Dive Brief:

• Avangrid and New Mexico-based PNM Resources said Monday they have made substantial progress winning over critics of their proposed merger.
• The utilities said they are encouraged by the testimony submitted Friday by one of the merger's remaining critics, New Mexico Affordable Reliable Energy Alliance (NM AREA), which represents a group of manufacturers, data centers, a cement producer and the University of New Mexico, as well as separate testimony from Bernalillo County, citing "constructive suggestions" by both groups.
• The statement by Avangrid and PNM comes before a crucial series of hearings on the merger, which has faced scrutiny over the track record of Avangrid utilities in New York, Maine and other states. The New Mexico hearing examiner overseeing the merger issued an order on Monday demanding more information on a criminal investigation into Avangrid parent company Iberdrola’s activities in Spain.

Dive Insight:

Since unveiling their proposed $8.3 billion deal last fall, Avangrid and PNM have spent months working to build support among key stakeholders in New Mexico for their merger.

The two utilities unveiled an agreement on the proposed merger this spring with thirteen different organizations and entities, including New Mexico Attorney General Hector Balderas, Western Resource Advocates, and the International Brotherhood of Electrical Workers Local 611.

Avangrid and PNM have since been focused on winning over a small but influential number of stakeholders that remained critical of the deal, including NM AREA.

Now that effort is showing signs of progress. Last Friday, five different groups filed comment letters outlining their "remaining concerns," according to a July 19 press release from Avangrid and PNM.

In the case of NM AREA, the group has effectively reached an agreement with Avangrid and PNM over its main areas of concern, said Peter Gould, an attorney representing the group.

"Essentially, we think we have reached settlement language with the company," Gould said.

The tentative agreement calls for rate credits to all customers of $65 million, up from $50 million before. The two sides have also agreed that Avangrid's New Mexico subsidiary post-merger will stop issuing dividends if its debt rating falls below its current rating of triple B, Gould said.

"It's a commitment to make every effort to stay at triple B," Gould said, noting PNM faced financial struggles in the 1990s and that "it took a better part of two decades to climb back."

While NM AREA would have preferred to have the future subsidiary's seven-member board include four independent local directors, the group agreed to settle for three. However, the three independent members will have special voting rights over dividend policy and compensation, Gould said.

The local board will also have control over rate cases, settlement of rate cases, and capital spending budgets, he added.

Avangrid and PNM have also agreed to "have a sufficient number of personnel," a provision that arose out of NM AREA's concern over reports of service and power restoration issues with Avangrid's subsidiaries in the Northeast, according to Gould.

The combined company's New Mexico subsidiary will have to report the number of employees on its payroll over the next three rate cases.

Despite the additional progress, Avangrid and PNM still have remaining issues to iron out, with the staff of the state's Public Regulation Commission (PRC) having laid out their concerns in an expert filing.

The PRC's regulatory staff is seeking additional commitments from Avangrid to maintain service quality and reliability in New Mexico after the merger.

Of particular concern, is "declining service quality at PNM since 2005," combined with "penalties and fines due to service and reliability issues" issued by the state regulatory commissions that regulate Avangrid-owned utilities in Connecticut, Maine and New York, according to the July 16 filing by Evan Evans of Integrity Power Consulting, who authored the filing on behalf of the PRC's utility division staff.

The combination creates "reasonable concern about the ability or desire of Avangrid to ensure that PNM's service reliability will not continue to decline," the filing notes.

"It is important that the Commission establish standards and enforcement provisions on PNM and the Joint Applicants as a condition for approval of the merger to ensure PNM's service reliability is maintained and not negatively impacted by the merger," according to the expert testimony submitted by Evans.

Avangrid subsidiaries have faced over $60 million in penalties and cost disallowances for service issues, and complicating the merger is the New Mexico hearing examiner's recent inquiry into Iberdrola.

Spanish authorities announced in June they had placed Ignacio Galán, chief executive and chair of Iberdrola, under criminal investigation in a corporate espionage case involving alleged bribery, privacy violations and document falsification. 

The order came after a request by New Energy Economy (NEE), an environmental group that is a prominent critic of the merger. While Iberdrola notified New Mexico’s PRC in June of the investigation in Spain, NEE argued the company omitted significant facts in a bid to downplay the seriousness of the allegations. 

Under Galán, Iberdrola allegedly hired a former police commissioner to spy on rivals as well as opponents of the company’s plans to build a new power plant in southern Spain, Commission hearing examiner Ashley Schannauer wrote in his July 19 order, citing NEE. 

The hearing examiner gave PNM and Avangrid until July 27 to file additional information with the commission on the investigation in Spain. 

"Iberdrola’s apparent investigations into its opponents in Europe are relevant to the potentially similar investigations that Iberdrola's American affiliates may be conducting of their American opponents," Schannauer wrote.

"The Joint Applicants have just received the Hearing Examiner’s order and are continuing to review it. We look forward to the opportunity to fully comply to the Hearing Examiner’s order, which recognizes the constraints we have under Spanish law,"  an Avangrid spokesperson said in a statement.