LAURA: I had a couple other questions about  the, that were, that came up in the PRC Hearing   Examiner's Report that I just wanted to ask  about.

So, the document notes that you'll pay   PNM shareholders 391 million dollars more than  the market value of the stocks.

And then, also,   I guess, I'm just curious, why pay more  than you have to?

Can you explain that?

PEDRO: Very simple, you know.

I think, you know,  first of all, there has never been a merger   case in the U.S. and, you know, there have been  many mergers in the U.S. in the utility sector,   that has never looked at the premium paid to the  shareholders, to justify how much customers get or   not.

Why?

A) because, you know, we paid a premium  to PNM.

If you actually look at the premium,   not over the last day, you look at the six  months, it's negative.

So, what does it mean?

If the, you know, the, actually, the share price  goes down, then the ratepayers should pay to the   shareholders, it doesn't work like that, okay?

So,  you need to pay the shareholders to make sure they   approve the transaction and we did.

And over one  year, one week, we paid a premium.

Actually, if   you go back and you look at over the share price  six months before, it's actually negative premium.

But that premium is to the shareholders.

If  now, you know, the share price goes down,   rate payers are not supposed to pay to  shareholders.

In the same way, if they get   a premium, they're not supposed to get the same  amount of money.

It's totally unrelated.

There   was another example.

You know, some, you know  party, you know, it was raising well or something   during some news you know the compensation to  some management, because they're, you know...   most of that compensation was already established  in their, you know, compensating in their, you   know, compensation packages.

And it's long-term,  you know, compensation they were entitled.

So,   there is nothing, we agreed, we don't even agree  one thing, you know, with Pat and her team,   you know, that, because of the merger, they're  going to be paid.

They already had it there.

So, that's why it's very customary, but you need  to pay a premium to shareholders.

By the way,   you know, this transaction is, you know, as  we said before, it's about creating value,   you know, locally.

Creating jobs.

If you  see a day, you know, the multiples, I think,   party to the transaction, which is very well  presentable, it's one of the lowest multiples.

Look at the other transactions in the U.S. Two  or three companies bankrupt.

Two other, three,   or three companies issuing capital because they  pay too much.

That's not what you should do.

If   you want to have a legacy of your company doing  well.

So, that's why we're very comfortable to   explain those things in a proper manner.

LAURA: Right.

So, I also wanted to ask...   that document also noticed... that you'll develop  non-utility activities in the Southwest, which is   why you're paying 2.3 billion dollars more than  the book value of the PNM assets.

What are these   non-utility assets that we're talking about?

PEDRO: First of all...  PAT: Okay, Laura.

If you look at what J.P. Morgan  paid for El Paso, for example, it was a lot more   than it was paid for PNM.

And, if you look at  any company in the United States, you don't sell   yourself unless someone is giving you a premium.

There's actually a court case going on today,   where they're they're claiming that Barry Diller  underbought, underpaid for Tinder, right?

So, most   people sue over the fact that you get underpaid  and so what Iberdrola saw in the value was, if   you look at our renewables, as I mentioned, again,  we're the, we're the third best in wind and solar   potential in the United States.

We're  a very small state and a small system.

So, they see the ability and because we know the  local permitting process, the local landowners,   all that, to build that infrastructure  and to build solar, wind and transmission,   to export that stuff to other states, right?

We're already in the energy and balance market,   saving our customers money.

And so, we  can continue to take advantage of that   infrastructure and take advantage of  it in a good way.

We're not, sort of,   taking it from New Mexico and giving it to Arizona  or California.

We're, we're taking advantage it on   behalf of all New Mexicans, to keep the proceeds  here.

So, I'm sorry, Pedro, I interrupted, but...  PEDRO: I think the comment you made, I  think, Laura is very, very interesting,   because the customers pay their bills in  relation, as you said, more or less let's   call it book value.

That's the rate base.

If  you buy a company and you pay a premium that's   a problem for the shareholders, okay?

The rate  payers, you know, do not have to pay for that,   okay?

So, from that point of view, you know,  if you were to tell me, "Well, we're paying   2 billion over book value and the rate payers  will have to pay the return on equity in their   bills because of our premium..." No, that's not  our problem.

The ratepayers continue to pay in   relation to the book value of the investment.

