February 10, 2020 • EPE Related News
El Paso Electric buyer again refutes JPMorgan affiliate assertions in federal filing
El Paso Electric buyer again refutes JPMorgan affiliate assertions in federal filing
Vic Kolenc, El Paso Times – February 10, 2020
Lawyers for El Paso Electric and the investment fund in the process of buying the 117-year-old utility reiterated in a new filing with federal regulators that JP Morgan Chase is not a legal affiliate of the utility's buyer.
That's an issue that's haunted the pending $4.3 billion sale to the $12.2 billion, New York-based Infrastructure Investments Fund, or IIF, because of questions and concerns raised about IIF's ownership structure and relationship with the global bank in federal filings by Tyson Slocum, energy program director for Public Citizen, a national consumer watchdog group.
Texas state Sen. Jose Rodriguez, D-El Paso, who agrees with Slocum's concerns, unsuccessfully tried to get El Paso City Council to delay approving transferring the utility's city franchise to IIF until the Federal Regulatory Energy Commission, or FERC, completed its review of the pending sale, which includes looking at IIF's ownership structure.
FERC is one of two federal agencies that must approve the pending EPE sale before it can be completed.
Slocum, in a phone interview, asserted that JPMorgan officials tied to IIF are fighting hard against IIF being labeled by FERC as a JPMorgan affiliate because it would limit JPMorgan's ability do business with El Paso Electric in wholesale electric markets and in natural gas transactions.
El Paso Electric sells electricity on the wholesale market, and buys natural gas to power its natural gas plants.
JPMorgan has divisions dealing in the wholesale electric and natural gas markets that El Paso Electric could be a valuable part, Slocum maintained.
The Public Utility Commission of Texas regulates El Paso Electric only for its retail and distribution business while FERC regulates the wholesale energy markets, Slocum noted.
If FERC deemed IIF and EPE affiliates of JPMorgan, that also possibly "could trigger additional regulatory oversight" from the Federal Reserve System, which regulates banks, Slocum added.
JPMorgan officials have continually insisted in regulatory filings, and at public meetings that the only relationship the bank has to the fund is that J.P. Morgan Investment Management Inc., serves as IIF's investment adviser, and that JP Morgan is not an affiliate of IIF or any IIF entities. That adviser role includes helping manage the 19 companies that IIF owns, officials tied to IIF have said in regulatory filings. El Paso Electric would be IIF's 20th company.
Lawyers say Texas commitment doesn't infer JPMorgan affiliation
IIF and El Paso Electric agreed in one of several "regulatory commitments" included in a stipulated sale agreement approved in January by the Public Utility Commission of Texas, to be treated as affiliates of JPMorgan when it comes to dealing with Texas utility regulations. That means they have to keep a legally defined "arm's-length relationship" in dealings with JPMorgan under state utility regulations.
The city of El Paso, several other government agencies and others also are part of the Texas PUC agreement.
The agreement allows J.P. Morgan Investment Management officials to help manage El Paso Electric as part of IIF's investment portfolio.
IIF and El Paso Electric lawyers said in their Feb. 6 filing with FERC that "This (Texas PUC) commitment does not make EPE or Buyer affiliates of JPMorgan."
"In fact, it is precisely because Buyer (and, similarly, IIF US Holding 2 and IIF 2 GP) is not an affiliate of JPMorgan that a regulatory commitment was agreed to as as part of the (Texas PUC) settlement process," the IIF and EPE lawyers said in their FERC filing.
IIF US Holding, one of three partnerships making up the entire IIF, is buying El Paso Electric, and IIF 2 GP is the general partner controlling that partnership, according to IIF filings.
"If Buyer was — and EPE would become, post-closing — an affiliate of JPMorgan, there would be no need for them to agree to arm's-length relationships, as those restrictions wold apply automatically under applicable affiliate rules in Texas," they wrote.
IIF and EPE's Feb. 6 filing was in response to Public Citizen's Slocum's latest FERC filing in late January.
"The Public Citizen filing reiterates arguments that applicants (IIF and EPE) have previously rebutted," the lawyers wrote.
Public Citizen official claims JPMorgan hiding behind IIF 'shell' companies
In his Jan. 27 filing, Slocum said IIF's agreement to be treated as an affiliate of JPMorgan in Texas, "should be a factor in the commission's decision to deem JPMorgan an affiliate of IIF for FERC's regulations."
In that filing, Slocum also asserted that JPMorgan hides its ownership ties to IIF with a "dizzying array" of "shell" companies so JPMorgan can avoid affiliate company restrictions in federal energy market regulations.
"They agreed to be treated as (JPMorgan) affiliates (in Texas) without being affiliates" in legal terms, Slocum said.
"This is an example of the wordsmithing and word games they are playing. Here, they say, 'No, Public Citizen is wrong, we never agreed to be affiliates'" of JPMorgan, Slocum said. "And if you dive into the legal wording, they are technically right; and that's the concern I have for the people of El Paso. This is the type of thing you will get every time you have a question or a dispute" with IIF.
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