Testimony Opposing Bernhard Capital Partners Acquisition of NM Gas Company filed today. Bottom line: The Sale Offers No Public Benefit

Today we filed testimony opposing Bernhard Capital Partner (BCP)'s proposed acquisition of NM Gas Company. In his testimony our expert, Christopher Sandberg, detailed the many reasons why we oppose the proposed acquisition, summarized as follows:

First, the acquisition does not provide net benefits to the public. It is not just, fair, reasonable or in the public interest, and therefore should be rejected. The Joint Applicants have made clear that this acquisition produces no “synergies” (cost savings or qualitative improvements) for ratepayers.  Joint Applicants see the proposed $1.252 billion acquisition “opportunistically” as an “attractive” stable investment opportunity without market competition. Since the transaction itself promises no “improvement” to quality of service or cost savings, the risks, especially given BCP Management’s lack of regulated utility experience, outweigh the benefits for NMGC customers.

Second, the proposed transaction lacks consumer protections, violating regulatory principles, practices and precedent. There is no rate credit or rate freeze proposed. A $5 million over 5 years claimed economic benefit to the state and “the annual charitable contributions of cash or in-kind donations valued at a minimum of $500,000 for a total of five years to qualified, tax-exempt organizations”, may or may not benefit NMGC customers specifically. There is just a five year hold on re-sale as compared to 10 years in other recent cases, an 18 month commitment to maintain current workforce, unlike the three year commitments in other recent cases, and the 50-60 new jobs envisioned from the movement of shared services like IT and Accounts Payable to an in-house or third party service may or may not be a benefit to NMGC customers. There has been no financial analysis to show the change of shared services will be cost effective, and there is no evidence that this transition will result in improvements for NMGC customers.

Third, the legal games Joint Applicants are playing, especially regarding transparency and accountability do not bode well. Already Joint Applicants have shown a penchant for over-designating material as “confidential” and claiming material as “trade secrets” when they are clearly not. This lack of transparency is an expected outcome of private equity ownership. Brendan Ballou, a federal prosecutor who served as Special Counsel for Private Equity in the Justice Department’s Antitrust Division, outlined the dangers of the private equity business model in an interview in 2023:

“The basic business model is actually very simple. A private equity firm uses a little bit of its own money, a little bit of investors’ money, and a whole lot of borrowed money to buy companies. Then it tries to impose operational or financial changes with the ambition of selling them for a profit a few years later. It’s a simple idea but it has three basic problems. One is that private equity firms tend to invest in the short term to get a return on their investment in just a few years. The second is that they tend to load up the companies that they buy with a lot of debt and extract a lot of fees from them. The third is that private equity firms tend not to be held legally responsible for the actions of their portfolio companies. All this means you’re on a very short timeline with a very risky leverage model and you’re not necessarily going to be held responsible if things go bad, leading to business strategies that can be very extractive and hurt consumers and employees." “Private Equity is Out of Control and Looting America. This Prosecutor Says We Can Fix It”, Institute for New Economic Thinking, May 2, 2023. 

Mr. Sandberg's testimony draws the striking parallel between the dangers of this proposed acquisition and the harms that have already been seen in the hospital and nursing home industry as a result of private equity firms gobbling up critical community medical facilities across the country.

A paper in the Journal of the American Medical Association entitled, “Changes in Hospital Adverse Events and Patient Outcomes Associated With Private Equity Acquisition” examined hospital-acquired adverse events or conditions over 10,091 hospitalizations. After private equity acquisition, Medicare beneficiaries admitted to private equity hospitals experienced a 25.4% increase in hospital-acquired conditions compared with those treated at control hospitals, with a 27.3% increase in falls and a 37.7% increase in central line–associated bloodstream infections, while surgical site infections doubled at private equity hospitals despite a reduction in surgical volume. Similarly, a University of Chicago study entitled, “Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes”, found that private equity ownership increases the short-term mortality of Medicare patients by 10%, accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increased by 11%. 

With BCP ownership of NM Gas Company there will be the same incentives to cut costs through reduced staffing or other cost cutting measures. Those changes would directly and negatively impact the costs, safety, reliability, and longevity of NM Gas Company operations. Utilities, like hospitals, provide a vital and life-sustaining service to customers. Anyone in the state who survived the 2011 multi-day gas service outage during one of the coldest stretches on record in New Mexico can attest to the importance of cost effective, reliable utility service for the health and safety of New Mexicans!

As Governor Lujan-Grisham noted when she recently signed Senate Bill 15, the Health Care Consolidation Oversight Act, to give the Office of Superintendent of Insurance oversight of changes in hospital ownership,

“Without proper oversight, transactions such as mergers and acquisitions may lead to reduced competition, higher prices for patients, and potential declines in service quality. Implementing a regulatory framework ensures that any changes in the health care landscape prioritizes patient care, maintains health care standards, and promotes transparency in operations.” 

We agree. The private equity acquisition of a regulated utility serving 549,000 captive customers in New Mexico, could lead to both higher rates and declines in service quality, because such private entities have no legal requirements to disclose their financial records, and no incentive to maintain standards or to prioritize the public good.A Correction: Last week we mistakenly wrote that "The Commissioners listened to the expert testimony during the hearing last year detailing the toxicity and risks of treatment and discharge of “produced water” – the toxic byproduct of oil and gas extraction – and opted to limit authorization for treatment and reuse of produced water to “pilot projects” that process less than 2,000 gallons per day." In fact that limit for pilot projects is 2000 barrels per day.