February 7, 2020 • EPE Related News
What does the El Paso Electric sale mean for customers, community?
What does the El Paso Electric sale mean for customers, community?
El Paso Times, February 3, 2020
In case you've lost track of the long and winding road of El Paso Electric's pending sale, which officials with the buyer and the utility hope to have done by June 1, here's a primer:
Who owns El Paso Electric?
El Paso Electric is currently owned by mostly large institutional investors who hold most of the company's stock shares that are publicly traded on the New York Stock Exchange under the symbol EE. The stock's been traded on a stock exchange for 72 of its 117-year existence.
Why El Paso Electric looked for a buyer
The El Paso Electric board of directors on March 28, 2018, hired Lazard Frères & Co., a New York financial advisory firm and expert in acquisitions and mergers, to study the company's alternatives of remaining a publicly traded company or trying to sell it. Lazard came up with a list of potential buyers that eventually was whittled down to six.
IIF the winning bidder for utility
The JPMorgan-tied Infrastructure Investments Fund, or IIF, was the winning bidder, first offering $66 per share, which it later increased to $68.25 per share, or about $2.8 billion. On May 16, the EPE board of directors told company executives to focus on negotiating with IIF. After about two weeks of further negotiations, the deal with IIF was approved by the EPE board on May 31. The sale agreement was signed June 1, and the proposed deal was publicly announced June 3.
New York-based IIF is a $12.2 billion fund advised and managed by J.P. Morgan Investment Management personnel. It invests in companies for about 500 mostly pension and insurance providers. It currently owns and operates 19 companies in the utilities, energy, and transportation sectors.
U.S. Rep. Veronica Escobar, D-El Paso, and others have worried that the utility's finances and operations will be less transparent to the public if IIF becomes the owner because the utility would no longer file public financial and other required reports with the U.S. Securities and Exchange Commission.
El Paso Electric sale approval process
The company's board of directors and executives determined the 117-year-old utility, its shareholders, and customers "would receive greater value" by selling the company to IIF than remaining as an independent, publicly traded company. Shareholders on Sept. 19 voted to sell the company to IIF.
Seven city, state, and federal government regulatory agencies must approve IIF's pending purchase of El Paso Electric.
The Texas Public Utility Commission, the Federal Communications Commission, and the Federal Trade Commission have approved the sale. The El Paso City Council also approved the sale, but still must approve moving the city's electric utility franchise to IIF, something IIF needs to complete the sale. Council is to take a final vote Feb. 4 on transferring the franchise with a few changes to the franchise agreement.
The New Mexico Public Regulation Commission, the Federal Energy Regulatory Commission, or FERC, and the U.S. Nuclear Regulatory Commission still need to approve the sale.
What is El Paso Electric's selling price?
Besides paying El Paso Electric's shareholders $68.25 per share, or about $2.8 billion for their company stock, IIF also agreed to assume the utility's $1.5 billion debt — making the deal worth $4.3 billion.
What happens to El Paso Electric rates?
If IIF becomes the electric utility's owner, the utility would still need to get approvals from the Texas Public Utility Commission, the city of El Paso, and the New Mexico Public Regulation Commission to increase or lower customers' electric rates in the future.
Will El Paso Electric stay in El Paso?
If the IIF sale is approved, officials representing the fund have promised IIF will keep the utility's headquarters in El Paso for as long as it owns the utility, and it has promised to own the company for at least 10 years. Officials for IIF also promised the fund will keep the company's 1,100 employees in place for at least five years.
Some utility officials to get big payday
The sale will result in multimillion-dollar stock share payouts for several members of the utility's board of directors, and for some of the company's executives.
El Paso Electric stock price rising
The utility's stock price has mostly been rising since IIF's agreement to buy the company was announced June. 3. The stock price has risen from $58.20 per share on May 31, 2019, to just over $68 per share in late January. If IIF becomes the owner, the company's stock will no longer trade on the New York Stock Exchange, and the utility will become privately owned.
Wall Street bank ties draw concerns
Officials with J.P. Morgan Investment Management say the company is only an investment adviser to IIF, and that IIF is not an affiliate of JPMorgan. The company's Infrastructure Investments Group helps manage 19 companies that IIF owns and operates and employees of the J.P. Morgan group sit on IIF company boards. El Paso Electric would be IIF's 20th company
Public Citizen, a liberal, national consumer watchdog organization, the Sunrise El Paso environmental group, U.S. Rep. Veronica Escobar, D-El Paso, Texas Sen. Jose Rodriguez, D-El Paso, and several consultants hired to review the sale terms for the city of El Paso and others have raised questions and concerns about JPMorgan's ties to IIF. Tyson Slocum, Energy Program director for Public Citizen, has asserted that having JPMorgan involved in El Paso Electric may not be good for the company or El Paso because it has competing investments and also has a troubled track record in the electric market. In a Federal Energy Regulatory Commission filing, IIF gave convoluted replies to the agency's questions about IIF's ownership structure. If the commission were to deem JPMorgan an affiliate of IIF, as Public Citzen has requested, it should result in federal affiliate restrictions between JPMorgan and El Paso Electric in energy markets, Slocum asserted in a FERC filing.
JPMorgan deemed affiliate in PUC case
IIF officials agreed in revised sales terms approved by the Texas Public Utility Commission that Sun Jupiter Holdings, a holding company set up by IIF to own El Paso Electric, can be treated as an affiliate of the bank, and promised to maintain an "arm's length relationship" with the bank. However, JPMorgan officials tied to IIF have said this only means IIF has agreed to be treated as a JPMorgan affiliate in Texas regulatory matters, but it doesn't mean IIF is an actual affiliate of the bank as defined by Texas law.
New board of directors
IIF plans to have a 10-member board of directors for El Paso Electric. Up to two employees of J.P. Morgan Investment Management's infrastructure group would be on the board. Four members are to be "disinterested," meaning they will be independent of IIF and its affiliated entities. At least two and possibly four board members must reside in the utility's service area, not including the company CEO, who also will be on the board.
What's El Paso Electric's reach?
El Paso Electric serves about 430,000 customers in El Paso, and some rural areas of West Texas, and in southern New Mexico, mostly in the Las Cruces area.
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