BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF NEW ENERGY

ECONOMYS COMPLAINT AGAINST
PUBLIC SERVICE COMPANY OF NEW
MEXICO REGARDING ITS FAILURE TO
TIMELY DISCLOSE ITS PARENT
COMPANYS AND SUBSIDIARYS
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
OF NEW MEXICO, WESTMORELAND
COAL COMPANY AND OTHER PARTIES

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NEW ENERGY ECONOMY,
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Complainant
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__________________________________________)

Case No. 16-_____-UT

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 Commissions 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 PNMs parent (holding) company, PNM Resources, Inc. (PNMR), New
1

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 PNMs February 1, 2016 letter to the Commission regarding the San Juan Coal Supply
Agreement (February 1, 2016 Letter) and PNMRs 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 Agreements1 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 PNMs 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 PNMs 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.

Complainants name is New Energy Economy; its mailing address is 343 East

Alameda St., Santa Fe, NM 87501-2229; its presidents and attorneys name is Mariel Nanasi,
1

As described in PNM witness Chris Olsons July 31, 2015 Supplemental Direct Testimony in Case No. 13-00390UT (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 and
PNM, an Underground Coal Sales Agreement Termination and Mutual Release Agreement between PNM, Tucson
Electric Power (TEP), the San Juan Coal Co. and BHP Billiton New Mexico Coal, Inc. (BBNMC), a Coal
Combustion Byproduct Disposal Agreement Termination and Mutual Release Agreement among PNM, the San
Juan Coal Co., BBNMC and TEP, and a Letter Agreement Termination between PNM and Westmoreland.

Esq. whose email address is mariel@seedsbeneaththesnow.com; its telephone number is (505)

989-7262.
3.

Respondents legal name is Public Service Company of New Mexico; its mailing

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

name

is

Benjamin

Phillips,

Esq.

whose

email

address

is

Ben.Phillips@pnmresources.com; its attorneys 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 PNMRs
Form 8-K Report to the SEC on that date referenced therein and attached thereto is attached as
Exhibit A hereto.
5.

PNMs 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 PNMs current or future cost of capital for ratemaking purposes if, for any reason,
WSJ defaults on PNMCs $125 million loan or its parent, Westmoreland Coal Co., goes into
bankruptcy.

6.

Based on research, it is NEEs 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 Westmorelands current debt
arrangements.

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 NEEs understanding that, until
NMCUCs $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, PNMs 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 Mexican2, 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, Moodys 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
Westmorelands 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 Moodys Rating Action can be seen here: https://www.moodys.com/research/Moodysdowngrades-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-bankspull-financing.html?emc=eta1 and http://www.santafenewmexican.com/news/banks-pull-backon-funding-coal/article_253de927-7228-5308-bed4-e84a863f9332.html

3
See Moodys Investors Service Rating Symbols and Definitions at www.moodys.com.
5

12.

In PNMs 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 WSJs corporate parent, Westmoreland Coal Co.). At p. B-101
13.

Also, in PNMs 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 PNMs 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 San
Juan mine, SJCC is required to post reclamation bonds of $161.6 million with the
New Mexico Mining and Minerals Division (NMMMD). In order to facilitate
the posting of reclamation bonds by Zurich American Insurance Company
(Zurich) on behalf of SJCC, a Reclamation Bond Agreement (the Reclamation
Bond Agreement) among PNMR, Westmoreland, and SJCC was entered into
with Zurich. In connection with the Reclamation Bond Agreement, PNMR used
$40.0 million of the available capacity under the PNMR Revolving Credit Facility
to support a bank letter of credit arrangement (the Zurich Letter of Credit) with
4

http://api40.10kwizard.com/cgi/convert/pdf/PNM-20160229-10K20151231.pdf?ipage=10778332&xml=1&quest=1&rid=23&section=1&sequence=1&pdf=1&dn=1, At page A-14.

6

Zurich. The Reclamation Bond Agreement provides, among other things, (i)
certain obligations for PNMR to provide to Zurich, within 180 days, security
interests 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 of
certain SJGS owners (the Base Security Interests), PNMR, Westmoreland
(subject to obtaining certain amendments or consents under its senior debt and
credit facilities), and SJCC will be responsible, jointly and severally, to provide
additional collateral to support the then outstanding reclamation bond amount,
which will remain in place until such time as PNMR is able to provide the Base
Security Interests. The Zurich Letter of Credit will be terminated upon PNMR
providing security interests in the Reclamation Trusts of all SJGS owners. Also,
the Zurich Letter of Credit will be proportionally reduced if PNMR is able to
provide, in addition, to the Base Security Interests, security interests in the
Reclamation Trusts of some, but not all, of the other SJGS owners or if the initial
reclamation bonds amount is reduced. The reclamation bonds may be replaced or
otherwise 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 impacts
of not being able to do so.5 (Emphasis supplied.) At Page B-101.
PNM admits to the SEC that it doesnt 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 Commissions 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 PNMs 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-20160229-10K20151231.pdf?ipage=10778332&xml=1&quest=1&rid=23&section=1&sequence=1&pdf=1&dn=1, At Page B-101.

7

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 Moodys 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 2017,7 and may request
Commission approval of additional rate increases prior to the termination of PNMCs $125
million Loan Agreement with WSJ or WSJs 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 PNMs customers to the long-term risks and costs associated with that mine
and its continued operation after 2017.8
18.

PNMs February 1, 2016 Letter and PNMRs 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 Westmorelands

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-downgradedjefferies?uprof=
8
http://www.santafenewmexican.com/news/local_news/pnm-push-to-buy-san-juan-coal-mineworries-activists/article_9e3b6d3e-9e3e-5fd7-845f-a185a3b8afe4.html;
http://www.abqjournal.com/497621/biz/pnm-considers-coal-mine-purchase-for-san-juanfuel.html

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 Commissions December 16, 2015 Final
Order in that case.
19.

