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UPDATE 4-New Mexico regulators deny Avangrid bid for PNM Resources

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(Adds Iberdrola shares, detail on Spanish investigation, paragraphs 6,9,10)

Dec 9 (Reuters) - New Mexico utility regulators on Wednesday voted to reject Avangrid Inc's proposed $8 billion acquisition of PNM Resources Inc, saying the deal's risks outweighed its promised benefits to state ratepayers.

The unanimous vote by the five-member Public Regulation Commission is a blow to Spanish energy giant and Avangrid parent Iberdrola SA.

It had been banking on the deal to expand its reach to the western United States and create a clean energy-focused company with a market value topping $20 billion.

Both PNM and Avangrid said they were disappointed.

"We are evaluating the next steps before us... while we hope to one day welcome New Mexico into the Avangrid family, our future remains bright," Avangrid said in an emailed statement.

Iberdrola shares slipped around 0.8% at Thursday's European open, slightly underperforming Madrid's bourse and the broader European utilities index.

Prior to the vote, members of the commission said they could not support the deal in part because of their concerns about Avangrid's service track record at its Maine utility and a criminal investigation in Spain of Iberdrola's chief executive, Ignacio Galan.

"We can't afford to discount those potential issues," PRC Chairman Stephen Fischmann said during the virtual meeting. "This is not the right partner at this critical time in our energy transition."

Spain's High Court has placed Galan and three Iberdrola executives under investigation in a probe into alleged spying. In the Spanish legal system, being placed under investigation does not necessarily lead to indictment.

Iberdrola has said the executives have done nothing wrong and are open to cooperating with judicial authorities. No formal charges can be brought until the first phase of the investigation is completed.

The deal with PNM was aligned with Iberdrola's broader strategy of investing in regulated businesses and opportunities to expand renewable energy. PNM has pledged to source electricity from only carbon-free sources by 2040, while New Mexico has a state mandate to phase out fossil fuels in power production by 2045.

"We put forth an agreement that would strengthen New Mexico's future as we partnered with a global company to meet the challenges of climate change, while ensuring affordable and reliable service to PNM customers for years to come," PNM CEO Pat Vincent-Collawn said in a statement.

A group of environmental organizations issued a joint statement expressing frustration with the rejection because Avangrid had pledged to pour $300 million into investments in jobs and initiatives to reduce climate-warming emissions.

The decision "sends a harmful message that New Mexico is not friendly to business or clean energy development," Steve Michel, deputy director of Western Resource Advocates' clean energy program, said in the statement. (Reporting by Nichola Groom in Los Angeles and Isla Binnie in Madrid; editing by Richard Pullin and Jason Neely)