(Journal photo)

New Mexico's giant electric company merger ended with a shock. 

After more than three years filled with political gamesmanship Avangrid announced it could wait no longer and ditched the $4.3 billion buyout, leaving PNM at the altar and the state with a blizzard of questions about what it will mean for its energy future.

An electric utility expert based in DC with extensive NM experience and who chose anonymity, came with the nitty gritty for us: 

Joe, I reckon PNM will try to find another marriage partner but that won't happen quickly. PNM has a history of difficult regulatory relations and that doesn't enhance its attractiveness to suitors. 

I'm also not certain that PNM has the financial heft to fund the Energy Transition Act commitments without a partner. I suspect Avangrid won't abandon its interest in NM but PNM will not be a part of that. 

Among other things, it means PNM CEO Pat Vincent-Collawn's big payday will be postponed or canceled.

The proposed merger that started with a big bang in 2020 ended with a whisper as PNM released news of the dashed deal at 1 a.m. Eastern time. 

That advance warning did nothing to assuage investors who sent PNM's stock plummeting at the market open. PNM ended the day where it last was in the dark days of COVID--at $39.11 a share, down 6 percent. 

PNM Chair and CEO Pat Vincent-Collawn described the company as "greatly disappointed" with the decision, adding: "Our strategic plans remain focused on the infrastructure investments necessary to meet the future energy needs of our customers and communities"

Avangrid statement here. 

THE BIG QUESTION

The biggest question arising from the merger gone bad was where PNM would now get the billions needed to transition the state to renewable energy as called for by the Energy Transition Act which mandates utilities like PNM to use "80% renewable energy by 2040."

PNM has said it will reach that goal but the merger gone bad casts major doubt on the proposition because of the huge investment needed. 

Avangrid, owned by Spanish energy company Iberdrola, brought that kind of money to the table. 

Enviros lamented the collapse of the merger, all of them with the notable exception of New Energy Economy, a spunky Santa Fe based group that broke ranks and repeatedly warned of regulatory and ethical mishaps at Avangrid's US operations. NEE's Mariel Nansi did not hold back her glee upon hearing the merger news:

When the Public Regulation Commission (PRC) rejected Avangrid's proposed merger in 2021 they relied on compelling and extensive evidence of Avangrid and parent company Iberdrola's poor service and failure to comply with laws and regulatory oversight in the other markets where they operate. The Hearing Examiner's recommendation against the deal, and the PRC's subsequent unanimous vote rejecting the merger were clear that it was the company's own record that made the case against Avangrid, proving that the company could not be trusted to operate in the public interest. 

The PNM/Avangrid merger was not designed to benefit New Mexicans. . . the rate credits offered to PNM customers amounted to $1.64 per month for 36 months for the average residential ratepayer. This was not even equal to the total $29 million that would have been paid out to PNM executives. . .

ESTABLISHMENT LOSS

The state's Democratic establishment led by Gov. Lujan Grisham went to the mat for the deal. She said of the defeat:

The termination of the merger agreement is not the outcome we desired, but I remain confident about future investments in our state, including by Avangrid, in the wind, solar and hydrogen solutions that are powering our state’s clean energy transition. New Mexico will continue to be a national leader in charting a clean energy economy through our electricity generation and transmission, onshoring of key supply chain components and cutting-edge technology development.

While Lujan Grisham clings to the notion of NM becoming a "national leader for a clean energy economy" in a small state of 2.114 million, regular ratepayers may see the death of the merger more optimistically as their voices will not be drowned out by an international powerhouse and a NM political leadership in thrall to outside national environmental interests.

A MOVIDA GONE BAD

The episode was not only a backfire for the Guv but the legislative leadership including Senate Majority Leader Peter Wirth and enviros who pushed through the ETA in 2019, propped up the PNM merger and went as far as getting voters to eliminate the the elected but anti-merger PRC and making it an appointed panel. That move was expected to make the merger more likely when the new Governor-appointed commission took up the merger rejected by its predecessor. But the movida fell through:

The Public Regulation Commission. . .rejected the merger in December 2021. PNM and Avangrid appealed that decision to the Supreme Court in early 2022, hoping the decision would be overturned in their favor. Then the PRC changed in 2023 from a five-member elected commission to a three-member governor-appointed commission. Shortly after that, PNM and Avangrid filed a joint motion to dismiss their appeal in the hopes it would go back to the PRC again, but this time before new state regulators. 

What a mud-packed political football it was that landed in the laps of the five Supreme Court justices. By not acting on the motion to dismiss by the deadline for the merger, they essentially wished the whole mess away. Avangrid threw in the towel and the wish was fulfilled.

FALLOUT AT PNM

PNM stockholders stood to get $50.36 a share if Avangrid succeeded in their buyout. Many New Mexico residents invest in the company, the only New Mexico one listed on the NYSE. 

That investment is a reliable dividend payer with the yield before Tuesday's tumble at 3.7 percent. After Tuesday's action the yield is up to 4 percent. But that is little solace as the stock price decline slashes into the value of their investment. 

Five years ago PNM traded at $40 a share about where it is today. The recent high of $55 a share is now a memory. 

PNM now has a market value of $3.357 billion, well below the $4.3 billion Avangrid would have paid for the company had the merger gone through. 

In all the storied history of PNM, which dates back to 1917, this merger collapse was perhaps the most disastrous management failure of all. 

Unable to bring to life the much-touted deal weakens the company and could make it vulnerable to a lower buyout offer--or as others argue no buyout at all for the foreseeable future. 

As the public face of the deal Vincent-Collawn expended much of her credibility with regulators, investors, the Legislature and the public. Those seeking to protect the PNM brand may now start the drumbeat to bring in new faces to help the state and industry forget the management mishap and try to move on.

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