Hearing Examiners find Blackstone and TXNM violated NM law and illegal stock transaction is void.

New Energy Economy (NEE) applauds today's Recommended Decision in the Public Regulation Commission's Show Cause Proceeding, which found that Blackstone and TXNM Energy, parent of Public Service Company of New Mexico, (“PNM”), violated New Mexico law by completing a $400 million stock transaction without first obtaining the approval required by the Public Utility Act.

The Hearing Examiners concluded that the transaction was undertaken for “the purposes of [Blackstone's] proposed acquisition” of PNM's parent company, TXNM Energy, and therefore required prior Commission authorization. Because no approval was obtained, the Recommended Decision concludes that the transaction violated NMSA § 62-6-12, recommends that it be unwound, and recommends the imposition of the maximum statutory penalties against TXNM, Troy TopCo, and Troy ParentCo, $300,000 ($100,000 each). The Hearing Examiners further concluded that the transaction is "void and of no effect" and recommended that New Mexico ratepayers be held harmless from all resulting costs.

The Recommended Decision rejects Blackstone's central argument that Commission approval was only required if the transaction transferred control of the company. Instead, the Hearing Examiners agreed with arguments advanced by NEE, Prosperity Works, PRC Staff, the New Mexico Department of Justice, and other parties that the statute applies whenever utility stock is acquired for the purpose of a merger or acquisition subject to Commission review.

The Recommended Decision states (at pp. 2-3):

The Hearing Examiners further conclude that the Financing Transaction was undertaken “for the purposes of” the proposed acquisition of TXNM and therefore required prior Commission authorization before consummation. Because the transaction occurred without prior Commission authorization, the Hearing Examiners conclude that Joint Applicants violated Section 62-6-12(A)(3)(c). Accordingly, the Hearing Examiners recommend that the Commission require Joint Applicants to unwind or otherwise render ineffective the unlawful transaction. The Hearing Examiners also recommend that the Joint Applicants be required to submit a compliance filing with the Commission detailing the actions taken to unwind the transaction, the consequences of those actions, and the measures implemented to ensure that New Mexico ratepayers are held harmless from all resulting costs and impacts. The Hearing Examiners further recommend the imposition of statutory penalties against TXNM Energy, Inc., Troy TopCo LP, and Troy ParentCo LLC for their knowing participation in the unauthorized transaction. Finally, because the violation has materially altered the course of the acquisition proceeding, consumed substantial Commission and intervenor resources, and created significant uncertainty regarding the current posture of the proposed acquisition, the Hearing Examiners suggest that the Joint Applicants withdraw the pending Application and, should they elect to proceed, submit a new application that fully accounts for the consequences of the unlawful transaction and any corrective actions undertaken.

This is a resounding victory for the rule of law. Blackstone and TXNM thought they could close a $400 million merger-related stock deal first and ask questions later. New Mexico law says otherwise. The Hearing Examiners correctly found that the Public Utility Act means exactly what it says: obtain approval first, not after the fact.

For more than a year, Blackstone and TXNM have acted as if New Mexico's utility laws were optional. They spent millions of dollars on lawyers trying to explain away a transaction that never should have happened. Today's decision sends a clear message: billion-dollar Wall Street firms do not get a hall pass to ignore state law.

The Recommended Decision is also a victory for New Mexico ratepayers. One of its most important findings is that customers must be protected from the consequences of utility mismanagement and corporate imprudence. Blackstone and TXNM chose to proceed with an unlawful transaction without first obtaining regulatory approval. The Hearing Examiners correctly recognized that ratepayers are not an insurance policy for corporate misconduct and should not be forced to pay for the consequences of utility management's unlawful decisions.

The Joint Applicants showed us exactly who they are. The Recommended Decision finds that sophisticated corporate entities knowingly proceeded without the authorization required by law. That is not the conduct of responsible stewards of a public utility. It is the conduct of private equity giants who believe they are above the law.

Perhaps most remarkably, the Hearing Examiners concluded that the unlawful transaction has created such significant legal and procedural complications that they suggested the Joint Applicants withdraw the merger application altogether and, if they wish to proceed, file a new application reflecting the consequences of their unlawful conduct. That extraordinary recommendation raises serious questions about the fitness and judgment of the entities seeking to acquire one of New Mexico's most important public utilities.

If this is how Blackstone and TXNM behave before they own the utility, New Mexicans should be deeply concerned about how they would operate it afterward. The Commission's authority exists to protect the public, not to rubber-stamp transactions after the fact. If Blackstone can violate the law and keep the benefits anyway, then the law means nothing.

The Hearing Examiners got it exactly right: the transaction must be unwound, ratepayers must be protected, and those responsible must be held accountable.

New Mexico ratepayers, the New Mexico public and New Mexico government don’t need this kind of behavior.  What we need is what we are entitled to:  Ownership of our largest regulated monopoly utility by a company whose goal is to provide reliable, reasonably-priced electricity to its ratepayers in return for a reasonable return on investment.   

The Recommended Decision now goes before the New Mexico Public Regulation Commission for final consideration.

Read about it in Santa Fe New Mexican.