A Spanish energy conglomerate has made an all-cash offer for the parent company of New Mexico's largest electric utility.
Orange, Connecticut-based Avangrid, the American arm of Spain's Iberdrola Group, on Oct. 21 jointly announced with PNM Resources, the parent company of Public Service Company of New Mexico and Texas-New Mexico Power, a merger that the companies say could be finalized within a year.
Avangrid has $35 billion in assets with operations in 24 U.S. states, including eight electric and natural gas utilities in New York and New England serving more than 3.3 million customers. The merger with PNM Resources would mark Avangrid Networks' first utility foray into the American West. The company's Avangrid Renewables arm has a 1.4-GW "pipeline" of renewables assets in New Mexico and Texas and currently owns 1.9 GW of renewable resources, mostly wind and solar, in 22 other U.S. states. Iberdrola has extensive international operations across Europe and the Americas.
PNM Resources, based in Albuquerque, has approximately 2.8 GW of combined generation capacity and serves about 790,000 homes and businesses between PNM and TNMP. Its 2019 consolidated operating revenues were $1.5 billion.
The $8.3-billion purchase price represents a premium of 10 percent over PNM's Oct. 20 share price and a 19.3-percent premium over the average PNM share price during the 30 days prior to the merger announcement. PNM shareholders are expected to receive $4.3 billion in cash from the merger, according to an Oct. 21 joint release. Iberdrola, as Avangrid's majority shareholder, provided a funding commitment letter for the equity proceeds of the transaction.
The companies said their respective boards had each approved the merger. Avangrid will add two independent board members from PNM Resources to its board of directors, while one independent board member from PNM Resources will join the board of Avangrid Networks, the company's American utility arm, the release said. The PNM Resources board will be dissolved as a result of the merger. The utility companies, PNM and TNMP, will maintain their current names and be operated under the Avangrid Networks family of companies, spokesman Ray Sandoval said in a telephone interview with California Energy Markets.
"This is a friendly transaction, focused on regulated businesses and renewables in highly rated states with legal and regulatory stability and predictability offering future growth opportunities," Avangrid and Iberdrola Group Chairman Ignacio Galán said in the release.
The deal is subject to approval by the Federal Energy Regulatory Commission, the Committee on Foreign Investment in the United States, the Nuclear Regulatory Commission and other federal agencies. It must also be approved by state utility commissions in New Mexico and Texas and by PNM shareholders.
The move would create one of the biggest clean-energy companies in the United States and bring the number of regulated U.S. utilities in Avangrid's portfolio to 10. Avangrid Networks owns Maine Natural Gas, New York State Electric & Gas and other utility operations in New York, Connecticut, Massachusetts and Maine, including Central Maine Power, sometimes referred to as Central Spain Power by ratepayers critical of the company. A Maine legislator in 2019 proposed a bond-funded state takeover of CMP and Maine's other investor-owned electric utility, the Canadian-owned Emera Maine.
Avangrid CEO Dennis Arriola, who will remain as CEO of the combined company, called the merger a "strategic fit" and said it would enhance Avangrid's position in clean-energy distribution and transmission and expand its leadership in renewables.
"Our combined companies provide greater opportunities to invest in the infrastructure and new technologies that will help us navigate our transition to clean energy while maintaining our commitments to our local teams and communities," Pat Vincent-Collawn, chairman, president and CEO of PNM Resources, said in the release.
Vincent-Collawn will step down following the merger, along with PNM Resources Executive Vice President of Corporate Development and Finance Chuck Eldred and Senior Vice President and General Counsel Patrick Apodaca. Chris Olson, PNM Resources' senior vice president of operations, and Ron Darnell, senior vice president of public policy, will remain in their positions in the merged company. Don Tarry, PNM Resources' current chief financial officer, will become president of operations for PNM and TNMP, Sandoval said. There will be no other reductions in the current PNM and TNMP workforce.
Environmental and community groups in New Mexico were quick to respond to news of the planned merger with calls for more information on Avangrid's renewable-energy expansion plans. "We hope this move will solidify a deep, long-term commitment to New Mexico's future as a West-wide renewable energy generation leader," Ben Shelton, political and policy director for Conservation Voters New Mexico, said in a statement.
Interested groups also pressed the companies to address the impending cleanup of two coal-fired power plants in northwestern New Mexico. The San Juan Generating Station, operated by PNM, is scheduled to close in 2022. PNM is expected to exit its 13-percent, 200-MW share in the Four Corners Power Plant when its coal agreement expires in 2031.
Sandoval said the merger has no effect on PNM's abandonment plans for San Juan and that Avangrid's prospective ownership of the plant does not alter the need for Enchant Energy, the company hoping to retrofit San Juan as a carbon-capture facility, to secure indemnification and other legal safeguards for the plant's current owners before transfer agreement discussions can occur.
Sandoval said the merger makes it possible for PNM to "double down" on its efforts to exit Four Corners, located about 15 miles from San Juan. The utility hopes the merger will enable it to get out of coal generation prior to the expiration of its 2031 coal contract. One thing that made PNM attractive to Avangrid, Sandoval said, "is that our generation portfolio has been getting cleaner and cleaner."
Shelton and other groups also expressed concern for a just transition for the communities affected by the coal plant closures. New Mexico regulators recently approved 100 percent renewables and battery storage to replace PNM's share of San Juan's generation, and the company on Oct. 10 broke ground on the first of these facilities, a 50-MW solar array on the Jicarilla Apache Reservation (see CEM No. 1601).
"Front and center is the opportunity to protect and manage water sources in the Four Corners region," Nicole Horseherder of the Navajo Nation's Tó Nizhóní Ání organization said in a statement. "Precious water sources have been used to feed giant power-plants all over the Four Corners region for over half a century," she said, adding that transitioning to renewables will "eliminate the waste and misuse of water."
At least one New Mexico group, New Energy Economy, opposes the merger, and in a news release encouraged as an alternative the adoption of community choice aggregation, which will be reintroduced in the New Mexico Legislature as Local Choice Energy in 2021.