Public Service Company of New Mexico is a big animal in this state, but it’s a little guy in the universe of utilities.
Leaders of PNM Resources, PNM’s parent company, say the utility’s small size makes it difficult to buy expensive new technology and maximize use of the state’s abundant renewable energy sources such as solar and wind.
Those factors brought PNM together with Connecticut’s Avangrid and its Spanish parent company, Iberdrola, both of which have experience in renewable energy. Electric utilities are rapidly changing, PNM and Avangrid say, and PNM needs a brawny partner with which to compete in this new environment.
“That scale makes a difference,” said Dennis Arriola, Avangrid’s CEO. “It helps us be more competitive, but ultimately it helps our customers.”
The merger proposal between PNM and Avangrid, which was given the go-ahead by PNM leaders in October, has encountered tough resistance in New Mexico. Some attorneys and organizations see both companies as trying to bulldoze through the state Public Regulation Commission.
The commission must determine if the merger would serve the public interest. Although that term is vague, some critics see the proposed merger as a benefit to shareholders and far less of a boon to the state and the people who pay PNM monthly for electricity.
Also at issue is whether service under new ownership would improve or worsen. The Public Regulation Commission is expected to hold Zoom hearings on the proposed merger Aug. 9 and Aug. 11-20, if that much time is needed. PNM and Avangrid hope the transaction will conclude by the end of the year.
In 15 pages of PNM Resources’ description of how the merger proposal came about, the word “shareholder” comes up 40 times and “customer” only eight.
Pat Vincent-Collawn, chairwoman, president and CEO of PNM Resources, said last week comparing customers and shareholders isn’t helpful.
She pointed to the $50 million in customer credits, $7.5 million in state economic development aid and 150 new jobs pledged by the two companies as evidence of public benefit. “I think the customer’s number one,” she said.
But, she said, “The customer was never really at risk” in the deal. Customers simply pay for monthly service while shareholders put their money on the line, she said.
“The shareholder investment is really a different bucket. The investors risk their money. So they get the upside and they get the downside,” Collawn said.
One expert witness in the proceedings, Maryland utility attorney and author Scott Hempling, said documents on the proposal show PNM and Avangrid focused largely on PNM shareholders’ profit.
PNM “is selling control of a public franchise for private gain,” said Hempling, who was an expert witness in the case for the Attorney General’s Office. Avangrid wanted a “platform,” or launching pad, for more acquisitions. And the PNM Resources board wanted a process that would garner a high return for shareholders, he said.
Avangrid presented an offer letter Aug. 25 showing shareholder profit would be about 14 percent in the deal — $50.23 per share, up from $44.14, Hempling noted. Ultimately, the two sides agreed the share price would be $50.30.
“Customer benefit was nearly irrelevant,” Hempling said. “No one gathered or presented serious information, conducted serious analyses or made any serious plan about improving PNM’s performance. Customer benefits were beside the point.”
The proposed merger is an $8.3 billion deal with a total of $4.3 billion going to shareholders and Avangrid paying off $4 billion in PNM debt.
PNM leaders say their company couldn’t acquire capital, or money for infrastructure improvements, as easily standing alone as it could with Avangrid’s backing. Avangrid’s credit rating is better, which means PNM should be able to borrow money less expensively.
PNM Resources board members say in documents associated with the proposal that they wanted a partner with financial strength to help PNM grow, one likely to win regulators’ approval and to help PNM move ahead, and with the size to purchase material and equipment at more reasonable rates.
Don Tarry, a senior vice president who will become head of PNM when Collawn steps down, said better credit ratings and cheaper purchasing prices benefit the public.
“What does that mean for customers? It means lower costs,” Tarry said last week.
The proxy statement shows PNM contacted at least five other companies, four of which considered the partnership and declined. The board lacked interest in another firm. The dance between PNM and Avangrid continued for well over 18 months.
