The New Mexico Supreme Court heard arguments Friday in the appeal of a decision by state regulators to reject a proposed merger between the Public Service Company of New Mexico and utility giant Avangrid.
While the New Mexico Public Regulation Commission acknowledges that the proposed merger could bring benefits to New Mexicans, the commission argues in court filings that, unlike other approved merger cases, there was evidence that the merger could also harm ratepayers.
In addition to the Avangrid, PNM and PRC attorneys, New Energy Economy also participated in the oral arguments.
During the oral arguments, the PRC attorney argued that the decision was made based on balancing the potential benefits and potential harms to customers based on substantial evidence. Furthermore, the attorney argued that past merger cases cannot be looked to as templates because each merger case is unique and the facts and circumstances of the particular case are different.
The court did not make a ruling on Friday and will need to determine if an error that the PRC admits occurred is sufficient to remand the entire case to the PRC. In addition, the court will examine arguments that the commission acted outside its authority in denying the merger.
Avangrid attorney Thomas Bird argued that the commission was prejudiced in its ruling and erroneously relied on hearsay evidence to conclude that the merger would not be in the best interest of ratepayers.
“The overarching point of our appeal, the unifying principle supporting reversal is that the Commission’s rejection of the merger was not a reasonable or lawful exercise of its authority,” he said.
Bird argued that the decision came about following various rule violations, incompetent evidence and departures from existing commission standards. Additionally, he said the PRC disregarded the presumption of innocence when considering the Spanish investigations into corruption at Avangrid’s parent company, Iberdrola.
Did the PRC rely on evidence that shouldn’t have been admitted?
Chief Justice Shannon Bacon questioned Bird’s stance that the hearsay evidence should not be admitted. She noted that the rules applying to the administrative proceedings allow for admission of hearsay evidence.
Bird argued that the evidence was not subjected to cross examination and, because of that, should not have been permitted.
The evidence that Bird referred to as hearsay and said should not have been permitted includes testimony by utility regulation expert Scott Hempling, Maine state Rep. Seth Barry and an audit performed by an independent consultant, Liberty Consulting Group, of Avangrid subsidiary Central Maine Power. This audit was commissioned by state regulators in Maine.
Bird argued that the audit from Maine was not prepared by the state utility commission, nor was it adopted or ratified by the state regulators.
“It prepared it, and it put it in its file,” Bird said.
But Justice Brianna Zamora said the Maine Public Utility Commission put the audit into its file, which is part of its record.
“They paid for it, they commissioned it, they put it in their file. There’s no indication that any action was ever taken on it. The record is unclear about how that proceeding concluded. It wasn’t over by the time the merger case was finished,” Bird said.
Mariel Nanasi, executive director of New Energy Economy and an attorney, said that the audit resulted in Avangrid being fined $9.9 million.
“It was the largest fine that Maine had ever meted out in Maine history,” she said.
Meanwhile, Bacon had questions about other pieces of testimony in the merger case regarding Avangrid’s purpose in wanting to come to New Mexico.
“What about the testimony that was presented that was essentially, ‘meh, New Mexico, we’ll give you a little bit, but this is really to create an anchor for Avangrid to spread its wings throughout the west and this is really about Avangrid and it’s not about the people of New Mexico?’ A testimony like that. Can’t the commission rely on that kind of testimony and have some skepticism about your client’s intentions in New Mexico when compared to monetary pieces of this, which again are very limited in time and per customer are very, very small?” Bacon asked.
Bird responded that the rate credits that the merger case would have offered customers were substantially higher than those in previously approved mergers in New Mexico. He also argued that the commission has not looked at the intentions of an entity in coming to New Mexico when approving mergers in the past.
Justice Julie Vargas asked if PNM and Avangrid had an opportunity to put a witness on the stand to counter the claims made in what Bird referred to as hearsay evidence, including the audit. The PRC attorney said that the utilities did have that opportunity.
Avangrid and PNM provided the Liberty audit to the PRC, Nanasi said, and there was no objection to it at the time.
Was PNM improperly sanctioned?
The commission during the merger case sanctioned Avangrid and PNM. In this matter, the PRC agrees that PNM was wrongfully included in those sanctions, though the $10,000 fine was paid solely by Avangrid and not by PNM. These sanctions were imposed because the hearing examiner determined Avangrid did not follow the requirements of a discovery order.
The PRC argues that this is not grounds to remand the entire case to the commission and doesn’t prevent the court from upholding the decision to reject the merger.
“We have to remand the entirety if we find an error,” Bacon said.
New Energy Economy argued that PNM and Avangrid were working together and jointly signed pleadings and correspondences related to discovery.
Should the case be remanded, the commission’s structure has changed since it denied the merger application, as Vargas pointed out. That means if the merger is remanded because PNM was improperly sanctioned, the PRC could choose to rehear the entire case.
“This is a case of enormous magnitude that will affect New Mexicans for decades,” Nanasi said.
She said the commission made a mistake and said “joint applicants” referring to both Avangrid and PNM instead of just Avangrid. But, she said, that is how the utilities referred to themselves in documents and proceedings throughout the entire case.
“I would submit to you that it’s harmless error,” Nanasi said.
She said Avangrid alone paid the fine and that PNM applied jointly with Avangrid in the merger case. Furthermore, she said PNM and Avangrid were communicating with each other throughout the process.
Vargas pointed out that the state Supreme Court has two choices in the case: affirm or null and vacate.
“We get to do one or the other,” she said.
If the court chooses to null and vacate it, the merger case will return to the PRC for reconsideration.
Did the criminal investigation in Spain play a major role in the merger denial?
The treatment of the criminal investigation in Spain into Iberdrola was also a major point that the judges returned to multiple times. Avangrid and PNM reference statements made by former commissioners regarding the investigation into Iberdrola.
Justice David Thomson had some concerns regarding the treatment of the Spanish investigation. He pointed out that Spanish courts operate a bit differently than U.S. courts.
Justice Michael Vigil further asked if Iberdrola is not entitled to the presumption of innocence.
The PRC attorney argued that the commission only looked at the possibility that the Spanish investigation could be a concern, especially when taken in combination with other evidence.
During Nanasi’s arguments, Thomson said he is troubled by the handling of the Spanish investigation.
Nanasi said she does not believe the commission based its decision on the Spanish investigation.
“There is no evidence that they based their decision on it, there is evidence that it influenced their decision,” she said.
Justice Zamora said that statements by former Commissioner Cynthia Hall do sound like a presumption of guilt.
“I do think that the Spanish investigation was extraordinarily troubling, there’s no question about that, to the commissioners for good reason and they did include the Spanish investigation as a factor in their decision,” Nanasi said.
Rate credit case remanded
In other news, the New Mexico Supreme Court on Thursday remanded an appeal of a PRC decision regarding PNM rate credits to customers back to the state regulators.
The rate credits are because of the closure of the San Juan Generating Station.
PNM and other parties reached a settlement agreement in the case, which the PRC will now be tasked with either approving or denying.