New Energy Economy complaint against New Mexico Public Service Company

8/18/2019 New Energy Economy complaint against New Mexico Public Service Company

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BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF NEW ENERGY )

ECONOMY’S COMPLAINT AGAINST )

PUBLIC SERVICE COMPANY OF NEW )MEXICO REGARDING ITS FAILURE TO )

TIMELY DISCLOSE ITS PARENT )

COMPANY’S AND SUBSIDIARY’S )

AGREEMENTS IN CONNECTION WITH )

THE PURCHASE OF THE SAN JUAN COAL )

MINE BY WESTMORELAND SAN JUAN, )

LLC AND THE COAL AGREEMENTS )

BETWEEN PUBLIC SERVICE COMPANY ) Case No. 16-_____-UT

OF NEW MEXICO, WESTMORELAND )

COAL COMPANY AND OTHER PARTIES )

))

NEW ENERGY ECONOMY, )

)

Complainant )

__________________________________________)

COMPLAINT

New Energy Economy (“NEE”), by and through its undersigned attorneys, files this

Complaint against Public Service Company of New Mexico (“PNM”) pursuant to Commission

Rule 1.2.2.15 NMAC and based on the Commission’s regulatory and supervisory authority under

NMSA 1978, §§ 8-8-4(7), 62-6-4.A, 62-3-3.H, 62-8-1 and 62-10-1. For the reasons set forth

below, NEE requests that the Commission find that:

(i) the Commission has jurisdiction over the matters addressed herein;

(ii) probable cause exists that PNM violated Commission orders and its discovery

rules in Case No. 13-00390-UT by failing to timely disclose to the Commission and parties in

that case, prior to January 14, 2016 when the Commission lost jurisdiction over that case, any

information concerning the need or any potential need for any of the multiple “material definitive

agreements” between PNM’s parent (holding) company, PNM Resources, Inc. (“PNMR”), New


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Mexico Capital Utility Corporation (“NMCUC,” a subsidiary of PNMR), Westmoreland San

Juan, LLC (“WSJ,” a subsidiary of Westmoreland Coal Co.) and various other parties described

in PNM’s February 1, 2016 letter to the Commission regarding the “San Juan Coal Supply

Agreement” (“February 1, 2016 Letter”) and PNMR’s February 1, 2016 Form 8-K Report to the

U.S. Securities and Exchange Commission (“SEC”) referenced therein in connection with and

“to facilitate” the Coal Supply Agreement between PNM and WSJ (“CSA”) and other related

“Coal Agreements”1 between PNM and other parties presented to the Commission in Case No.

13-00390-UT; and

(iii) for that reason, require PNM to answer this Complaint in accordance with Rule

1.2.2.15.C NMAC and, upon receipt of PNM’s answer, set further proceedings on the Complaint

that allow NEE, the Commission and any interested parties to investigate whether any of those

transactions, considered separately or together, could adversely affect PNM’s ability to provide

retail electric service to the public at just and reasonable rates so that information is available to

them in a timely manner.

As grounds for this Complaint, NEE states as follows:

1. Commission Rule 1.2.2.15 NMAC authorizes the filing of a formal complaint

against a regulated entity based on a good faith belief that the entity has violated a law, rule or

order promulgated or enforced by the Commission.

2. Complainant’s name is New Energy Economy; its mailing address is 343 East

Alameda St., Santa Fe, NM 87501-2229; its president’s and attorney’s name is Mariel Nanasi,

1 As described in PNM witness Chris Olson’s July 31, 2015 Supplemental Direct Testimony in Case No. 13-00390-UT (p.3, n. 1), the executed “Coal Agreements for San Juan” relied on by PNM in that case consisted of the CSA,Reclamation Services Agreement and Coal Combustion Residuals Disposal Agreement between Westmoreland andPNM, an Underground Coal Sales Agreement Termination and Mutual Release Agreement between PNM, TucsonElectric Power (“TEP”), the San Juan Coal Co. and BHP Billiton New Mexico Coal, Inc. (“BBNMC”), a CoalCombustion Byproduct Disposal Agreement Termination and Mutual Release Agreement among PNM, the SanJuan Coal Co., BBNMC and TEP, and a Letter Agreement Termination between PNM and Westmoreland.


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Esq. whose email address is [email protected]; its telephone number is (505)

989-7262.

3. Respondent’s legal name is Public Service Company of New Mexico; its mailing

address is Corporate Headquarters, 414 Silver Ave., SW, Albuquerque, NM 87102-3289; its

attorney’s name is Benjamin Phillips, Esq. whose email address is

[email protected]; its attorney’s telephone number is 505-241-4836.

4. On February 1, 2016, PNM informed the Commission for the first time by letter,

with copies to the parties in Case No. 13-00390-UT (“February 1, 2016 Letter”), that PNMR, its

parent company, had previously created a new subsidiary company, “New Mexico Capital Utility

Corporation” (“NMCUC”) that previously had loaned WSJ, a limited liability company formed

as a subsidiary of Westmoreland Coal Co. described as “a ring-fenced, bankruptcy-remote,

special-purpose entity,” $125 million to enable it to purchase the San Juan Mine from BHP

Billiton for $127 million (“WSJ Loan Agreement”). A copy of that letter, including PNMR’s

Form 8-K Report to the SEC on that date referenced therein and attached thereto is attached as

“Exhibit A” hereto.