Arriola said there are good reasons for Avangrid to desire PNM. “We think that there’s opportunity to grow from a renewable [energy] standpoint,” he said. “I really believe that we can do more in New Mexico.”
Collawn said the abundance of solar and wind resources in New Mexico should enable the state to export energy to other states. Avangrid sees New Mexico as “a culture of abundance,” she said, and has the ability to “take our great stuff and develop it.”
In recent weeks, the proposal has won support from Gov. Michelle Lujan Grisham, Attorney General Hector Balderas, former Gov. Bill Richardson and some environmental and community groups.
It has failed to win the backing of Bernalillo County, the city of Albuquerque and the Sierra Club, among others.
Quality service is a key issue. Avangrid has subsidiaries in the Northeast, some of which have done poorly in customer service ratings.
William Dunn, a utility consultant in Maine, said last week a large cadre of people in his state favors legislation that would replace the Avangrid subsidiary, Central Maine Power, with a consumer-owned utility company that would be called Pine Tree Power.
Dunn said Central Maine’s service yields “a pretty nasty picture.” The company has been at the bottom of J.D. Power’s customer satisfaction studies for both residential and business customers.
“We have the worst reliability, and I know that from experience,” Dunn said. He testified this month before a committee of the Maine Legislature for a bill that would help lead to the consumer-owned utility. He said ratepayers are “so mad” at Central Maine the legislation stands a good chance of passing.
Bob Kump, deputy CEO of Avangrid, said consumer ratings rise and fall. Service is vital to his company and its subsidiaries, he said. “We create benchmarks for reliability.”
He said Central Maine Power’s reputation suffered when it went to a new billing system four years ago just as there was a long stretch of harsh weather. People’s bills were extremely high and the new billing document was confusing, he said.
“So that all created a level of distrust and disbelief on the bills,” he said. “That’s why we’re last in J.D. Power. … Again, we own that.” He said Central Maine added staffers to its call center and brought back an effective CEO who had left. He said they have fixed the problems.
New Mexico hearing examiner Ashley Schannauer expressed concern early this month over $25 million in penalties assessed to Avangrid subsidiaries in the Northeast over the past couple of years.
In a written order, Schannauer indicated it’s not just Central Maine that has had poor customer service rankings. Two of three others did poorly as well, he wrote, although the third, Rochester Gas & Electric, was ranked No. 1 among 12 peers.
Michael Caron of the Connecticut Public Utilities Regulatory Authority had severe reservations six years ago when Avangrid took over United Illuminating in his state. Caron voted against it.
“I wasn’t convinced that Avangrid was bringing anything to the table,” Caron said last week. But the transition has been seamless and Avangrid has retained United Illuminating’s local leadership, he said.
United Illuminating struggled during Tropical Storm Isaias last year, he said, and “left something to be desired” at that time. But a bigger Connecticut utility, Eversource, did “seriously worse,” he said.
Avangrid’s acquisition of United Illuminating has gone fine, he said. “We haven’t had anything substantial in terms of problems,” Caron said.
Back in New Mexico, Mariel Nanasi of Santa Fe’s nonprofit New Energy Economy said Avangrid has a long way to go to win full support. “Like so many New Mexicans, New Energy Economy was excited to welcome a renewable energy company to take over PNM because of their lackluster ability to transform their energy portfolio,” she said.
But considering the subsidiaries’ “abysmal reliability,” she said she can’t imagine Avangrid serving the public interest here. She also pointed to a finding of fraud involving parent company Iberdrola, according to a World Bank news release from 2015.
The release said the World Bank settled a case with Iberdrola subsidiary Iberinco over fraudulent procurement in Albania in 2004 and 2005.
Avangrid said through an emailed statement last week there is no pattern of misbehavior by Avangrid or Iberdrola. They have won national and international recognition for exemplary business ethics, the statement said.
Among those are citations for being among the Ethisphere Institute’s World’s Most Ethical Companies this year.