So,  it's our issue as a shareholder to do that or not.

LAURA: Okay.

And so, what would  some of the, like, non-utility   activities be?

Can you just clarify that?

PEDRO: Yes.

The the non-utility operations   is anything which is not regulated, okay?

So, you think about wind as being regulated,   but you also have non-regulated wind generation,  okay?

Transmission is not regulated by the   Public Commission.

You have projects which are  transmission.

We know, we check counterparties   that they need transmission.

Those are the  non-regulated activities and New Mexico,   for example, if you were to build generation  and export that to other, you know, states   or to go into Mexico, that's not regulated,  you know.

So, it may be regulated by FERC.

It may be, you know, counterparties, private  counterparties.

There are many activities that   can be done that are not regulated.

LAURA: That same PRC document noted   that the merger was not designed to benefit  PNM customers.

I was hoping you could each   respond to that, because I think that  that took some people by surprise there.

DON: Yeah, absolutely.

And let me clarify, the  hearing examiner, he provided a pathway.

So,   he provided a pathway on our on what we would  call a modified stipulation.

And he added three   things to it.

He extended the, what we would call  a rate freeze.

We had agreed to not do a rate case   until June 1st of 2022.

What he recommended is  that we don't file a rate case until December   of 2022.

We agreed to that and when we filed  our report on Friday, he also asked for   reliability metrics and he asked for reliability  penalties.

Pat addressed that and we agreed with   that.

We'll be the only utility in the state that  has reliability penalties, but we're confident we   can continue to deliver on the reliability  that we have.

The last thing is, he required   that we have an independent board made up of four  non-non-utility individuals and three that would   be management and we agreed to that.

And, they're  all New Mexico residents, so they're very in tune   so to go back to your original question what's in  it for New Mexico.

It's a New Mexico led board.

They'll stay in tune with what's going on.

There's  rate credits.

There's a provision that keeps us   out of filing a rate increase.

We haven't had a  rate increase since, 2016 was our last rate case   with rates into effect in 2018.

So, it'll be  a five year period from that perspective and   there's a whole lot of commitments that are in  there that protect the customer.

Local management,   absolutely important.

And you've heard Pedro talk  about that.

Sustained people running the utility,   ensuring that it's reliable, affordable and,  you know, it's environmentally sound and   so forth.

So, that's what's important.

So,  there was a pathway that was created there   and we we agreed to every every element on it.

PAT: If you look at the monetary benefits alone,   right, there's 94 million dollars  for customers in rate benefits,   whether it's a rate credit, where it's  forgivenesses of a rearages because of   Covid, whether it's electricity for customers  that don't have it.

There are economic development   benefits that total more than 200 million,  between the jobs and just straight out dollars   for economic development.

So, there are those  kinds of things that are also direct customer   benefits.

So, I think we would disagree with  the hearing examiner that the merger was not   designed to benefit customers.

Obviously, the  shareholders benefit but the environment benefits,   our employees benefit and the customer's benefit.

PEDRO: I think if you just complete that within a   couple of examples.

The first one is when  you compare the benefits that, you know,   are quantifiable, that we have put on the  table, you know, rate credits, you know,   low income help, you know, you know efficiency,  things, etc., etc., etc., the jobs to be created,   all those figures are more than any other  transaction approved in New Mexico by the Public   Commission.

So, we are very comfortable that the  benefits that they saw in another transaction,   we have exceeded them.

But, second, in  terms of, you know, what we want to do   is to job, that's why the job component is very  important for us.

If you see JP Morgan when,   they got it approved, JP Morgan had never  run a U.S. utility in their lives.

So,   I would be concerned, you know, potentially, if  you buy a utility given run utility.

Well, they   got it approved.

We have exceeded, you know, what  they considered, okay.

So, from that point of view   the benefits that we have, we are very comfortable  and we trust regulators, because they usually,   you know, they approve transactions in a way and  we believe that's the way they should approach   transactions in the future.

And these are two very  recent transactions.

We have exceeded the benefits   that they approved in those transactions.

PAT: 23 out of 24 interveners support   or don't oppose the merger, so I think  that's a pretty good endorsement of the   fact there's only one party that's against  it, that this makes sense for our state.