5. PNM’s February 1, 2016 letter did not explain the attributes of WSJ, the actual

purchaser of the San Juan Coal Co. (“SJCC”) and the San Juan Mine, as a “ring-fenced,

bankruptcy-remote, special-purpose entity,” the reasons why WSJ was structured in that unusual

manner, or the potential effect of that WSJ corporate structure or the WSJ Loan Agreement on

PNMR or on PNM’s current or future cost of capital for ratemaking purposes if, for any reason,

WSJ defaults on PNMC’s $125 million loan or its parent, Westmoreland Coal Co., goes into

bankruptcy.


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6. Based on research, it is NEE’s general understanding that “ring fencing” refers to

corporate structuring steps intended to shield the assets of a subsidiary from the bankruptcy of its

parent or affiliates and thereby allow the subsidiary to obtain or maintain a “stand-alone” credit

rating that is substantially higher than the lower credit rating of its parent and has been used by

distressed power and telecom companies, such as Enron Corp. (for its subsidiary, Portland

General Electric Co.) and PG&E Corp. (for its subsidiary Pacific Gas & Electric Co.) that have

gone into bankruptcy. See, e.g., “How to Construct a ‘Ring Fence’-Many distressed power and

telecoms companies are looking for ways to protect their profitable businesses and projects from

the reach of creditors,” at www.chadbourne.com/How_To_Construct_Ring_Fence_08-

203_Projectfinance.

7. It was known or should have been known by PNM, prior to the closure of the

record in Case No. 13-00390-UT, that Westmoreland Coal Co. and its then extant subsidiaries

had more than $1 billion in debt, which was substantial for a coal company of its size. See, e.g.,

Westmoreland Coal Co.’s Form 10-Q Report to the SEC for the quarterly period ended

September 30, 2015, a copy of an excerpt of which is attached as “Exhibit B” hereto.

8. In a February 4, 2016 Form 8-K Report to the SEC, a copy of an excerpt of which

is attached as “Exhibit C” hereto, Westmoreland Coal Co. referenced its “substantial level of

indebtedness,” explained that, pursuant to the financing provided by PNMC to WSJ “through a

ring-fenced $125 million loan,” WSJ is obligated to pay down the loan from “100% of the net

cash flow from the operation” of the San Juan mine, and stated that the “Bankruptcy remote

structure” created for WSJ “provides for no impact to Westmoreland’s current debt

arrangements.”


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9. Based on the statements in Westmoreland Coal Co.’s February 4, 2016 Form 8-K

Report to the SEC referenced in the preceding paragraph, it is NEE’s understanding that, until

NMCUC’s $125 million loan to WSJ is fully paid off, WSJ must use 100% of the net cash flow

it receives from PNM and the other owners of the SJGS for fuel under the CSA, which PNM is

entitled to recover its share of from its retail customers under its Fuel and Purchased Power

Clause Adjustment Clause (“FPPCAC”) rate rider, to pay NMCUC, PNM’s unregulated

subsidiary, for the principal and interest due under that loan.

10. As has been widely reported in the press, including recent articles in The New

York Times and The Santa Fe New Mexican

2

, for some time equity firms and even hedge funds

that often invest in relatively high-risk companies, have declined to provide financing to coal

companies due to the risks associated with their operations.

11. On February 29, 2016, Moody’s Investor Service issued a “Rating Action” that

downgraded Westmoreland Coal Co.’s “corporate family rating” from B3 (speculative and high

credit risk) to Caa1 (poor quality and very high credit risk) and stated a similar downgrade of

Westmoreland’s “Probability of Default” rating (i.e., “a corporate family-level opinion of the

relative likelihood that an entity within a corporate family will default on one or more of its debt

obligations” from B3-PD to Caa1-PD, even though, as explained below, under the terms of the

CSA between Westmoreland and the owners of the SJGS, Westmoreland and WSJ were relieved

of any risk of exposure to costs associated with reclamation liability of the San Juan coal mine. 3

The Moody’s Rating Action can be seen here: https://www.moodys.com/research/Moodys-

downgrades-Westmoreland-Coal-Companys-CFR-to-Caa1-outlook-stable--PR_344844.

2 http://www.nytimes.com/2016/03/21/business/dealbook/as-coals-future-grows-murkier-banks-pull-financing.html?emc=eta1 and http://www.santafenewmexican.com/news/banks-pull-back-on-funding-coal/article_253de927-7228-5308-bed4-e84a863f9332.html 3 See Moody’s Investors Service Rating Symbols and Definitions at www.moodys.com.


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12. In PNM’s recent 10-K filing, February 29, 2016, Report to the SEC (p. A-35,

excerpts attached as “Exhibit D” hereto) disclosed the $125 million PNMC loan to WSJ, that

“PNMR guarantees the obligations of NM Capital,” and noted that under the terms of the CSA,

PNM and the other SJGS owners are obligated to compensate SJCC [San Juan Coal Co.] for all

reclamation liabilities associated with the supply of coal from the San Juan mine (i.e., under the

CSA, the cost risks and liabilities associated with reclamation of the San Juan mine will be

borne by PNM and the other SJGS owners and their customers, not by WSJ, the purchaser of that

mine or WSJ’s corporate parent, Westmoreland Coal Co.). At p. B-101

13. Also, in PNM’s recent 10-K filing, PNM acknowledged this: “PNMR is exposed

to credit risk in the event the purchaser of the mining operation cannot meet the scheduled

repayment obligations under the loan and to a reduction in its financing capability if the required

additional collateral cannot be obtained from other sources.”4 Exhibit D, At page A-14. So, PNM

advises the SEC that there may be additional risk as a result of the loan to Westmoreland, but

minimizes or dismisses that risk to the Commission.

