PNM Resources PNM and AVANGRID, Inc. AGR provide their consent in further pushing the closure date by three -months to July 20, from Apr 20. The merger is likely to create a very strong clean-energy company but the ongoing delay can lower the desired returns for the companies.
Announced in October 2020, this merger was expected to get completed in fourth-quarter 2021, post the approval of the New Mexico Public Regulation Commission (NMPRC). However, following rejection by NMPRC, the companies filed an appeal to the New Mexico Supreme Court against it.
In March 2023, PNM Resources, Avangrid, and NMPRC filed a combined request before the New Mexico Supreme Court to reject the companies' appeal of the December 2021 NMPRC refusal and return the case back to NMPRC.
Both PNM and AGR are devoted toward the merger, which will benefit New Mexico consumers and communities in excess of $300 million and provide rate relief to Texas customers of more than $16 million.
The companies can speed up the development of clean energy in Texas and New Mexico and put more emphasis on customer’s reliability and resiliency. Through this merger, companies will support the areas' ongoing vibrancy and prosperity while also advancing their economic growth.
Motive Behind the Move
PNM Resources’ long-standing expertise in fulfilling environmental regulations and its focus on developing cost-effective generation units provide reliable and affordable power to customers. The acquisition will aid AVANGRID’s expansion of renewables business in the Southwest. Also, the scope and diversity of the combined business will augment its ability to invest in energy efficiency and new technologies.
The combined entity will have an improved credit profile, greater financial flexibility and lower cost of capital. The deal will create a leading U.S. regulated utility and renewable energy platform, which seems lucrative to both companies.
Per U.S. Energy Information Administration report, decline in coal usage for electricity generation is offset by an increase in renewable sources of energy, which is expected to rise from 22% in 2022 to 26% in 2024.
The passage of Inflation Reduction Act (IRA) will support and accelerate the utilities’ transition toward clean-energy sources. IRA has removed the uncertainties relating to federal incentives provided for renewable sources usage. The Act entails an opportunity for a wide range of low-cost clean energy solutions in a predictable way for a long time and will create earnings visibility.
PNM Resources and AVANGRID are both committed in lowering emission and add more renewable sources in generation portfolio. Along with PNM and AGR, some other electric power industry companies like Dominion Energy, Inc. D and NextEra Energy, Inc. NEE are adopting measures to meet clean-energy targets.
Dominion Energy aims to attain net-zero carbon and methane emissions from its electric generation and natural gas infrastructure by 2050, from 2005 levels. The company aims to cut emissions by 70-80% by 2035 from the level of 2005. Nearly 87% of its investments will be dedicated in zero-carbon generation and energy storage.
D’s long-term (three- to-five year) earnings growth rate is pegged at 14.9%. It had delivered average earnings surprise of 1.21% in the last four quarters.
NextEra Energy is aiming to reduce total carbon emissions by 67% within 2025 from 2005 base. It continues to work on its strategy of making a long-term investment in clean-energy assets. The company expects to be able to add 33-42 gigawatts of new renewables in the 2023-2026 period to the generation portfolio via clean-energy investments.
NEE’s long-term earnings growth rate is pegged at 9.04%. The Zacks Consensus Estimate for 2023 EPS is pegged at $3.12, implying a year-over-year increase of 7.6%.
In the past three months, shares of PNM have lost 0.8% compared with the industry’s 1.1% decline.
Image Source: Zacks Investment Research
PNM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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