November 2, 2021

Hearing examiner says potential harms outweigh benefits in PNM/Avangrid merger

A hearing examiner for the New Mexico Public Regulation Commission says the harms of a proposed merger between the state’s largest electric utility and a global utility giant outweigh the benefits.

Hearing Examiner Ashley Schannauer issued his recommendation that the PRC deny the merger between Public Service Company of New Mexico and Avangrid, the U.S. subsidiary of the Spanish firm Iberdrola in a report released on Monday.

In October 2020, Avangrid announced plans to buy PNM’s parent company, PNM Resources. PNM Resources also owns Texas New Mexico Power and the Texas utility regulators have already approved the merger.

Related: Connecticut-based utility company agrees to buy PNM Resources

In his 445-page report, Schannauer outlines a variety of potential harms that could occur should the merger be approved.

“We are analyzing the decision and examining the pathways for moving forward to approval and closing,” Joanie Griffin, a spokesperson for Avangrid, said in an emailed statement. “We are hopeful that ultimately the Public Regulation Commission will approve the merger, which will bring more than $300 million in benefits to New Mexico, will create hundreds of new jobs for New Mexicans and provide millions of dollars in contributions to non-profit organizations.”

She highlighted that all but one of the intervening parties in the case either support the merger or have stated that they do not oppose it, including the PRC staff. Griffin said Avangrid remains committed to putting the PNM customers first and using both Avangrid and Iberdrola’s “financial strength and resources to help New Mexico meet its decarbonization goals more quickly and efficiently.”

The case comes as Iberdrola executives face a criminal investigation in Spain and as Avangrid-owned utilities in Maine have come under scrutiny for high rates and frequent outages.

Schannauer stated that the primary benefit customers would receive through the merger is “is supposed to be PNM’s link to a large, financially stable Iberdrola, S.A./Avangrid, Inc. group of companies that can provide access to financing on more reliable and less costly terms than are available through PNMR.” However, he argues that some of the evidence presented “casts a doubt” on that assertion.

Avangrid has been “aggressively” expanding into the non-utility sector, he stated, and this has raised concerns with credit rating agencies.

Avangrid has offered a variety of regulatory commitments to boost support for the merger including $67 million in rate credits, $10 million in assistance to customers who have unpaid bills, $2 million to help people in remote parts of New Mexico access electrical service and $15 million to help low-income households with energy efficiency upgrades.

The PRC is tasked with protecting ratepayers and, at the center of the hearing examiner’s recommendation is the potential harms that the ratepayers could face. This is in part based on Avangrid-owned utilities in the northeast United States.

Avangrid’s electric utilities in New England states have been assessed more than $63 million in penalties since 2016 and its natural gas utilities have faced more than $2.5 million in fines in the past five years, primarily due to pipeline safety penalties.

And, in Maine, the state legislature attempted to pass a bill that would have made Central Maine Power a state-owned entity following concerns about high rates and frequent power outages under Avangrid’s management. The governor of Maine vetoed the legislation this year.

Avangrid has resisted “the establishment of meaningful measures to maintain or improve the reliability of PNM’s service to its New Mexico utility customers,” Schannauer states.

Related: PNM customers concerned Avangrid acquisition could lead to increased rates, outages

Schannauer also expressed concerns that the merger could lead to “improper subsidization” of Avangrid’s other non-utility activities.

While Avangrid and Iberdrola have pushed for increased renewable energy—including requiring PNM to exit its ownership of the Four Corners Power Plant—opponents to the merger are concerned that Avangrid could stifle the growth of rooftop solar and non-Avangrid utility scale projects. Schannauer states that, if the merger goes through, PNM could favor Avangrid projects for procurement of electricity. That could drive out competing renewable energy developers and lead to higher costs for electricity for New Mexicans. And even PNM’s proposal to exit the Four Corners Power Plant has come under fire. PNM is transferring its 13 percent interest in the coal-fired power plant to Navajo Transitional Energy Company. By doing so, the utility forfeits its ability to vote on the early closure of the plant.

While PNM will be subject to PRC regulation even if the merger occurs, Iberdrola initially resisted being subject to PRC regulation. Schannauer states that one of the potential harms of the merger is eroding PRC jurisdiction.

And, in the report, he outlined five noncompliance instances that have occurred during the merger case, including incomplete responses to questions and employment of an attorney who was later disqualified from the case due to alleged conflict of interest.

Avangrid is already operating in New Mexico where it has renewable energy projects including the La Joya wind farm and the El Cabo wind farm.

The El Cabo wind farm is proposed to be 298 megawatts, slightly under the amount that put the project under PRC’s jurisdiction. Wind farms that generate 300 megawatts of power or more are subject to PRC regulation. Meanwhile, Avangrid failed to provide required documentation for the La Joya wind farm under the PRC’s order approving its location.

Schannauer’s report comes after a lengthy hearing process. The PRC will ultimately choose whether to approve or deny the merger at a later date. While the hearing examiner’s recommendation provides some weight, it does not always dictate the outcome of a case.

While Schannauer recommended denying the merger, he also provided recommendations for the PRC if the commission chooses to approve the merger.