14. Further, in PNM’s recent 10-K filing, February 29, 2016, with the SEC PNM

acknowledged this:

In connection with certain mining permits relating to the operation of the SanJuan mine, SJCC is required to post reclamation bonds of $161.6 million with theNew Mexico Mining and Minerals Division (“NMMMD”). In order to facilitatethe posting of reclamation bonds by Zurich American Insurance Company(“Zurich”) on behalf of SJCC, a Reclamation Bond Agreement (the “ReclamationBond Agreement”) among PNMR, Westmoreland, and SJCC was entered intowith Zurich. In connection with the Reclamation Bond Agreement, PNMR used$40.0 million of the available capacity under the PNMR Revolving Credit Facilityto support a bank letter of credit arrangement (the “Zurich Letter of Credit”) with

4 http://api40.10kwizard.com/cgi/convert/pdf/PNM-20160229-10K-20151231.pdf?ipage=10778332&xml=1&quest=1&rid=23&section=1&sequence=-1&pdf=1&dn=1, At page A-14.


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Zurich. The Reclamation Bond Agreement provides, among other things, (i)certain obligations for PNMR to provide to Zurich, within 180 days, securityinterests in the Reclamation Trusts of the Purchaser and the SJGS owners, and (ii)if PNMR is unable to provide security interests in the Reclamation Trusts ofcertain SJGS owners (the “Base Security Interests”), PNMR, Westmoreland

(subject to obtaining certain amendments or consents under its senior debt andcredit facilities), and SJCC will be responsible, jointly and severally, to provideadditional collateral to support the then outstanding reclamation bond amount,which will remain in place until such time as PNMR is able to provide the BaseSecurity Interests. The Zurich Letter of Credit will be terminated upon PNMRproviding security interests in the Reclamation Trusts of all SJGS owners. Also,the Zurich Letter of Credit will be proportionally reduced if PNMR is able toprovide, in addition, to the Base Security Interests, security interests in theReclamation Trusts of some, but not all, of the other SJGS owners or if the initialreclamation bonds amount is reduced. The reclamation bonds may be replaced orotherwise released at any time by SJCC with the concurrence of NMMMD. PNM

cannot predict if it will

be able to obtain any such security interests or the impactsof not being able to do so.5 (Emphasis supplied.) At Page B-101.

PNM admits to the SEC that it doesn’t know if it can obtain reclamation security bonding or

what the consequences of not being able to do so will be but withheld this risk from the

Commission. Never, did PNM communicate to the Commission about reclamation risk and the

financial impact it could possibly have on the Company or the ratepayers, in contravention of the

Orders of May 27, 2015 and June 24, 2015: “Consistent with the Commission’s May 27, 2015

Order Setting Further Proceedings this matter has been remanded to Hearing Examiner Ashley

Schannauer to preside over a hearing on the merits of PNM’s request for a CCN for the

additional 132 MW of SJGS 4, including the finality and cost-effectiveness of the new [coal

supply, mine reclamation, owner restructuring] Agreements.”

15. When requesting rates that are sufficient to recover its cost of capital in general

rate cases before the Commission, such as currently pending Case No. 15-00261-UT, because

PNM (the regulated public utility) does not issue stock that is publicly traded, PNM relies on

5 http://api40.10kwizard.com/cgi/convert/pdf/PNM-20160229-10K-20151231.pdf?ipage=10778332&xml=1&quest=1&rid=23&section=1&sequence=-1&pdf=1&dn=1, At Page B-101.


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comparisons to the cost of capital of companies “comparable” or similar to PNMR, its corporate

parent, which does issue publicly traded stock, for which regulated activities represent a

substantial portion (e.g., 60%) of their aggregate economic value, with similar risks to investors;

moreover, PNM has relied on the observation by Moody’s Investor Services that “[s]ince

regulated entities are a relatively low risk business compared to other corporate sectors, in most

cases diversified non-utility operations increase the business risk profile of a utility.6

16. PNM is currently requesting Commission approval of its request for recovery of

an increase in its cost of capital in Case No. 15-00261-UT, has informed the Commission that it

intends to file another application for a further rate increase in 2017,

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and may request

Commission approval of additional rate increases prior to the termination of PNMC’s $125

million Loan Agreement with WSJ or WSJ’s full satisfaction of its obligations that Agreement.

17. During Case No. 13-00390-UT, NEE and other intervenors indicated they would

oppose a purchase of the San Juan mine by PNM or PNMR because such a purchase would

unreasonably expose PNM’s customers to the long-term risks and costs associated with that mine

and its continued operation after 2017.8

18. PNM’s February 1, 2016 Letter and PNMR’s Form 8-K report to the SEC

attached thereto state that PNMR formed PNMC as a subsidiary to provide a $125 million loan

to WSJ, effective February 1, 2016 through February 1, 2021, “to facilitate Westmoreland’s

6 NMPRC Case No. 15-00261-UT, August 27, 2015 Direct Testimony of PNM witness Robert E.Hevert, pp. 20-21 (emphasis added) and Table RBH-1.7 http://seekingalpha.com/news/3169563-el-paso-electric-upgraded-pnm-resources-downgraded- jefferies?uprof =8 http://www.santafenewmexican.com/news/local_news/pnm-push-to-buy-san-juan-coal-mine-worries-activists/article_9e3b6d3e-9e3e-5fd7-845f-a185a3b8afe4.html;http://www.abqjournal.com/497621/biz/pnm-considers-coal-mine-purchase-for-san-juan-fuel.html


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timely acquisition of the coal mine and to secure the customer savings for PNM customers [$300

million over six years] under the new [San Juan Coal Supply] coal agreement” which PNM

relied on and addressed in Case No. 13-00390-UT to support its request for Commission

approval of the Modified Stipulation approved by the Commission’s December 16, 2015 Final

Order in that case.

