Four months after a stock analyst from Jefferies LLC, a New York-based investment bank and equity firm, downgraded its rating of Public Service Company of New Mexico stock, the same analyst reversed himself after a trip to Santa Fe that included meetings with at least two members of the Public Regulation Commission.
“After visiting New Mexico we are upgrading PNM to Buy from Hold and anticipate the [Public Regulation Commission] will approve the [San Juan Generating Station] agreement in the June/July timeframe,” wrote analyst Anthony Crowdell in a May 27 email to potential investors. “Jefferies believes the economic consequences of shutting down a coal plant in a struggling economy will outweigh environmental concerns.”
The timing of the announcement came only hours before the commission voted to give PNM a time extension in order to allow the utility to to finalize agreements with a Colorado coal company and new partners in a planned ownership restructuring. The commission agreed to an order that in effect sets the deadline of Aug. 1 for PNM.
The utility is closing two coal-burning units at the San Juan Generating Station in 2017. But PNM wants to increase the coal-burning capacity in the remaining units to help make up for the lost power from the two closed units. The company also proposes adding a natural gas plant, nuclear power from the Palo Verde plant in Arizona and some solar power. The plan is opposed by environmentalist groups that want to move completely away from coal power. Other opponents include municipalities, such as Santa Fe.
Crowdell in May wrote that the San Juan agreement “keeps people employed in a much-challenged state economy. A big driver for state regulators to approve the … agreement will be jobs at the San Juan plant and associated coal mine. … If the regulators were to deny the stipulation agreement it would force PNM to retire all four units at San Juan, which could have a detrimental impact on the surrounding community.”
On May 28, Crowdell sent another announcement expressing optimism about the San Juan power plant’s chances for approval: “The 4-1 vote on the [time extension] supports our view that once PNM delivers the necessary contracts, the NMPRC will ultimately approve it.”
So what changed between Crowdell’s January downgrade and his May upgrade of PNM?
In a phone interview last week, Crowdell said, “The plant is still the cheapest option [for electricity]. And it’s a vital part of the economy for the city of Farmington.”
Crowdell acknowledged that he had met with PRC officials on his trip to Santa Fe. Asked which officials he met with, Crowdell became reluctant to talk. He acknowledged that he met with Commissioner Patrick Lyons, but when I asked about others, Crowdell began to clam up and claimed to have forgotten the names of those he met with.
Both Lyons and Commission Chairwoman Karen Montoya verified last week that they’d talked with Crowdell at separate meetings in their offices. PRC Chief of Staff Vincent Martinez also said he’d met with the analyst. Nobody, including Crowdell, seemed to remember the exact date of those meetings.
All involved said that because of strict rules that prohibit “ex-parte” communications with commissioners, the matters that could be discussed were limited. And both commissioners had lawyers sit in on their meetings with Crowdell to make sure they didn’t violate that rule. Lyons said he called in the commission’s general counsel, Michael Smith, while Montoya was accompanied by Robert Hirasuna, a former general counsel who now works as the administrative assistant for Commissioner Sandy Jones.
At first Lyons and Smith were elusive when asked what they talked about with Crowdell. They said they discussed fishing, Crowdell’s children and other irrelevant topics.
After all, it is New Mexico: Eventually, Lyons said Crowdell wanted to know why the city of Farmington, which owns a small part of the San Juan plant, had “pulled out” of the plant and then “reversed itself.”
That’s not quite what happened, although that version of events goes along with something Crowdell wrote in his May 27 upgrade notice.
“Earlier this year [Farmington Electric Utility] decided to pull out of the agreement causing PNM to find a new owner for 65 [megawatts] of output from San Juan and throwing the agreement into uncertainty (and a Jefferies downgrade),” Crowdell wrote May 27.
In the same announcement, Crowdell took a little jab at this enchanted land: “We are not sure why the city of Farmington pulled out of the [agreement] … but then again, it is New Mexico.”
But Farmington didn’t actually “pull out” of the power plant, City Manager Robert Mayes wrote in a January memo on that city’s electrical utility website. In that statement, Mayes explained that the city, after months of looking into a plan to buy an additional 65 megawatts of power from the plant, decided “not to seek an agreement to acquire additional capacity in San Juan Generating Station.” However, Mayes wrote, “The city of Farmington remains committed to its current ownership position in San Juan Generating Station as a valuable asset in its generation portfolio and reaffirms its long-term commitment to the operation of the plant.”
Smith said at one point in the meeting, he jumped in and advised Lyons not to answer a question from the analyst. Neither he nor Lyons could recall what that question was.
Montoya said Thursday that Crowdell mainly seemed interested in another PNM case before the commission having to do with “future test years,” which estimate revenues and expenses for the period of time that a utility’s rate will cover.
Neither commissioner, nor Martinez, said they discussed Farmington’s economy with Crowdell.
But another person who has talked to Crowdell in recent weeks is Mariel Nanasi, executive director of New Energy Economy, an alternative energy group that is an intervener in the power plant case.
Nanasi said Thursday that she was in New York on May 29 and met the analyst and one of his Jefferies colleagues for coffee at a Starbucks. She said Crowdell told her he had met with PRC officials who “told him that jobs are more important than the environment,” and that if PNM gets the agreements signed, the commission is likely to approve the San Juan proposal.
Meeting with Wall Street: How common is it for state regulators to meet with stock analysts to discuss the companies that they regulate? Crowdell said he meets with regulators all over the country.
Former two-term Public Regulation Commissioner Jason Marks said last week that he would usually get calls from stock analysts once or twice a year. “Almost all of them were about PNM,” he said. “I don’t think I ever met with them.”
Marks said he wanted to avoid violating the ex-parte rule about discussing an open case. Though analysts don’t work for the companies they are grading, Marks said one could argue they do represent some shareholders of those companies. But Marks said the commissioners’ meetings with Crowdell “probably were legal.”
Still, it would be interesting to know what exactly changed Crowdell’s mind about PNM’s San Juan Generating Station proposal.