ENERGY
Could New Mexico buy its own power company?
As Blackstone seeks approval to buy TXNM, some are asking why the state doesn鈥檛 purchase a majority stake instead
Proposals by private equity firms to purchase New Mexico鈥檚 largest electric and gas utilities have sparked a question by opponents of those deals.
Before the state Public Regulation Commission is a request by Blackstone Inc. to purchase TXNM Energy Inc. for $11.5 billion. The commission鈥檚 three members have yet to approve or deny the merger. TXNM is the parent company of PNM, the state鈥檚 largest electric utility.
On Thursday, the PRC approved Louisiana-based Bernhard Capital Partners鈥� purchase of New Mexico Gas Co.
At PRC hearings, in legislative committees and behind the scenes, those opponents have been wondering what is stopping New Mexico from purchasing majority stakes in TXNM and NMGC.
鈥淲e need our utilities to be owned and run by people who won鈥檛 be pressured to bring big profits to shareholders instead of improving services and making them affordable, sustainable and accountable to customers,鈥� Shannon McKenna, a resident, told PRC commissioners on Tuesday at a public comment hearing on the Blackstone acquisition.
She pointed to examples of other publicly owned utilities in major U.S. cities, such as the Long Island Power Authority.
Many New Mexico municipalities 鈥� Aztec, Farmington, Gallup and the County of Los Alamos 鈥� run utilities. In 2015, the City of Santa Fe ditched a yearslong effort to create a municipal utility, saying it did not have legal authority to condemn PNM鈥檚 infrastructure. The American Public Power Association says approximately 2,000 public power electric utilities operate in 49 U.S. states.
But concerns, both practical and ideological, have put cold water on efforts to invest government dollars in PNM or other New Mexico utilities. For one, such an investment may require a change to the state constitution.
Gregg Hull, now the Republican gubernatorial nominee, in an interview Thursday said he would be 鈥済reatly opposed鈥� to the idea.
鈥淣o. 1, you have to question the intention of why you would use our sovereign (wealth) fund to buy a capital-intensive utility,鈥� Hull said. 鈥淚 understand the intent is if the government owns the utility, we get to control our own destiny. That is a false statement. 鈥� There are times when utilities have to look at their current expenses in order to maintain reliable service.鈥�
Hull added, 鈥淩ight now, if you want to look at government鈥檚 management of a situation, I think we have an obligation to get CYFD under control before we consider buying a public utility that has, admittedly, on its own, said (it is) severely deficient in improvement in infrastructure investments. That鈥檚 why Blackstone is looking at them.鈥�
Hull did not explicitly endorse or oppose the Blackstone deal but said he wants the deal to protect ratepayers if it passes regulatory approval.
The issue has also split the Democrats, with some in the party eyeing the state鈥檚 Land Grant Permanent Fund as a potential purchaser and others saying the idea is not practical.
Democratic Gov. Michelle Lujan Grisham, in a July 26 Journal column, wrote that the state needs investment from private partners 鈥渢o ensure a reliable energy grid and achieve our climate goal of 100% carbon-free electricity by 2045.鈥�
鈥淎 state acquisition would strain the general fund, diverting resources from education, healthcare and public safety,鈥� Lujan Grisham wrote. 鈥淚t would demand higher taxes or increased debt to fund both the initial purchase and the ongoing technology investments needed to maintain grid reliability.鈥�
Sen. Harold Pope, an Albuquerque Democrat who unsuccessfully ran for lieutenant governor, has appeared at many of the protests against the Blackstone deal.
鈥淲hat I鈥檓 asking for is for them to purchase a majority stake, 51%, in PNM where they own stocks,鈥� Pope said of the New Mexico State Investment Council. 鈥淢aybe get some board members. It would run essentially the same way. But the state would have a voice and have a seat at the table.鈥�
He said he has been discussing the current legal restrictions standing in the way of his idea with SIC officials. The SIC manages the state鈥檚 largest permanent fund, with roughly $40 billion in assets in addition to other funds. In total, New Mexico has roughly $75 billion in sovereign wealth, most of it derived from oil and gas revenues and taxes.
Deb Haaland, the Democratic gubernatorial candidate, said there have been successful models of public utilities working across the country, but also 鈥渆xamples of this not working as intended.鈥� Citing Blackstone鈥檚 proposed TXNM takeover, Haaland said residents 鈥渨ant a utility company that prioritizes ratepayers, not shareholders, and New Mexicans are rightfully skeptical about who Blackstone will prioritize.鈥�
鈥淭he need to update our infrastructure and harness the power of our state鈥檚 renewable energy resources are critical, but I am not convinced a private equity merger is the best way to do that,鈥� Haaland said. 鈥淣ew Mexico is not a piggy bank and those seeking to relocate here must be investing in and strengthening our communities.鈥�
Article 12 of the says that no more than 65% of the Land Grant Permanent Fund鈥檚 book value 鈥渟hall be invested at any given time in corporate stocks.鈥� Furthermore, the state constitution says the fund can鈥檛 hold more than 10% of voting stock in a corporation.
During a July legislative committee, Democratic Rep. Patricia Roybal Caballero excoriated the SIC for sharing a video on social media explaining those restrictions.
Jon Clark, the SIC鈥檚 state investment officer, said in an interview that the video was not an attempt to discourage public discourse but to keep the public informed.
While the SIC faces restrictions from purchasing majority stakes in businesses, it does commit money to investment funds that do just that. In fact, the SIC has investments in Blackstone鈥檚 infrastructure and energy funds.
In 2014, the council committed $50 million to Blackstone Energy Partners II L.P., a hydrocarbons fund, which has generated 7.4% returns, according to records. The SIC in 2018 committed $200 million to two Blackstone funds that invest in infrastructure.
Molly Callaghan, spokesperson for the council, wrote in an email that the SIC under previous leadership made those investments for the SIC鈥檚 real-assets portfolio. That $200 million investment has grown to $363.5 million as of December.
鈥淭he (SIC) is a passive investor and relies on the skill and expertise of the fund manager, in this case Blackstone Infrastructure, to drive profits back to the state,鈥� Callaghan said. 鈥淲hile the $363.5 million is a substantial amount of money, it represents less than 1% of the total value of the Blackstone Infrastructure Fund overall.鈥�
Clark, during an SIC meeting earlier this year, addressed why the council would not invest in TXNM if it had the chance.
First, Clark said if the SIC took a controlling interest in TXNM, that would create a 鈥渟evere investment portfolio concentration risk鈥� in the SIC鈥檚 real-asset strategy portfolio, which manages $4.9 billion in investments. That鈥檚 $6.6 billion less than the current asking price for the company.
Callaghan said while the SIC鈥檚 team of fewer than 40 employees has 鈥渁bundant expertise,鈥� it also lacks 鈥渄omain and industry knowledge as well as related holdings that create strategic economies of scale, whereas Blackstone Infrastructure has those components, making this an attractive investment for them.鈥�
鈥淟acking the domain expertise and abilities relative to Blackstone or other utility operators, the state would have to make its investment returns through rate hikes, pitting the needs and interests of our beneficiaries 鈥� primarily New Mexico taxpayers and students from kindergarten to undergrad 鈥� against the desires of households and businesses in need of reasonable utility rates,鈥� Callaghan said.
This story has been updated with comments from Democratic gubernatorial candidate Deb Haaland.
Justin Horwath covers tech and energy for the Journal. You can reach him at jhorwath@abqjournal.com.