19. Neither PNM’s February 1, 2016 Letter nor PNMR’s Form 8-K report to the SEC

attached thereto appear to identify or describe any collateral or other security provided by WSJ

or the Westmoreland Coal Co. to PNMC or PNMR to secure PNMC or PNMR against the risk of

a default by WSJ on the $125 million loan from PNMC that is guaranteed by PNMR.

20. In addition to the $125 million loan by PNM subsidiary PNMC to WSJ, Item 1.01

of PNMR’s February 1, 2016 Form 8-K report to the SEC attached to PNM’s February 1, 2016

Letter described the following new “material definitive agreements” between PNMR and other

parties (hereinafter referred to collectively as “the Material Agreements”) to facilitate the CSA

between PNM and Westmoreland announced by PNM on July 1, 2015, before the Commission’s

public hearing on the Modified Stipulation in Case No. 13-00390-UT was conducted (from

October 13 through 20, 2015):

(i) a “Guaranty Agreement” between PNMR and The Bank of Tokyo-Mistubishi UFJ,

Ltd. “in connection with” the WSJ Loan Agreement;

(ii) PNMR’s use of $40 million of available capacity under its revolving credit agreement

to support a bank letter of credit arrangement with Zurich” American Insurance Co. to facilitate

the posting of reclamation bonds for the San Juan Mine with the New Mexico Mining and

Minerals Division in connection with a “Reclamation Bond Agreement” between PNMR,

Westmoreland and the San Juan Coal Co.;


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(iii) PNMR’s obligation under the Reclamation Bond Agreement “to provide Zurich,

within 180 days of closing, security interests in the Reclamation Trusts of Westmoreland and the

SJGS owners,” and

(iv) a “joint and several” obligation by PNMR, along with Westmoreland and the San

Juan Coal Co., “to provide additional collateral to support the then outstanding reclamation bond

amount” if PNMR is unable to provide, within 180 days of Closing, security interests in the

Reclamation Trusts of certain SJGS owners (“Base Security Interests”).

21. Pursuant to the “General Instructions” in SEC Form 8-K, an SEC registrant is

required to disclose any “material definitive agreement of the registrant not made in the ordinary

course of the registrant’s business.”

22. The general rule under federal security laws that has judicially evolved for

determining the materiality of particular information is whether there is a substantial likelihood

that a reasonable investor would have considered the information important in making his or her

investment or voting decisions. See, e.g., TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438,

439 (1976).

23. PNM’s February 1, 2016 Letter to the Commission referenced the “San Juan Coal

Supply Agreement” as its subject, thereby acknowledging that PNM believed the information

contained therein also was relevant to that Agreement between PNM and WSJ and important

enough to report to the Commission in that regard without otherwise explaining why PNM did

so.

24. PNM’s February 1, 2016 Letter did not provide the Commission or any of the

parties in Case No. 13-00390-UT with a copy of the WSJ Loan Agreement or with any other


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documentation regarding any of the Material Agreements described therein and in the PNMR

Form 8-K Report to the SEC attached thereto.

25. PNM’s February 1, 2016 Letter to the Commission (p. 2) summarily states that

the “arrangements” disclosed therein “are obligations of PNM Resources or non-regulated

subsidiaries of PNM Resources and can have no adverse impact on PNM or its customers”;

however, that statement was not supported by any sworn affidavit, identification of any binding

commitment by PNMR holding PNM and its customers harmless from any adverse cost of

capital or other ratemaking effects from those arrangements, or any other evidence.

26. On February 5, 2016, based on PNM’s February 1, 2016 Letter to the

Commission and parties in Case No. 13-00390-UT, NEE filed a Motion to Reconsider the

December 16th 2015 Approval of PNM’s Certificate of Convenience and Necessity for 132 MWs

at San Juan Generating Station, For Discovery, and to Initiate an Investigation (“February 5

Motion”) in Case No. 13-00390-UT.

27. NEE’s February 4 Motion requested, inter alia, that the Commission initiate an

investigation, pursuant to its authority under NMSA 1978, § 62-6-19.B, into the WSJ Loan

Agreement and the other transactions disclosed to the Commission for the first time in PNM’s

February 1, 2016 Letter as potential “Class I transactions” and “Class II transactions” in order to

fully understand if any of those transactions could adversely affect PNM’s ability to provide

service at “just and reasonable rates.”

28. PNM’s unverified and otherwise unsupported February 18, 2016 Response to

NEE’s February 5 Motion (“February 18 Response”) opposed that Motion on the ground that the

Commission had lost jurisdiction to reconsider its approval of the Certificate of Public

Convenience and Necessity (“CCN”) it issued to PNM for 132 MW of SJGS Unit 4 in Case No.


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13-00390-UT due to NEE’s appeal of the Commission’s Final Order in that case to the New

Mexico Supreme Court on January 14, 2016.

