Hearing examiner recommends rejection of PNM-Avangrid merger

Nov. 1—Public Service Company of New Mexico's proposed merger with Connecticut- and Spanish-based firms suffered a blow Monday when a state hearing examiner recommended against it.

Ashley Schannauer, who serves as a quasi-judge for the New Mexico Public Regulation Commission, wrote in a report his review of the proposal found the potential harms of the deal outweigh the benefits. There have been so many amendments to the proposed agreement "there is no longer an agreement that can be approved," he wrote.

Although his decision is a rebuke to PNM and fellow applicants Avangrid of Connecticut and Iberdrola of Spain, it is far from a final ruling on the electric utilities' proposal. Schannauer only has the power to make recommendations to the five-person Public Regulation Commission. And if the commission agrees with him, PNM and its partners can appeal the decision to the New Mexico Supreme Court.

Schannauer wrote that if the commission is inclined to approve the merger, he would recommend various modifications to a June 4 settlement agreement the companies reached with numerous organizations that have an interest in the proceedings.

PNM spokesman Ray Sandoval wrote in an email Schannauer's recommendation is "disappointing, although it contains pathways to approval."

The merger would benefit PNM customers and the state's economy, would produce jobs, result in clean energy initiatives and assist tribal communities, Sandoval wrote.

"We are reviewing this recommended decision and will file our response. ... We remain hopeful that the numerous benefits of this merger are realized in the Commission's final decision," he wrote.

Joanie Griffin, a New Mexico-based spokeswoman for Avangrid, wrote in an email the company was "analyzing the decision and examining the pathways for moving forward to approval. ... We remain committed to putting PNM customers first and utilizing Avangrid's and Iberdrola's financial strength and resources to help New Mexico meet its decarbonization goals more quickly and efficiently."

Mariel Nanasi of Santa Fe, head of the nonprofit New Energy Economy, applauded Schannauer's ruling. Nanasi has been an ardent opponent of the merger.

"Our legal protections exist for a reason," Nanasi said in a statement. "We applaud the Hearing Examiner for his rigorous review of the facts of the case and his sound application of New Mexico's regulatory protections and legal standards."

But Steve Michel of Western Resource Advocates, an environmental group in support of the merger, said he was "incredibly disappointed and discouraged."

The proposal included "a long list of benefits" for the state, including jobs, a commitment to decarbonize by 2035 and customer rate reductions, Michel said. Schannauer is "a good hearing examiner," he added. "I just think he got it very wrong" this time.

PNM and Avangrid filed their application for a merger about a year ago. The process, especially in the spring and summer, has been beset with controversy, even with supporters such as New Mexico Attorney General Hector Balderas and Gov. Michelle Lujan Grisham.

An instructive moment came in a May meeting in which Schannauer chastised Avangrid and PNM attorneys for failing to disclose service problems and penalties Avangrid subsidiaries have faced in the Northeastern U.S.

"Am I the only one who's troubled by this?" he asked during the meeting.

His 445-page report Monday, including exhibits and attachments, referred to missteps and problems the merger proposal encountered.

Among those were incomplete responses, overly extensive confidentiality requests and Iberdrola's hiring of New Mexico attorney Marcus Rael Jr. at $400 an hour.

Schannauer this summer declared Rael, a friend of Balderas' who does considerable contract work for Balderas' office, had a conflict of interest and should not work for Iberdrola on the case. By that time, Balderas had signed on to the merger agreement.

Schannauer said service problems in the Northeast appeared related to Avangrid's "insistence that the utilities cut resources to meet Avangrid, Inc.'s financial goals."

And Schannauer wrote in the Monday order that some current and former Iberdrola executives have been named in a criminal investigation in Spain.

"The criminal investigation is relevant as it may reflect the culture of Iberdrola ... [and the] Avangrid, Inc. group of companies," he wrote. If Iberdrola's and Avangrid's service in New Mexico "is anything like the service provided in the Northeast ... the quality of PNM's service is likely to be diminished," he added.

He wrote Avangrid and Iberdrola appear interested in PNM and New Mexico largely as a "beachhead" for further advancement in the Southwest, and he feared PNM would be lost in a giant organization that has made acquisitions in France, Australia, Japan, Scotland and Brazil within the past couple of years.

Zoom hearings with representatives and attorneys took place before Schannauer from Aug. 11 to Aug. 20. He received input from dozens of people, pro and con.

Schannauer said the applicants may request further Public Regulation Commission proceedings. He also made many recommendations to commissioners on elements they should ask for if they want to approve the merger.

Those include enhanced rate benefits for PNM customers, a delay in seeking a hike in rates for customers and more clarity on what kinds of jobs would be among the 150 created through the merger.