant for Albuquerque Bernalillo County Water Users Authority, stated in testimony filed with the PRC.
He recommended a rate credit of between $126 and $226 million, which is about half of what Avangrid would pay above market value for the PNM Resources stocks.
The proposed $24.6 million rate credit will amount to very little on ratepayers bills, according to filed testimony. This is especially true for residential ratepayers because the credit would be based on usage rather than a per-customer basis.
Andrea Crane, a witness for the New Mexico Office of the Attorney General, said in her testimony that the rate credits for customers should be increased to a total of $85 million that should be distributed on a per-customer basis.
If distributed on a per-customer basis, the $24.6 million rate credit would be approximately $1.27 per month on each ratepayer’s bill. However, Crane pointed out that the credit would be based on the amount of energy used. Crane said while 90 percent of PNM’s customers are residential, they would only receive 38 percent of the rate credit, or about $0.55 per month.
Natural Resources Defense Council Director of the Western Region Climate and Clean Energy Program Noah Long argued that PNM and Avangrid should provide more for low-income customers who were disproportionately impacted by the COVID-19 pandemic.
“Avangrid is not just acquiring stock in a company, it is acquiring an obligation to serve its New Mexico customers with reliable, clean energy and just and reasonable rates,” Long said in his testimony. “Low-income customers make up a substantial share of PNM customers. Shareholders profited while low-income customers struggled to access and pay for the essential commodity of electricity. In many cases, these customers’ health, safety and very lives were jeopardized as they figured out ways to keep bills low, how to juggle the little they had to pay something that might prevent disconnection, and how to meet unreasonable and unnecessary documentation demands to prove indigency and get some ‘help’ in paying arrears. Now shareholders stand to receive an acquisition premium of hundreds of millions of dollars. It is only fair, just and reasonable, to share some of this wealth that was created by New Mexico ratepayers, including the neediest amongst them.”
While the PRC has implemented a moratorium on disconnections for non-payment, regulators are encouraging customers to enter into payment arrangements as those bills will eventually become due.
Long also requested that PNM and Avangrid commit at least $25 million to expanding access to reliable electricity in New Mexico.
The stipulation filed this week commits $2 million to expanding access and provides $6 million to assist customers who were unable to pay their bills due to the COVID-19 pandemic.
Los Alamos County witness says merger should be contingent upon the “timely decommissioning” of the San Juan Generating Station
A California utility that previously owned a share of the San Juan Generating Station partnered with Los Alamos County, a current owner of the power plant, stating that actions taken could adversely impact their customers as well.
Energy consultant David Arthur’s testimony on behalf of M-S-R Public Power Agency, based in Modesto, California, and Los Alamos County states that the merger should be contingent upon the timely decommissioning of the San Juan Generating Station, which PNM has proposed to retire in place. That means that the plant would not be demolished for at least 20 years. PNM argues that this will save ratepayers money.
Arthur stated that the decommissioning agreement that the various owners of the power plant signed “does not expressly provide for a retirement in place scenario” and does not provide a means for recovering costs from remaining parties should they suffer from insufficient revenue to decommission the plant. He said the operation and maintenance costs will increase as the structures deteriorate overtime and the value for the scrap material will decrease.
He argued that delaying the decommissioning provides a short-term win for the current PNM ratepayers but could lead to higher costs for future customers who never benefited from the power generated by the San Juan Generating Station.
In addition, Arthur stated that the delay in decommissioning could lead to financial risks for the other power plant owners. If the price of decommissioning increases overtime, the other owners could have to pay more in the future. This could lead to ratepayers in Los Alamos County and in California picking up the tab.
Concerns that PNM could squash competition in the renewable energy market
Larry Blank, a New Mexico State University faculty member who is also a consultant in utility industry policy, provided testimony on behalf of the City of Albuquerque. He expressed concerns in his testimony that PNM and Avangrid could use the size of the merged companies to essentially quash renewable energy development that does not belong to Avangrid. This could come in the form of rejecting bids from non-Avangrid related companies for generation assets.
“When significant amounts of money are at stake, there is a strong profit incentive to favor an affiliate over other suppliers in the market,” Blank stated. “This bias may be implemented through the choice of technologies or type of power to be procured, the design of the request for proposals, the evaluation criteria used to assess proposals, and other design details within the procurement process. There is also the concern that commercially sensitive proprietary data may be leaked from the regulated utility to the competitive affiliate.”
This could lead to higher costs for power, Blank states.
“We are at a critical stage of development in New Mexico in which the planning and procurement of alternative power supply is very important to our future and the potential success of attaining the zero-carbon goal required by the REA (Renewable Energy Act),” he continued in the testimony. “New technologies will likely be emerging for the production and storage of renewable energy. Any favoritism toward the technology provided by an affiliate would stifle adoption of the most innovative ways to meet our goals.”
AG’s witness says PNM shouldn’t seek financing for Four Corners Power Plant transfer if the merger is approved
One issue at the heart of the merger is the transfer of the Four Corners Power Plant to Navajo Transitional Energy Company. This transfer of ownership was needed because Avangrid does not want to be a long-term owner of a coal-fired power plant. But, by transferring the ownership, environmental advocates say PNM forfeits its ability to vote to close the power plant early and NTEC would likely want to continue operations. That means that while PNM would not have any coal in its portfolio, the emissions related to the power plant would continue to impact San Juan County.
PNM has filed an application with the PRC to transfer the ownership of the power plant. As part of this application, it is asking to refinance past investments into the plant at a lower interest rate. This process is known as securitization and was used when PNM filed to end its operations of the nearby San Juan Generating Station. The low interest bonds used to refinance the debt are paid off using a non-bypassable charge on customer bills. Some critics, such as New Energy Economy, argue that the shareholders should pay for the past investments into the power plant, especially if these investments were not prudent. The PRC is currently evaluating if the past investments into the power plant were prudent as part of the transfer case.
But Crane argues in her testimony that PNM should withdraw its request for securitization as a condition of the merger.