PRC says it followed own guidance in rejecting merger

Jun. 20—Saying it's no "stooge" for others, the state Public Regulation Commission argues in a court filing it was required to act independently when considering a merger of New Mexico's largest electric utility with other major power companies.

A PRC brief submitted by legal staffers last week to the New Mexico Supreme Court says the commissioners made the right call in rejecting Public Service Company of New Mexico's request to merge with Avangrid of Connecticut and its parent company, Iberdrola of Spain. The five commissioners' unanimous decision in December ran counter to recommendations by the Attorney General's Office and numerous environmental groups.

The proposal to merge with, and virtually be taken over by, the two large companies has implications for the state's ability to convert to electricity driven by renewable power sources such as solar and wind. PNM says the merger with the big companies would give it access to money, equipment and innovation.

PNM and its potential partners have appealed the PRC's rejection to the state Supreme Court, and the commissioners' latest comments came in an approximately 70-page document and request for oral arguments. The document said there was "substantial evidence before the Commission of potential detriments of the proposed merger."

A joint statement Friday from representatives of PNM and Avangrid said "the PRC undervalued the merger benefits and exaggerated the alleged risks, resulting in an incorrect application of the merger standard."

The state Supreme Court has no deadlines by which to schedule oral arguments or to rule on the matter. PNM, Avangrid and Iberdrola have the benefit of a new commission taking over in January and potentially getting a new review of their case.

The current five-member elected commission will be replaced in 2023 by a three-person, governor-appointed commission after the state's voters agreed to that change two years ago.

In the ongoing point-counterpoint of legal filings, the commission's brief is an answer to claims filed by PNM, Avangrid and Iberdrola. The commission maintains the companies' argument that the PRC "improperly balanced the benefits and detriments of the proposed merger ... leads to a dead end." Protecting the public in such deals is one of its main duties, the PRC argues.

"The proposed merger was not designed to benefit PNM customers," it says in the document. Instead, the blending of companies would give Avangrid and Iberdrola a "beachhead" in the Southwest from which to pursue other projects, according to the PRC.

Further, the primary beneficiary of a merger would be PNM shareholders, the brief says, and not customers.

The companies, however, argue the PRC ignored the fact that almost all environmental organizations supported the merger.

The commission says this claim, too, was a dead end. "This argument is dumbfounding and implies the Commission is a stooge," its brief says.

PNM and Avangrid representatives said it's telling the merger won the nod of organizations and other state and federal entities, such as the Attorney General's Office and the Federal Energy Regulatory Commission. "Each of those agencies concluded the merger met all regulatory standards and should be approved," they said.

One organization that didn't agree with the companies was New Energy Economy of Santa Fe. A recent brief filed by that organization, headed by Mariel Nanasi, said the companies' arguments were "untethered from reality."

The commission brief restates some sticking points it found in the merger proposal. One was Avangrid subsidiaries' performance record in the Northeastern U.S., which the commission and others have said was poor. Another was the commission's concern about a Spanish investigation of some current and former Iberdrola executives. Yet another was the role played by Albuquerque attorney Marcus Rael, a friend and colleague of Attorney General Hector Balderas who does legal work under contract for Balderas' office.

Various details indicate Avangrid and Iberdrola use "methods of doing business that should raise concerns for the Commission," the brief says, quoting a line from PRC hearing examiner Ashley Schannauer's recommendations late last year. Schannauer generally issued a report criticizing the merger plan.

Balderas said in a brief statement Friday the PRC "violated the rule of law" by not considering the proposed agreement reached by 23 organizations. He also noted the state Supreme Court Disciplinary Board ruled there was no conflict of interest involving Rael. Schannauer ordered Rael to stop working for Iberdrola, and he did.

Balderas also said he is "very concerned that the PRC is misleading the Court by misrepresenting the timeline" of his interactions with the merger applicants.

Iberdrola hired Rael early last year for negotiations in the merger proposal. Balderas signed on to the agreement with the applicants in the spring. The commission says the "plausible inference ... is that the AG was improperly influenced by Mr. Rael, who was representing the AG and Bernalillo County at the time he was hired by Iberdrola."

The commission adds, "The AG ludicrously stated that a benefit of the merger consisted of the lessons that Avangrid learned from the experience of dealing with severe storms in the Northeast, though any lesson that Avangrid may have learned resulted from its own incompetent preparations for the storms."

The commission also points out Scott Hempling, an expert witness used by Balderas in the merger case, criticized the merger proposal in the spring of 2021.

Balderas spokeswoman Jerri Mares wrote in an email Friday Rael was hired by Iberdrola before Balderas opposed the initial merger application. "It was only after gaining significant concessions through negotiations that greatly modified the transaction that the AG joined" the agreement in April, Mares wrote.

The three power companies have said the benefits of a merger outweigh any risks. They have agreed to give customers rate credits totaling $67 million over three years and to create at least 150 jobs in the state if allowed to merge.

They also said they would allocate $25 million to state economic development efforts, appropriate $12.5 million to Indigenous communities in the northwestern corner of the state and offer $15 million in energy efficiency and weatherization programs for low-income people.

The representatives of PNM and Avangrid said in a statement Friday, "If the benefits and risks had been properly reviewed and applied, the transaction would have been approved."

They said the investigation in Spain of Iberdrola executives contained "mere allegations." The PRC's use of that situation against the merger applicants, they said, "is contrary to New Mexico law and principles of fairness and is not a basis for assuming that PNM will not continue to provide quality service if the merger is approved."