N.M. Admin. Code § 17.6.450.10

Current through Register Vol. 35, No. 21, November 5, 2024

Section 17.6.450.10 - CLASS II TRANSACTIONS: APPROVAL OF GENERAL DIVERSIFICATION PLAN

A. No public utility may engage in a Class II transaction after November 30, 1982 [the effective date of former General Order No. 39] without first obtaining written approval of a general diversification plan from the Commission.

B. The general diversification plan shall include:

(1) to the extent known the name, home office address, and chief executive officer of each affiliate, corporate subsidiary, holding company, or person which is the subject of the Class II transaction;

(2) a statement of the goals and effects upon the utility operation of the Class II transaction including an analysis of the benefits, risks, and any costs to the public utility which could arise, and including all tax effects on the utility both on a consolidated entity basis and on a stand-alone basis;

(3) the type of corporate structure to be used;

(4) the means of implementing the corporate structure to be used, including, but not limited to, amendments to corporate articles, any issuances, acquisitions, cancellations, exchanges, transfers, or conversions of securities, and the impact of such on the rights of creditors and security holders;

(5) the anticipated capital structure for the utility, its affiliates, and the consolidated entity (utility plus affiliates) for the next five (5) years;

(6) the contemplated annual and cumulative investment in each affiliated interest for the next five (5) years in dollars and as a percentage of projected net utility plant and an explanation of why this level of investment is reasonable and will not increase the risks of investment in the public utility;

(7) an explanation of how the affiliate(s) will be financed, by whom, and the type and amounts of capital or instruments of indebtedness;

(8) an explanation of how the utility's capital structure, cost of capital, and ability to attract capital at reasonable rates will be impacted;

(9) an explanation of how the utility can assure that adequate capital will still be available for the construction of necessary new utility plants and at no greater cost than if the utility did not engage in this Class II transaction;

(10) to the extent not answered in (9) above, an explanation of how ratepayers will be protected and insulated from any risks, costs, or other adverse and material effects attributable to Class II transactions or their resulting effects;

(11) if the utility intends to divest a corporate subsidiary, an explanation of the reasons for such divestiture, how it will be accomplished, how it will affect utility operations, financial viability, cost of capital, and adequacy of service during the next ten (10) years following divestiture, the anticipated proceeds to the utility, the extent, if any, that the utility intends for ratepayers to share in the proceeds or otherwise benefit from the divestiture, the amount of and reasons why any ratepayer funds have flowed directly or indirectly to the benefit of the corporate subsidiary; and

(12) to the extent not provided above, such information or representations that will allow the Commission to make the findings contained in NMPSC Rule 450.7(c) [Subsection C of 17.6.450 10.NMAC].

C. The Commission shall approve the general diversification plan if it contains the above information in detail acceptable to the Commission and if the Commission finds that such approval is in the public interest. Approval is in the public interest if the Commission finds that the level of investment appears reasonable and that it appears the utility's ability to provide reasonable and proper utility service at fair, just, and reasonable rates will not be adversely and materially affected by Class II transactions and their resulting effect, and if the utility represents and the Commission, based upon such representations, finds that:

(1) the books and records of the utility will be kept separate from those of nonregulated business and in accordance with the Uniform System of Accounts;

(2) the Commission and its staff will have access to the books, records, accounts, or documents of the affiliate, corporate subsidiary, or holding company pursuant to NMSA 1978, Sections 62-6-17 and 62-6-19;

(3) the supervision and regulation of the public utility pursuant to the Public Utility Act will not be obstructed, hindered, diminished, impaired, or unduly complicated;

(4) if a holding company is formed the utility will not pay excessive dividends to such holding company, and the holding company will not take any action which will have an adverse and material effect on the utility's ability to provide reasonable and proper service at fair, just, and reasonable rates;

(5) the public utility will not without prior approval of the Commission:

(a) loan its funds or securities or transfer similar assets to any affiliated interest, or

(b) purchase debt instruments of any affiliated interests or guarantee or assume liabilities of such affiliated interests;

(6) all applicable statutes, rules, or regulations, federal or state, have been or will be complied with;

(7) when required by the Commission the utility will have an allocation study (which will not be charged to ratepayers) performed by a consulting firm chosen by and under the direction of the Commission; and

(8) when required by the Commission the utility will have a management audit (which will not be charged to ratepayers) performed by a consulting firm chosen by and under the direction of the Commission to determine whether there are any adverse effects of Class II transactions upon the utility.

D. The Commission's approval of a general diversification plan and any findings or conclusions made in connection therewith shall in no way limit or preclude the Commission from subsequently investigating and reviewing Class I and Class II transactions or from taking such steps as it deems necessary to protect ratepayers and to assure that the utility's ability to provide reasonable and proper utility service at fair, just, and reasonable rates will not be adversely and materially affected.

E. The Commission may require the modification of a general diversification plan and may attach conditions to the approval thereof in order to make such plan consistent with the public interest or to avoid material and adverse effects on the utility's ability to provide reasonable and proper service at fair, just, and reasonable rates.

N.M. Admin. Code § 17.6.450.10

Recompiled 12/30/01