ENERGY
Intervenors push back on recommended approval of New Mexico Gas Co. sale to Bernhard
Hearing examiners recommended approval of the $1.25 billion sale, but opponents say it glosses over emissions, customer safeguards
Public interest groups are pushing back on a Wednesday recommendation by the state Public Regulation Commission鈥檚 hearing examiners to approve the $1.25 billion sale of New Mexico Gas Co. to a Louisiana private equity firm.
Hearing examiners Patrick Schaefer and Elizabeth Hurst wrote that a preponderance of credible evidence shows the acquisition of the utility by Bernhard Capital Partners 鈥渋s in the public interest and results in a net public benefit鈥� and recommended the three-member commission vote to approve the deal.
The commissioners, all appointed by Gov. Michelle Lujan Grisham, are not bound to follow that recommendation. And the groups that intervened in the case say they shouldn鈥檛, arguing the sale falls short on the issues that matter most: greenhouse gas emissions, debt risk and ratepayer protections.
Charles de Saillan, attorney for the Coalition for Clean Affordable Energy, said the group is disappointed in the hearing examiners鈥� decision because it does not 鈥済ive adequate consideration to the overall public interest.鈥�
鈥淔or example, one of our big concerns is emissions of greenhouse gases responsible for climate change,鈥� de Saillan said. 鈥淭his is a preeminent issue of public interest. The private equity buyers of the gas company intend to expand gas service by as much as 22,000 new customers. That means more gas infrastructure and more emissions of greenhouse gases.
鈥淵et the recommended decision makes almost no mention of greenhouse gas emissions. The recommended decision omits any discussion of our testimony.鈥�
Under the sale, Emera Inc., a publicly traded Canadian energy company, will sell NMGC to an affiliate of Bernhard.
With the release of the recommended decision, the nonprofit groups that intervened in the case can file exceptions 鈥� essentially rebuttals to the hearing examiners鈥� report for commissioners to consider before they vote on the deal.
Cydney Beadles, senior attorney and clean energy manager at Western Resource Advocates, said intervenors had warned state regulators about the 鈥渦nique risks that come with private equity acquisitions of regulated utilities, including presenting the testimony of out-of-state utility experts experienced in similar cases.鈥�
鈥淲hile this recommended decision acknowledges these risks, it ultimately falls short of adopting safeguards in any meaningful way 鈥� protections that were recommended by these experts,鈥� Beadles wrote in an email. 鈥淭his raises serious concerns about whether the Commission will be able to adequately shield ratepayers from unnecessary expenses and rising rates in a future under private equity ownership.鈥�
A NMGC spokesperson pointed the Journal to a statement issued Wednesday by the utility, Emera and Bernhard. The statement read that the transaction will bring $87 million in benefits to New Mexicans.
鈥淲e appreciate the thorough and diligent regulatory review process thus far and remain hopeful that the Commission recognizes the significant value this transaction will bring to communities across New Mexico,鈥� the statement reads. 鈥淲e look forward to receiving a positive final order from the Commission in the near future.鈥�
Six-factor test
In deciding whether to approve the transaction, the commission faces a six-factor test, the hearing examiners noted, to determine if the utility鈥檚 customers 鈥渞eceive a net public benefit and are protected from risks of the transaction.鈥�
Those six factors include whether a merger or acquisition provides benefits 鈥� both quantifiable and not 鈥� to utility customers; preserves the commission鈥檚 jurisdiction over the utility; diminishes the quality of utility service; or will result in improper subsidization of nonutility activities.
The commission must also verify the qualifications and the financial health of the new owner and ensure there are 鈥渁dequate protections against harm to customers鈥� in stock purchase cases.
The commission is required by law to give its consent and approval of the acquisition 鈥渦nless it finds that the proposed transaction is unlawful or is inconsistent with the public interest,鈥� the hearing examiners said.
In 2013, the hearing examiners said, the commission applied those same standards in approving Tampa-based TECO Energy鈥檚 $950 million purchase of NMGC. The acquisition included the assumption of $200 million of NMGC鈥檚 debt.
In 2016, Emera acquired TECO Energy for $6.5 billion.
Attorney General Raul Torrez鈥檚 Office has not responded to several requests for comment on the hearing examiners鈥� recommended decision. Torrez has previously called for the commission to reject the transaction.
Torrez, in a December brief, said the proposed corporate structure raises concerns that Bernhard will load up the New Mexico utility with debt. As part of the purchase, a Bernhard affiliate will assume $550 million of NMGC鈥檚 debt, $250 million of private debt and $448.9 million of equity from BCP funds, Torrez wrote.
鈥淏CP鈥檚 type of corporate structure, that of aggregated private equity funds, is not necessarily a dealbreaker,鈥� read Torrez鈥檚 brief. 鈥淗owever, it does require additional safeguards.鈥�
Mariel Nanasi, executive director of New Energy Economy, said the recommended decision does not support a finding of a net public benefit.
New Energy Economy 鈥� a critic of past utility deals, including the failed takeover of TXNM Energy Inc. by Avangrid Inc. 鈥� recommended that the commission adopt different conditions if it does ultimately decide to approve NMGC鈥檚 buyout. That included increasing the rate credit; instituting a rate freeze to December 2027 as opposed to September 2026; transferring $10 million in proposed economic development benefits to a severe weather fund; and requiring a majority independent board.
鈥淲ithout these conditions, the recommended decision fails to provide any meaningful 鈥榥et public benefits鈥� or to protect New Mexico Gas Company customers from harm,鈥� Nanasi wrote in an email, adding that New Energy Economy will file exceptions to the hearing examiners鈥� recommendations.
The hearing examiners wrote they were satisfied with ring-fencing requirements meant to keep the interests of NMGC separate from those of any of Bernard鈥檚 nonutility subsidiaries, affiliates or private equity funds.
NMGC, its current owner, Emera, and Bernhard said in a Dec. 10 brief that ring-fencing commitments will ensure that the utility鈥檚 customers will not support or subsidize a nonutility affiliate of the new buyer.
鈥淪everal commitments preserve (NMGC鈥檚) legal, operational, and financial independence,鈥� the companies said. 鈥淔or instance, (NMGC) must maintain an independent board and corporate governance structure.鈥�
Justin Horwath covers tech and energy for the Journal. You can reach him at jhorwath@abqjournal.com.