29. PNM’s unverified February 18 Response argued further, that there was no “Class

I transaction” or “Class II transaction” for the Commission to investigate in Case No. 13-00390-

UT because: (i) “NMC’s lending arrangement is with WSJ and PNM is not a party to it”; (ii)

none of the arrangements disclosed in PNM’s February 1, 2016 Letter fit within the definition of

a “Class II transaction” in NMSA 1978, §62-3-3.L; and (iii) “the New Mexico Supreme Court

has already rejected an attempt to broaden the reach of the Class II transaction definition beyond

its statutory language based on a suggested need to protect customers,” citing Plains Elec.

Generation & Transmission Coop, Inc. v. New Mexico Pub. Util. Comm’n, 1998-NMSC-038,

126 N.M. 152 (“Plains Elec.”).

30. PNM’s unverified February 18 Response (pp. 5-6) argued further that PNM’s

disclosure to the Commission and parties in Case No. 13-00390UT of the arrangements relating

to the San Juan CSA for the first time on February 1, 2016 was timely and that PNM had not

violated any Commission rules or orders in Case No. 13-00390-UT because: (i) “PNM represents

to the Commission that these arrangements were not known or contemplated before the Final

Order [in that case] was issued” on December 18, 2015; (ii) the Commission should logically

infer and accept that PNM representation based on the facts that “NMC was not incorporated

until January 15, 2016” and “[a]lthough the closing of stock purchase agreement [between BHP

Billiton and Westmoreland] was expected to occur by December 31, 2015, it did not actually

occur until January 31, 2016”; (iii) under Commission Rule 1.2.2.25(A) NMAC, “the discovery

process ended in [Case No. 13-00390-UT] once the hearing in October of 2015 began” and (iv)


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“[t]here is no evidence that the [NMC Loan] arrangement was contemplated prior to the issuance

of the Final Order” in that case.

31. PNM’s argument in its February 18 Response that it did not violate any

Commission discovery rule or orders in Case No. 13-00390-UT by failing to disclose to the

Commission and parties in that case, prior to January 14, 2016 when the Commission lost

jurisdiction over the matters addressed in that case due to NEE’s appeal of the Commission’s

Final Order, any agreement by PNMR to pursue or enter into any of the transactions described in

PNM’s February 1, 2016 Letter, because PNM had no obligation to disclose any such

agreements “once the hearing in October 2015” in Case No. 13-00390-UT “began” is legally and

patently incorrect for the following numerous reasons:

a. The Commission’s January 22, 2014 Initial Order Requiring Supplemental

Testimony in Case No. 13-00390-UT identified PNM’s failure to provide all information in its

Application necessary to satisfy its burden of proof regarding the CCNs requested therein as an

issue at the very outset of that case, finding that PNM’s Application was “not complete” and

requiring that PNM file supplemental testimony by February 5, 2014;

b. Decretal paragraph E of the Hearing Examiner’s February 20, 2014 Procedural

Order in Case No. 13-00390-UT provided, in pertinent part: “Discovery matters and any

discovery disputes shall be governed by the Commission’s Discovery Rules. 1.2.2.25

NMAC…..”

c. Commission Rule 1.2.2.25.I NMAC governing “supplementation of responses to

discovery requests” does not terminate a party’s obligation to supplement its discovery responses

as of the beginning of the Commission’s hearing and provides: “A party or staff who has

responded to a request for discovery is under a duty reasonably and promptly to amend or


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supplement their previous response if they obtain information which they would have been

required to provide in such response if the information had been available to them at the time

they served the response”;

d. Relatively early in Case No. 13-00390-UT, the Hearing Examiner’s August 27,

2014 Order Partially Granting Western Resource Advocates’ Second Motion to Compel

[discovery from PNM] and Requested for Expedited Response Time (pp. 1-2) addressing

WRA’s request for documents concerning “renewal of the coal supply contracts for San Juan

Generating Station” confirmed PNM’s obligation under Rule 1.2.2.25 NMAC to supplement its

responses in that regard in accordance with “WRA’s instructions that the requests are

continuing” and expressly ordered PNM to produce “[d]ocuments prepared between March 17,

2013 and the completion of the hearing.”;

e. On July 31, 2015, PNM Vice President of Generation Chris M. Olson submitted

further testimony in Case No. 13-00390-UT addressing the transactions that would result in

Westmoreland Coal Co.’s acquisition of the San Juan coal mine and the contract to supply coal

where he represented to the Commission and parties that there were no “side agreements”

relating to the fuel supply. July 31, 2015 Supplemental Direct Testimony of Chris M. Olson, p.

25;

f. In accordance with Rule 1.2.2.25.I NMAC, NEE served PNM with NEE

Interrogatory 12-5 in Case No. 13-00390-UT that expressly stated, in its instructions, that “[e]ach

of these interrogatories and requests for documents is deemed to be continuing” asking PNM to

identify any “side agreements” related to the San Juan coal contract “or other operational aspects

of the San Juan site,” as follows:

NEE Interrogatory in 12-5: Please provide copies of any documents that define side

agreements related to the coal contract or the participation agreement, or other


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operational aspects of the San Juan site, including but not limited to any emails or

discussions about the citing of the 177MW gas plant.

g. PNM’s June 22, 2015 Response (by Chris Olson) to NEE Interrogatory 12-5 in

Case No. 13-00390-UT did not identify or disclose any agreement or conditional agreement by

PNMR to pursue or engage in any of the transactions disclosed in PNM’s February 1, 2016

Letter, through PNMR or any subsidiary of PNMR;

h. PNM never supplemented its June 22, 2015 Response to NEE Interrogatory 12-5

with any information regarding any agreement or conditional agreement by PNMR to pursue or

engage in any of the transactions disclosed in PNM’s February 1, 2016 Letter, through PNMR or

any subsidiary of PNMR, prior to the (October 20, 2015) end of the hearing on the Modified

Stipulation or the Commission’s issuance of its Final Order approving that Stipulation in Case

No. 13-00390-UT;

i. PNM also never supplemented or corrected Mr. Olson’s July 31, 2015 testimony

and representation to the Commission cited above that there were no “side agreements” relating

to the fuel supply for the SJGS prior the Commission’s issuance of its Final Order in Case No.