Neither PNMs February 1, 2016 Letter nor PNMRs 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 PNMRs February 1, 2016 Form 8-K report to the SEC attached to PNMs 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 Commissions
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) PNMRs 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.;

(iii) PNMRs 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 registrants 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.

PNMs 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.

PNMs 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

10

documentation regarding any of the Material Agreements described therein and in the PNMR
Form 8-K Report to the SEC attached thereto.
25.

PNMs 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 PNMs 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 PNMs 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.

NEEs 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 PNMs
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 PNMs ability to provide
service at just and reasonable rates.
28.

PNMs unverified and otherwise unsupported February 18, 2016 Response to

NEEs 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.

11

13-00390-UT due to NEEs appeal of the Commissions Final Order in that case to the New
Mexico Supreme Court on January 14, 2016.
29.

PNMs 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. 13-00390UT because: (i) NMCs lending arrangement is with WSJ and PNM is not a party to it; (ii)
none of the arrangements disclosed in PNMs 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. Commn, 1998-NMSC-038,
126 N.M. 152 (Plains Elec.).
30.

PNMs unverified February 18 Response (pp. 5-6) argued further that PNMs

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)

12

[t]here is no evidence that the [NMC Loan] arrangement was contemplated prior to the issuance
of the Final Order in that case.
31.

PNMs 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 NEEs appeal of the Commissions
Final Order, any agreement by PNMR to pursue or enter into any of the transactions described in
PNMs 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 Commissions January 22, 2014 Initial Order Requiring Supplemental

Testimony in Case No. 13-00390-UT identified PNMs 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 PNMs Application was not complete and
requiring that PNM file supplemental testimony by February 5, 2014;
b.

Decretal paragraph E of the Hearing Examiners 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 Commissions 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 partys obligation to supplement its discovery responses
as of the beginning of the Commissions 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

13

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 Examiners 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
WRAs request for documents concerning renewal of the coal supply contracts for San Juan
Generating Station confirmed PNMs obligation under Rule 1.2.2.25 NMAC to supplement its
responses in that regard in accordance with WRAs 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

14

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.

PNMs 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 PNMs 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 PNMs 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 Commissions issuance of its Final Order approving that Stipulation in Case
No. 13-00390-UT;
i.

PNM also never supplemented or corrected Mr. Olsons 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 Commissions issuance of its Final Order in Case No.
13-00390-UT or prior to the Commissions loss of jurisdiction over that case on January 14,
2016 when NEE appealed the Commissions Final Order in that case9;

The January 14, 2016 date on which the Commission lost jurisdiction over the matters addressed in Case No. 1300390-UT due to NEEs appeal of the Final Order in that case is relevant to the failure to disclose claims in this
Complaint because, if PNM had disclosed to the Commission and the parties in that case prior to that date that the
stock purchase agreement between BHP Billiton and Westmoreland Coal Co. presented earlier to the Commission
could not close as expected by December 31, 2015 because Westmoreland could not obtain financing to do so and
therefore 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 in
order to investigate and consider any potential effects of the PNMC $125 million loan to WSJ and the other
transactions 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 Examiners
Certification of the Modified Stipulation.

15

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
Examiners April 8. 2015 Certification of the initial Stipulation proposed in that case
recommended that the Commission not approve PNMs 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 PNMs 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.PNMs Notice and

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Proposal cannot support the Commissions consideration of PNMs 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 PNMs 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
NEEs 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 ask
for more evidence from the parties. Indeed, on August 31, 2015, he already issued an
Order Requiring Supplemental Testimony that ordered PNM, among other things, to
produce substantial documentation relating to both the San Juan Project Participation
Agreement 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 PNMs May 1, 2015 Notice and Proposal nor any of PNMs 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.

PNMs unverified February 18 Response, like PNMs February 1, 2016 Letter to

the Commission, did not provide the Commission with copies of any of the material definitive
agreements described in PNMRs 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 Commissions 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.

PNMs February 18 Response (p. 7) to NEEs 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 WSJs
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 Commissions 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 Resources 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 PNMs 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 Commissions 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 Commissions
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 PNMs February 18

Response in opposition to NEEs February 5, 2016 Motion in Case No. 13-00390-UT and the
Commissions 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 PNMs argument in its February 18 Response (p. 5) to NEEs

February 5, 2016 Motion in Case No. 13-00390-UT, the facts that NMCUC was not incorporated
until January 15, 2016the day after the Commission lost jurisdiction over Case No. 13-00390UT due to NEEs appeal of the Commissions Final Order in that caseand 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 PNMs February 18 Response (p. 5) to NEEs 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. PNMs
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 Commissions 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 PNMs cost of capital during the term of that loan for the reasons addressed
above.
40.

The further suggestion in PNMs February 18 Response to NEEs 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 PNMs 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 Commissions
Staff and any interested parties.
41.

The claim and suggestions by PNM in its February 18 Response to NEEs

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 PNMs 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 commissions responsibilities. See also NMSA 1978, 62-10-1.
44.

One of the Commissions 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 utilitys
rates are just and reasonable.
45.

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

to protect NEEs 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 PNMs
customers generally.

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46.

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

Response to NEEs 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 PNMs 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 PNMRs Form 8-K Report attached thereto) prior to closure of the record, the Commissions
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.
President
343 East Alameda St.
Santa Fe, NM 87501-2229
(505) 469-4060
mariel@seedsbeneaththesnow.com

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