Dive Brief:

• The New Mexico Public Regulation Commission (PRC) on Wednesday denied Connecticut-based Avangrid's proposed $8 billion acquisition of PNM Resources, after a hearing examiner warned in November of reliability risks, the potential for higher prices and slower development of renewable resources.
• The denial was still unexpected, say observers, with 23 of two dozen intervening parties, including customer and clean energy advocates, supporting an agreement allowing the deal to proceed. PRC staff also agreed not to oppose the merger.
• Some clean energy advocates say utility consolidation is not necessary for decarbonization and customers have dodged a bullet, while others see a missed opportunity. The deal can still be salvaged and has about a 30% chance of moving forward, according to Rob Rains, a senior vice president and energy analyst at research firm Washington Analysis.

Dive Insight:

Whatever happens with the PNM-Avangrid merger, it is clear that state regulators are now viewing utility mergers in a new light, Rains said.

"Before 2016 you had four [merger] denials by utility commissions. Since then, we've seen a whole lot more and utility commissions are totally unafraid to deny a deal and use it as a bargaining tool for more concessions," Rains said in an email.

There are ways the deal can still move ahead, Rains said, adding that since 1991 he's watched 11 deals get denied by utility regulators. "Eight of those stayed dead and three got approved," he said, in particular pointing to Exelon's 2016 acquisition of Pepco which was twice rejected by the D.C. Public Service Commission and ultimately approved over the objection of the Chairman Betty Ann Kane.

PNM and Avangrid had agreed to new reliability standards and penalties, should service degrade, in an attempt to gain PRC approval. But the concessions were not enough to win the support of the commission and some customer advocates.

The rejection "is welcome news for consumers and the climate," Tyson Slocum, energy program director at Public Citizen, said in an email. "We don’t need corporate utility mergers to combat climate change. It turns out bigger is not better."

Slocum said Avangrid’s "terrible record" in New England appeared to give regulators pause.

Among intervening parties at the PRC, the nonprofit New Energy Economy was the lone holdout opposed to the deal. The group warned that Avangrid, which owns eight electric and natural gas utilities in the Northeast and New England, is facing $60 million in penalties and fines for unreliable and expensive electric service. 

"New Mexico dodged a bullet," the group said in a statement.

Other groups see a lost opportunity.

"This unfortunate decision ...  means our state will lose $300 million in benefits for ratepayers, communities, and workers, as well as the important commitments and capabilities Avangrid would bring to address climate change," Steve Michel, deputy director of Western Resource Advocates’ Clean Energy Program, said in a statement.

"We are disappointed that the expansion of energy efficiency for limited income residents and arrears forgiveness which we have worked long and hard for will now disappear," said Ona Porter, president and CEO of the New Mexico equity-focused nonprofit Prosperity Works.

The New Mexico rejection doesn't mean the deal is done, and PNM says it is still considering options.

"We will continue to evaluate any next steps that could allow us to bring the positive benefits to the people we serve," PNM Chairman, President and CEO Pat Vincent-Collawn said in a statement.

Avangrid and PNM have 30 days to request rehearing on an expedited basis, which Rains called "unlikely" to succeed as it is rarely granted by the commission. Avangrid could then appeal to the New Mexico Supreme Court, potentially resulting in reconsideration by the PRC.

The PRC is getting a makeover, however. New Mexico approved Constitutional Amendment 1 in 2020, meaning that in 2023 the commission will become an appointed committee with new members selected by the governor. Commissioners are currently elected from districts.

"Avangrid and PNM officials may simply opt to roll the dice on a new set of faces and a more sympathetic review in 2023, although there is obviously no guarantee of a different result," Rains wrote in a research note Wednesday.