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El Paso Electric, potential buyers file merger stipulation in Texas

El Paso Electric Co. and several parties on Dec. 18 filed a stipulation with Texas regulators in the utility's proposed acquisition by an investment fund.

A filing of a nonunanimous settlement agreement had been expected Dec. 17, but earlier that day the parties requested an extension to noon local time on Dec. 18 to allow for continued deliberations by the city of El Paso, Texas.

In June, IIF US Holdings 2 LP, advised by J.P. Morgan Investment Management Inc., an investment vehicle of J.P. Morgan Chase & Co., proposed acquiring El Paso Electric, valuing the utility at $4.3 billion. Questions have been raised at the U.S. Federal Energy Regulatory Commission and the U.S. Nuclear Regulatory Commission about the relationship between IIF US Holdings 2 and J.P. Morgan Investment Management.

Parties to the stipulation included El Paso Electric; IIF US Holdings 2; Sun Jupiter Holding LLC, an indirect subsidiary of IIF US 2 that would become the entity owning El Paso Electric; the staff of the Public Utility Commission of Texas; the state Office of Public Utility Counsel; the city of El Paso; Texas Industrial Energy Customers; the mining company Freeport-McMoRan Inc.; the International Brotherhood of Electrical Workers Local 960; local steel manufacturer Vinton Steel LLC; and the U.S. Department of Defense and all other federal executive agencies.

Among the many terms of the stipulation are that El Paso Electric and its new owners would provide $100 million for economic development in the utility's service territory over 15 years, with $80 million to the Texas portion of the service territory administered by the city of El Paso Economic Development Department. The utility also serves a portion of New Mexico.

Texas customers are to receive $21 million in rate credits, paid monthly over a 36-month period, and neither merger transaction costs nor any premium are to be recovered through rates. Capital expenditures are to be maintained at current budget levels for the five-year period beginning Jan. 1, 2021.

Also according to the stipulation, El Paso Electric as a business is to remain separate from Sun Jupiter, IIF US 2 and any of their affiliates, with its own logo. No inter-company lending or debt will be permitted.

IIF US 2 said it would maintain a closing ownership interest in El Paso Electric for at least 10 years after the deal's closing. The utility will remain headquartered in El Paso, and senior management will be expected to live in the El Paso and Las Cruces, N.M., areas.

El Paso Electric's board will comprise 10 members, one of which will be the company's CEO. Up to two others will be IIF US 2-level representatives, and the remaining seven will be independent directors. No material involuntary workforce reductions will be made for at least five years after the transaction's close. (PUCT Docket No. 49849, New Mexico Public Regulation Commission Case No. 19-00234-UT)