PNM Resources Inc. executives on Feb. 3 defended the merits of the company's proposed acquisition by Avangrid Inc. that they said New Mexico state regulators improperly and unlawfully rejected a $4.32 billion merger in December 2021.
With approvals from five federal agencies and Texas regulators, Iberdrola SA-owned Avangrid and PNM need only the approval of the New Mexico Public Regulation Commission, or PRC, which voted unanimously against the acquisition in December 2021. PNM has since appealed the decision in the New Mexico Supreme Court and extended the merger agreement to April 20, 2023, with an optional three-month extension.
"The benefits and protections we proposed were far beyond the level required in the approval of other mergers," PNM Resources Chairman, President and CEO Pat Vincent-Collawn told analysts and investors during the company's fourth-quarter 2021 earnings conference call. "These added benefits of protections were then weighed against perceived risks, including a fear that PNM would begin ignoring its obligations to provide quality service to customers as a result of Avangrid's ownership. These were not real risks supported in the record."
PNM, which owns regulated utilities Public Service Co. of New Mexico and Texas-New Mexico Power Co., expects a 12- to 18-month appeal process, according to Vincent-Collawn. The case will be remanded back to the PRC if the court, which must hear the case, rules in the company's favor. The merger agreement was first announced in October 2020.
When asked during a question-and-answer session to justify the financial rationale for extending the deadline, the CEO emphasized that "the transaction price still represents a significant premium at this point, and shareholders are also continuing to receive a dividend at a higher dividend rate."
Regarding the merger's strategic value, Vincent-Collawn said: "We need that bigger balance sheet. We need access to technology expertise that as a company, we are just too small to have."
PNM is also appealing the rejection of the company's plan to exit the 1,540-MW Four Corners coal plant because state regulators said Public Service of New Mexico allegedly failed to identify new power resources to replace the lost capacity.
The PRC on Dec. 15, 2021, unanimously voted down PNM's request to issue $300 million in energy transition bonds to help finance the abandonment of its 200-MW ownership interest in the plant. The rejection halted PNM's plans to sell its 13% ownership stake of units 4 and 5 to the Navajo Transitional Energy Co. LLC, which also operates the nearby Navajo Mine and supplies coal to the plant.
"The early exit not only aligns with our carbon-free goals, but it brings customer savings, including reduced fuel costs, and provides the local community's financial support as they transition to a non-fossil-fuel economy," Vincent-Collawn said.
The New Mexico Supreme Court, in a decision released Jan. 10, rejected constitutional and technical challenges to the state's two-year-old energy transition law, removing legal hurdles to finance the utility's exit of its interest in units 1 and 4 of the 847-MW San Juan coal plant.
In the meantime, PNM is securing backstop power supplies since new resources approved to replace the San Juan capacity will not be operational by the plant's June 30 retirement date.
"Our developers actually last year started providing notice that they could not meet the deadline," the CEO said. "We've got several options. We could keep the plant open a few months longer. We are looking at market purchases." Public Service of New Mexico must obtain the new supply through power purchase agreements.
Earnings and guidance
PNM recorded preliminary ongoing net earnings of $211.1 million, or $2.45 per share, for 2021, up from $182.8 million, or $2.28 per share, in 2020. For the fourth quarter of 2021, PNM reported preliminary ongoing earnings of $17.7 million, or 21 cents per share, compared with $12.6 million, or 15 cents per share, in fourth quarter 2020.
The company provided 2022 guidance of $2.50 to $2.60 per share and 2023 guidance of $2.60 to $2.75.
CFO and Senior Vice President Joseph Tarry added that the 2022-2023 guidance includes plans to issue up to $200 million of equity financing during that period.
"If for heaven's sakes something happens and the merger wouldn't go through, we'd be in good shape as a stand-alone," Vincent-Collawn said.