13-00390-UT or prior to the Commission’s loss of jurisdiction over that case on January 14,

2016 when NEE appealed the Commission’s Final Order in that case9;

9 The January 14, 2016 date on which the Commission lost jurisdiction over the matters addressed in Case No. 13-

00390-UT due to NEE’s appeal of the Final Order in that case is relevant to the “failure to disclose” claims in thisComplaint because, if PNM had disclosed to the Commission and the parties in that case prior to that date that thestock purchase agreement between BHP Billiton and Westmoreland Coal Co. presented earlier to the Commissioncould not close as “expected” by December 31, 2015 because Westmoreland could not obtain financing to do so andtherefore Westmoreland would need to obtain financing from PNMR or a PNMR subsidiary to close that purchase,NEE and/or other parties could have moved the Commission to rehear and reconsider its Final Order in that case inorder to investigate and consider any potential effects of the PNMC $125 million loan to WSJ and the othertransactions disclosed by PNM on February 1, 2016 on PNM and its customers and on the balancing of the costs,risks and benefits associated with the requested CCN for SJGS Unit 4 addressed in the Hearing Examiner’sCertification of the Modified Stipulation.


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i. Commission Rule 1.2.2.20.B(5) NMAC provides hearing examiners with the

discretion to require that proponents of a contested stipulation submit additional evidence

regarding a contested stipulation without any time limitation.

j. Commission Rule 1.2.2.35.K NMAC provides in pertinent part: “Additional

evidence: At any stage of the proceeding the Commission or presiding officer may require the

production of further evidence upon any issue…” (Emphasis added);

k. Consistent with Commission Rules 1.2.2.20.B (5) and 1.2.2.35.K NMAC, after

the initial (January 2014) hearing in Case No.13-00390-UT was completed, the Hearing

Examiner’s April 8. 2015 Certification of the initial Stipulation proposed in that case

recommended that the Commission not approve PNM’s request for a CCN for 132 MW of SJGS

4 until PNM presented the Commission with all final agreements necessary for the restructuring

of ownership of the SJGS and for a post-2017 coal supply agreement for the SJGS. April 8,

2015 Certification of Stipulation, p. 147, ¶ 9;

l. On May 27, 2015, the Commission issued an Order Setting Further Proceedings

in Case No. 13-00390-UT addressing a May 1, 2015 PNM “Notice of Submittal of Confidential

San Juan Project Restructuring Agreement and San Juan Fuel Supply Agreements and Proposal

for Further Action” (“Notice and Proposal”) that purported to describe all of the coal supply

agreements that remained to be executed by various parties in order to carry out the SJGS

owners’ proposed Restructuring Agreement that remanded that case to the Hearing Examiner to

preside over a hearing on the merits of PNM’s request for a CCN for 132 MW of SJGS 4 and the

cost effectiveness of the then not yet finalized new fuel (coal) supply agreements for the SJGS.

Paragraph 10 of that Order found that, because those “Submitted Agreements both remain

incomplete and [were] filed outside the existing evidentiary record….PNM’s Notice and


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Proposal cannot support the Commission’s consideration of PNM’s conditional request for the

issuance of a CCN for SJGS 4.” Paragraph 11 of that Order provided further: “However, due to

the significance of this matter and the potential material changes in the status of the Submitted

Agreements identified by PNM , the public interest is best served by permitting consideration of

the Submitted Agreements and affording the Parties the opportunity to fully examine and

address those developments and PNM’s application for a CCN for SJGS 4 in an evidentiary

proceeding consistent with due process.” (Emphasis added);

m. On June 24, 2015, the Commission issued an Order Granting Motion [by PNM]

for Extension of Time to Submit Executed Agreements ordering, inter alia, that: (i) PNM file all

of the final, executed agreements regarding the post-2017 coal supply for the SJGS identified by

PNM by July 1, 2015 (¶ A); (ii) the “Parties may initiate discovery immediately on the subject

matter of the [remanded] proceedings, subject to existing protective orders,” and “shall update

their responses to prior discovery requests” (¶ C); and (iii) “[t]he Commission also expects that

all evidence pertaining to the acquisition of replacement resources and agreements will be

presented in the public record .” (¶ D) (Emphasis added);

n. On September 16, 2015, the Commission issued an Order Granting Request for

Clarification by NEE in Case No. 13-00390-UT that (in paragraph 10) responded as follows to

NEE’s concern that the scope of the hearing on remand ordered by the Commission “will

preclude the Hearing Examiner from having all of the necessary information for a proper

decision:

That cannot happen. Under Rule 1.2.2.20(B) NMAC, the Hearing Examiner is free to askfor more evidence from the parties. Indeed, on August 31, 2015, he already issued anOrder Requiring Supplemental Testimony that ordered PNM, among other things, toproduce substantial documentation relating to both the San Juan Project ParticipationAgreement and the Capacity Option and Funding Agreement.


