Another big company has its sights on an essential New Mexico utility, this time NM Gas Company. On October 28th, 2024 Bernhard Capital Partners (BCP), a private equity firm, applied to the PRC for permission to buy out NM Gas Company for $1.25 billion. What should New Mexicans know about BCP?
As a private equity firm, BCP is not required to report its financial status, operational details or business risks to the SEC. Private equity firms operate in relative secrecy and there are no public records against which regulators can confirm company statements. Nor are they required to appoint independent boards.
BCP is in the business of buying up companies, usually to leverage their capital and assets to provide large dividends to the private owners of the business, squeeze higher profitability numbers out of the company through ruthless cost cutting, and then sell the now “streamlined” business as soon as another windfall profit opportunity comes along. Nowhere in this equation is the public interest, reliable and low cost gas service, benefits for workers, or concerns about the significant climate impacts of reliance on methane gas for heating. For private equity owners, the only measure that matters is shareholder profit. BCP has already stated that it plans to hold the gas company for just five years.
BCP has no experience with operating a utility company, and the business experience its executives do bring are troublesome in the extreme. Jeffrey Baudier, the CEO, bragged about his record as CEO at Petra Nova LLC in his testimony. What he did not disclose was the fact that Petra Nova, the world’s largest carbon capture facility on a coal-fired power plant, was shut down after just four years because it failed to capture the CO2 promised, actually built and operated a new gas fired power plant in order to meet the energy demands of the failing Carbon Capture process, and lost more than $310 million of federal and state public funds invested in the project.
In August BCP founders, Jeff Jenkins and Jim Bernhard, jumped into the utility business in Louisiana, where they received permission to take ownership of two Entergy owned gas utilities from the elected Louisiana Public Service Commission. An analysis of their campaign contributions by Floodlight found that Bernhard Capital Partners and its executives had donated more than $200,000 to all the five Louisiana Public Service commissioners, and one former commissioner, over the past seven years. Those Commissioners voted unanimously to approve the buyout. These are not the kind of corporate executives we need to run NM Gas Company, which is responsible for providing low-cost, reliable service to 1.3 million New Mexicans.
The private equity takeover of New Mexico’s only gas utility is part of a larger trend towards private ownership, a practice that was curtailed by strict regulations enacted in 1933 after the stock market crash triggered the Great Depression, but those regulations have been eroded so significantly that assets in private funds reached $28 trillion in 2023, compared to $31 trillion in publicly traded funds. In a 2023 article titled “The Secretive Industry Devouring the U.S. Economy” the Atlantic reported:
“One-fifth of the market has been made effectively invisible to investors, the media, and regulators. Information as basic as who actually owns a company, how it makes its money, or whether it is profitable is “disappearing indefinitely into private equity darkness,” as the Harvard Law professor John Coates writes in his book The Problem of Twelve. This is not a recipe for corporate responsibility or economic stability. A private economy is one in which companies can more easily get away with wrongdoing and an economic crisis can take everyone by surprise.”
This trend is expected to continue and to accelerate under the incoming administration, which is populated by wealthy investors who are seeking to make a final assault against the last guardrail protecting against another Great Depression - the rule against marketing and selling shares of private equity companies to the public directly through our 401k’s and brokerage firms.
NM Gas Company is currently owned by Emera Holdings, a Canadian Energy Services firm that owns multiple utilities, pipelines and other energy related businesses, and has announced plans to reduce emissions 80% by 2040. Unfortunately many energy companies have a practice of offloading their dirtiest businesses to private equity firms so that they can tout their progress on climate, but under the new private ownership arrangements those dirty plants continue to operate.
What are the risks to NM Gas Company customers if BCP gets permission from the PRC to buy out NM Gas Company?
Lack of transparency
Higher rates to pay off debts incurred in the leveraged buyout
Potential impacts to reliability and service quality as BCP seeks to cut costs and puts off necessary repairs and investments in infrastructure and efficiency.
A short term, profit driven ethos that precludes the kind of long term planning necessary to transition a company based entirely on the burning of methane into a sustainable one. Instead under Bernhard Capital Group we suspect the utility’s motto will be “Burn Harder, Burn Faster.”