A dispute over public disclosure of certain ownership details related to the proposed sale of El Paso Electric Co. to an investment firm with a complex corporate structure that was advised by a subsidiary of J.P. Morgan Chase & Co. could spill over to the U.S. Nuclear Regulatory Commission.
The consumer advocacy group Public Citizen on Nov. 18 filed to intervene in a proceeding at the NRC concerning the transfer of an operating license for the 4,000-MW Palo Verde nuclear pant to IIF US Holdings 2 LP, or IIF 2. With the advice of J.P. Morgan Investment Management Inc., IIF 2 in June reached a deal with El Paso Electric to buy the utility for about $4.3 billion. El Paso Electric provides generation, transmission and distribution service to about 428,000 retail and wholesale customers in West Texas and southern New Mexico, and owns a 15.8% interest in the Palo Verde plant.
While the proposed purchase price of $68.25 per share received unanimous support from El Paso Electric's board of directors and near-unanimous approval from shareholders, the deal must still clear an array of regulatory hurdles. In addition to the Federal Energy Regulatory Commission, the sale is subject to approvals from the New Mexico Public Regulation Commission and the Public Utility Commission of Texas.
IIF 2's complex corporate structure has already come under close scrutiny from at least one group in its FERC proceeding (FERC docket EC19-120), and the same group is now seeking to enlist the NRC in its effort to bring more transparency to the proposed sale.
'Extensive financial and contractual ties'
In a Sept. 20 filing, Public Citizen argued that FERC should reject the parties' joint petition for authorization of the sale as deficient because it inappropriately shielded the identities of the individuals who control IIF 2. The petition for authorization of the sale described a series of partnership structures, with the ultimate parent, IIF 2, owned by "three private individuals."
In a Sept. 26 response, lawyers representing the firm noted that the identities of those individuals — Rita Sallis, Christopher Ward, and Dennis Clarke — were included in IIF 2's publicly-filed application with the NRC for approval of indirect transfer of control for the Palo Verde operating license.
However, Public Citizen argued in a subsequent Sept. 30 protest that the disclosure of their names raises "far more questions than are answered about the nature of who or what exactly controls" IIF 2.
Among other things, the group asserted that IIF 2 appears to be "entirely staffed" by J.P. Morgan Chase executives. Alleging that the parties to the proposed sale failed to disclose "extensive financial and contractual ties" between IIF 2 and J.P. Morgan Chase, the group called on FERC to establish a full evidentiary hearing to determine whether the proposed transaction is in the public interest.
On Oct. 7, Public Citizen submitted additional comments to FERC asserting that the parties' NRC application indicates IIF 2's owners "are not actually owners, but rather function more as 'directors' or 'managers.'"
Attorneys for IIF 2 argued in an Oct. 15 response that while the firm is advised by J.P. Morgan Chase it is not an affiliate of the bank. None of the firm's owners "are employed by, or otherwise affiliated with" J.P. Morgan Chase, its counsel said. "Each independently owns its respective general partner interest, and each votes this interest in accordance with his/her individual views of how best to promote the interests of [IIF 2] and its limited partners."
However, Public Citizen noted in another Nov. 6 filing with FERC that all three of IIF 2's owners serve three-year terms and are limited to no more than three such terms, citing an Oct. 17 filing submitted to Texas regulators in a separate proceeding. "This new, previously undisclosed detail that the 'owners' of [IIF 2] serve fixed terms that are limited in duration is, in our experience, unprecedented," the group said.
Meanwhile, Public Citizen said it has reason to believe that IIF 2's three owners have invested "no meaningful capital of their own" in the firm, pointing to financial disclosures for other IIF 2 subsidiaries as evidence. In addition, the group raised questions about the details of a transaction in which IIF 2 purchased 120 million shares of a company called Coastal States Wind that were owned by JP Morgan Chase.
Largely for the same reasons outlined in its FERC filings, Public Citizen urged the NRC in its Nov. 18 filing to find the parties' joint application concerning the Palo Verde plant deficient and asked the nuclear regulator to set a public hearing to resolve "contested facts about the true ownership and control" over IIF 2.
"We can't just have this continual paper back and forth," Tyson Slocum, energy program director for Public Citizen, said in a Nov. 19 interview. "The only way to get at the truth here is to have a full public hearing where you can cross-examine witnesses."
Slocum added that Public Citizen currently is not opposing IIF 2's acquisition of El Paso Electric. "We do think that IIF 2 should not be allowed to acquire El Paso Electric unless some of these questions are suitably answered," he said.
Comments in the NRC proceeding are due by Nov. 27.