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o. In accordance with Rule 1.2.2.20.B NMAC, the Hearing Examiner and individual

commissioners issued bench requests to PNM after the second hearing in Case No. 13-0090-UT

began to obtain further information regarding the subject matter of that hearing. See, e.g.,

transcript of hearings and October 30, 2015 Order Admitting Commission Exhibits 5-9 and

Providing for Supplemental Briefing;

p. Neither PNM’s May 1, 2015 “Notice and Proposal” nor any of PNM’s subsequent

prepared or oral testimony or exhibits at the hearing in Case No. 13-00390-UT identified any

provision in the CSA or in of the related fuel supply agreements submitted to the Commission

indicating that, if Westmoreland Coal Co. could not finance its purchase of the San Juan mine in

a timely manner, PNMR would consider agreeing to provide that financing itself or through a

subsidiary, or would engage in any of the other “material agreement” transactions first disclosed

by PNM in its February 1, 2016 Letter to the Commission in order to carry out any of the new,

post-2017 San Juan fuel (coal) supply agreements.

32. PNM’s unverified February 18 Response, like PNM’s February 1, 2016 Letter to

the Commission, did not provide the Commission with copies of any of the “material definitive

agreements” described in PNMR’s February 1, 2016 Form 8-K Report to the SEC, explain why a

potential default by Westmoreland San Juan, LLC of its obligations to NMC under the

Westmoreland Loan Agreement or any of the other affiliated transactions described in that

Report could not adversely PNM or its customers, or cite any binding commitment by PNMR to

hold PNM and its customers harmless from any of those transactions.

33. Because PNM did not disclose any evidence of any need or potential need for any

of the transactions described in its February 1, 2016 Letter to the Commission in connection with

any of the San Juan coal supply agreements prior to the Commission’s issuance of its Final Order


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in Case No. 13-00390-UT or prior to January 14, 2016 when the Commission lost jurisdiction

over Case No. 13-00390-UT, NEE, as well as other parties in that case and the Commission

itself, were not informed of any such potential need or of any collateral agreement by PNMR to

facilitate or engage in any of those transactions, itself or through any subsidiary, at any time

when they could have requested discovery from (or the Commission could have issued a bench

request to) PNM regarding those matters.

34. PNM’s February 18 Response (p. 7) to NEE’s February 5, 2016 Motion in Case

No. 13-00390-UT concludes by stating: “However, if the Commission desires additional

explanation about the information already provided to it regarding the financing of WSJ’s

acquisition of the stock of SJCC, PNM would be glad to make a presentation to the Commission

at a future open meeting and answer any questions the Commission may have.”

35. At the Commission’s March 16, 2016 Open Meeting, addressing an “undocketed”

agenda item entitled “In the Matter of a Commission Inquiry into Public Service Company of

New Mexico and PNM Resource’s Formation of NM Capital Utility Corporation and Funding of

Westmoreland Coal Company Acquisition of San Juan Coal Company,” a majority of the

Commission voted to not formally docket a case to investigate those matters and also decided to

not take PNM up on its offer to “make a presentation” to the Commission regarding any

questions it might have about those matters based, in part, on advice by its General Counsel that

doing so might raise concerns about improper ex parte communications between PNM and the

Commission. When Commissioner Montoya asked the General Counsel if the NMCUC loan to

Westmoreland could have an adverse impact on ratepayers the General Counsel also advised the

Commission that he did not believe the transaction was a Class I or Class II transaction and that

he did not believe it would have an adverse impact, despite not ever having seen the loan


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agreement or investigating the financial consequences of said transaction. Paradoxically, the

statement by General Counsel was contradicted by PNM’s admission that the loan and its

ramifications have risk and communicated that to the SEC.

36. For the reasons addressed below, probable cause exists for the Commission to

conclude that PNM violated the Commission’s orders identified above and discovery Rule

1.2.2.25.I NMAC in Case No. 13-00390-UT by not timely disclosing to the Commission and the

parties therein, prior to closure of the record, issuance of the Final Order or the Commission’s

loss of jurisdiction in that case on January 14, 2016, evidence in its possession that

Westmoreland Coal Co. might or would be unable to finance its purchase of SJCC and the San

Juan coal mine by the expected December 31, 2015 closing date or that , if that occurred, PNMR

would consider or pursue financing that transaction itself or through a subsidiary of PNMR.

37. Pursuant to Rule 1.2.2.13.A(2) NMAC and based on PNM’s February 18

Response in opposition to NEE’s February 5, 2016 Motion in Case No. 13-00390-UT and the

Commission’s loss of jurisdiction over that case on January 14, 2016, good cause exists for the

Commission to waive the “good faith effort to resolve the complaint” requirement in Rule

1.2.2.13.A.

38. Contrary to PNM’s argument in its February 18 Response (p. 5) to NEE’s

February 5, 2016 Motion in Case No. 13-00390-UT, the facts that NMCUC was not incorporated

until January 15, 2016—the day after the Commission lost jurisdiction over Case No. 13-00390-

UT due to NEE’s appeal of the Commission’s Final Order in that case—and that the closing of

the stock purchase agreement between BHP Billiton and WSJ did not occur until January 31,

2016 do not lead to a “logical inference” that Westmoreland Coal Co.’s “need for alternative

financing” from PNMR or a subsidiary of PNMR to purchase SJCC and the San Juan coal mine


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from BHP Billiton under their stock purchase agreement did not arise and was not known to

PNM until “after the Final Order was issued” in that case on December 16, 2015.

