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Texas regulators OK $4.3B deal to take El Paso Electric private

The Public Utility Commission of Texas on Jan. 16 approved Sun Jupiter Holdings' proposed $4.3 billion acquisition of El Paso Electric Co., and the New Mexico Public Regulation Commission discussed the proposed merger during a public hearing.

With equity supplied by IIF US Holdings 2 LP, Sun Jupiter's subsidiary, Sun Merger Sub, plans to merge into El Paso Electric. The surviving corporation, under the name El Paso Electric, will be a wholly owned direct private subsidiary of Sun Jupiter and a wholly owned indirect subsidiary of IIF US 2, according to the joint stipulation agreement. (PUCT Docket No. 49849)

IIF US 2 is advised by J.P. Morgan Investment Management Inc., a subsidiary of JPMorgan Chase & Co.

El Paso Electric's shareholders will receive $68.25/share, a 17% premium to the company's closing price on May 31, 2019, on the New York Stock Exchange, resulting in an enterprise value of about $4.3 billion, including El Paso Electric net debt.

The joint stipulation agreement filed Dec. 17, 2019, provides for a $21 million rate credit to be paid to customers over three years, which would be the only impact to rates from the transaction. The rates would otherwise remain as set in El Paso Electric's Dec. 18, 2017, base rate settlement.

New Mexico and federal regulators must approve the transaction before it can go through. The New Mexico Public Regulation Commission's website was hacked Jan. 9 and remained out of service Jan. 16, though the commission still conducted a hearing.

"Hearing Examiner Carolyn Glick will be finalizing her recommendations, [and] upon conclusion, forwarding them to the full commission for their final ruling," commission spokesperson Deswood Tome said in an email. "The hearing examiner did not specify a time of when her recommendation will be concluded." (PRC Case No. 19-00234-UT)

The city of El Paso, Texas, is expected to begin the process of transferring the city franchise agreement to a company set up by IIF US 2 the week of Jan. 20. El Paso Electric has said it expects to complete the transaction in the first half of 2020.

The PUCT on Jan. 7 conducted a hearing regarding the proposed merger but decided to take the following week to review documents and determine whether the commissioners had further questions or clarifications.

Board makeup at issue

On Jan. 16, PUCT Chairman DeAnn Walker said the Dec. 17 settlement, agreed to by most parties, needed clarity on how the newly private corporation's board would rotate its disinterested board members.

Stephen Journeay, who directs the PUCT's office of commission advising and docket management, said staff had concluded that the intent of the settlement was that disinterested board members' terms would be staggered, such that not more than two board members' terms would end in the same year.

Lino Mendiola, an attorney representing Sun Jupiter and IIF US 2, said that intent was his clients' understanding of the language in the settlement, but they had not made that explicit in the agreement.

"We're OK if Mr. Journeay takes a stab at crafting some [clarifying] language," Mendiola said.

A representative of El Paso Electric said the organization also approves of the idea of Journeay crafting such language.

Ultimately, the PUCT approved the merger with the settlement agreement amended to reflect the discussion regarding rotating terms for disinterested board members.

Under state law, the commission had until Feb. 9 to either approve or deny the application.

The intervenors who agreed to the Dec. 17 settlement are the staff of the Public Utility Commission of Texas, the Texas Office of Public Utility Counsel, the city of El Paso, Texas Industrial Energy Consumers, mining company Freeport-McMoRan Inc., the International Brotherhood of Electrical Workers Local 960, local steel manufacturer Vinton Steel LLC, the U.S. Department of Defense and other federal executive agencies.

Another intervenor, the Rate 41 Group, said that it does not oppose the settlement agreement. The Rate 41 Group encompasses several area school districts, the Housing Authority of the City of El Paso, El Paso County and the El Paso County Community College District.

Veterinarian Richard Bonart testified against the agreement on Jan. 7 on the grounds that it lacked commitment to "community" and "sustainability."

Mark Watson is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.