39. As stated in PNM’s February 18 Response (p. 5) to NEE’s February 5, 2016

Motion in Case No. 13-00390-UT, “the closing of the stock purchase agreement” between

Westmoreland and BHP Billiton “was expected to occur by December 31, 2015.” PNM’s

suggestion that Westmoreland did not disclose to PNM, or to any of the other owners of the

SJGS, that it could not obtain the financing necessary to close that transaction until after

December 16, 2015, just fifteen days before that expected closing date, strains credulity and, at

the very least, justifies a formal Commission investigation into the accuracy of that claim,

including discovery by NEE, the Commission’s Staff and any interested parties, due to the very

real and logical possibility that the $125 million PNMC loan to WSJ, guaranteed by PNMR, may

adversely affect PNM’s cost of capital during the term of that loan for the reasons addressed

above.

40. The further suggestion in PNM’s February 18 Response to NEE’s February 5,

2016 Motion in Case No. 13-00390-UT that PNM had no knowledge, prior to December 16,

2015 when the Commission issued its Final Order in that case, that (i) Westmoreland Coal Co.

intended to form a new “ring-fenced, bankruptcy-remote, special purpose entity” subsidiary to

acquire the SJCC and the San Juan mine from BHP Billiton, (ii) PNMR would need to create a

new subsidiary to loan that new Westmoreland subsidiary most of the $127 million purchase

price set forth in the stock purchase agreement between BHP Billiton and Westmoreland, and

(iii) Westmoreland and PNMR had begun the substantial efforts necessary to form those new

subsidiaries and to negotiate that loan and its related transactions disclosed in PNM’s February 1,

2016 Letter also strains credulity and, at the very least, justifies a formal Commission


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investigation into the accuracy of those claims, including discovery by NEE, the Commission’s

Staff and any interested parties.

41. The claim and suggestions by PNM in its February 18 Response to NEE’s

February 5, 2016 Motion in Case No. 13-00390-UT addressed in the preceding two paragraphs

are particularly not credible and justify further investigation by NEE and the Commission

considering how long it took PNM, PNMR, Westmoreland Coal Co. and all of the other parties

involved in the restructuring of the SJGS participation agreement and related coal supply

agreements to negotiate and finalize those agreements after PNM filed its Application in that

case, as shown by the record there.

42. NEE is a retail service customer of PNM that is affected by PNM’s retail service

rates and actions and omissions by PNM and its affiliates that affect those rates.

43. Pursuant to NMSA 1978, § 8-8-4(7), the Commission has authority, on its own

initiative or in response to formal complaint such as this, “to conduct investigations as necessary

to carry out the commission’s responsibilities.” See also NMSA 1978, § 62-10-1.

44. One of the Commission’s responsibilities, pursuant to NMSA 1978, §§ 62-6-4.A,

62-3-3.H and 62-8-1, is to regulate and supervise every act, omission or practice by a public

utility, such as PNM, that relates “in any way” to its provision of public utility service or to its

rates or compensation for utility service to or for the public in order to ensure that the utility’s

rates are “just and reasonable.”

45. For the reasons set forth herein, the relief requested in this Complaint is necessary

to protect NEE’s interests as a PNM customer and for the Commission to carry out its statutory

duties under NMSA 1978, §§ 62-6-4.A, 62-3-3.H and 62-8-1to protect the interests of PNM’s

customers generally.


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46. Nothing in the holding in Plains Elec., supra, cited by PNM in its February 18

Response to NEE’s February 5, 2016 Motion in Case No. 13-00390-UT provides or suggests that

the Commission lacks jurisdiction or authority to grant the relief requested in this Complaint.

47. This Complaint is accompanied by the $25.00 filing fee required by Rule 1.2.2.15

NMAC.

48. The factual allegations in this Complaint are true and correct to the best of the

belief of Complainant NEE as indicated by the signature of its president, Mariel Nanansi, below.

WHERERFORE, in accordance with Rule 1.2.2.15.C NMAC, Complainant NEE

respectfully requests that the Commission:

(i) cause a copy of this Complaint to be served on PNM accompanied by a notice from

the Commission in accordance with that Rule calling on PNM to answer this Complaint in

writing within twenty (20) days of service of this Complaint;

(ii) upon PNM’s filing of its answer to the Complaint, find that the Commission has

jurisdiction over the matters addressed herein and that probable cause exists that PNM violated

the Commission orders identified herein and its discovery Rule 1.2.2.25.I NMAC in Case No.

13-00390-UT by not disclosing any information regarding the need for any of the transactions

described in its February 1, 2016 Letter to the Commission and parties in that case (including

and PNMR’s Form 8-K Report attached thereto) prior to closure of the record, the Commission’s

issuance of its December 16, 2015 Final Order, or its loss of jurisdiction over that case on

January 14, 2016; and

(iii) set further proceedings on the Complaint that permit discovery by NEE and all

interested parties or designate a hearing examiner to preside over the matters addressed in the

Complaint and discovery regarding those matters.


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Respectfully submitted this ____ day of March, 2016.

New Energy Economy

_________________________Mariel Nanasi, Esq.President343 East Alameda St.Santa Fe, NM 87501-2229(505) [email protected]

Documents

New Energy Economy complaint against New Mexico Public Service Company