As its proposed acquisition of El Paso Electric Co. goes before state and federal regulators, the ownership structure and holdings of Infrastructure Investments Fund, a J.P. Morgan Chase & Co.-advised investment vehicle, is coming under heavy scrutiny.
Although the merger approval process may eventually turn up additional information, a review by S&P Global Market Intelligence of the fund's, or IIF's, holdings based on public filings and investor presentations reveals a sprawling infrastructure asset owner, with upwards of 2,500 MW of gas-fired, wind and solar assets in the U.S., as well as additional power assets, natural gas and water utilities, and airports spanning multiple continents. These holdings, and the fund's relationship to J.P. Morgan Chase, will likely factor into approval considerations by state and federal regulators.
IIF US Holdings 2 LP announced in June a deal to purchase El Paso Electric, or EPE, for $4.3 billion, with plans to close the transaction in the first half of 2020. Should the acquisition be approved, the El Paso utility would join 19 portfolio companies owned by the IIF entities in North America, Europe and Australia, according to news releases related to the EPE deal that state that 12 of the portfolio companies are energy- and power-related.
The IIF, advised by J.P. Morgan Investment Management Inc., is a $12.2 billion investment vehicle comprised of two separate entities, IIF US Holding LP and IIF US Holdings 2. Each of those entities are managed and controlled by a general partner, according to an Aug. 13 application with the Federal Energy Regulatory Commission seeking approval of the El Paso deal.
J.P. Morgan Investment Management is one of various entities that comprise JP Morgan Asset Management, the marketing term for the firm's asset management businesses.
The general partners that control the two funds, IIF US Holding GP LLC and IIF US Holding 2 GP, respectively, are owned by three individuals: Rita Sallis, Christopher Ward and Dennis Clarke, according to a Sept. 26 filing with the U.S. Nuclear Regulatory Commission. Because EPE owns a 15.8% interest in the 4,003-MW Palo Verde nuclear plant, the commission must approve the transfer of EPE's nuclear plant licenses to IIF.
Each of the three individuals holds an approximately 33.3% interest in the general partners, according to FERC filings.
In a Dec. 5 letter, FERC requested that IIF US Holdings 2 provide additional information on its relationship with J.P. Morgan Investment Management after advocacy group Public Citizen intervened in the El Paso approval process. Tyson Slocum, director of the organization's energy program, has asserted that IIF is more closely tied to J.P. Morgan Investment than was originally made clear, with two of the fund's three owners formally recommended by JPMorgan Chase.
In its August FERC approval application, IIF US Holdings 2 stated it was advised by J.P. Morgan Investment Management. Slocum, however, learned that two of the fund's three owners were formally recommended by JPMorgan Chase, that IIF US Holdings 2 has used J.P. Morgan Investment Management as its exclusive adviser since its 2006 founding and that IIF US Holdings 2 appears to be staffed exclusively by JPMorgan Chase employees.
Slocum has argued that IIF US Holdings 2 more closely resembles an affiliate of J.P. Morgan Investment Management than a client. He also asserted that this arrangement impacts the fund's ability to produce analyses independent of the preferences of J.P. Morgan Investment and noted that federal rules limit the types of activities in which banks can engage.
Amanda Wallace, a managing director at J.P. Morgan Asset Management who leads the fund execution team in the firm's infrastructure investments group, forwarded a request for comment to an external spokesperson for IIF at communications firm Joele Frank. The spokesperson declined to comment.
In Texas, the Public Utility Commission has given IIF, El Paso Electric and other parties to the merger a Dec. 17 deadline for a nonunanimous settlement, if a unanimous one cannot be reached. In November, the utility announced an agreement in principle with the PUCT's staff and most intervenors.
Global, energy-heavy portfolio
New York and London-based IIF has described its investment focus as "companies that provide essential services, such as energy, water and transportation, to local communities either under a regulatory construct or long-term contracts," according to news releases related to the El Paso deal. IIF invests on behalf of 40 million families' retirement funds, "including 2 million people across Texas and New Mexico who will be invested in El Paso Electric."
Investments have included approximately $3 billion worth of renewable generation assets totaling 3.4 GW, while IIF said its portfolio companies serve over 20 million customers and employ over 9,000 people.
Among IIF's U.S. assets are Summit Utilities Inc., which comprises a quartet of U.S. natural gas utility companies: Arkansas Oklahoma Gas Corp., Colorado Natural Gas Inc., Summit Natural Gas of Maine Inc. and Summit Natural Gas of Missouri Inc. It also owns SouthWest Water Co. Inc., a Los Angeles regulated water and wastewater utility which, in 2018, acquired Double Oak Water Reclamation, a wastewater utility near Birmingham, Ala., according to an IIF presentation prepared for the City of Port Orange Police Officers Pension Board in Port Orange, Fla. IIF also owns a stake in Blackwater Midstream Corp.
Sprawling US generation portfolio
IIF's main platform for investing in U.S. renewables is Novatus Energy LLC, which owns a 1,586-MW renewable platform comprised of wind and solar assets. The company owns 1,043 MW of wind generation and 543 MW of solar generation in 11 states. Of Novatus' 32 projects, 15 are solar projects in California. Novatus owns three solar projects in Indiana; two solar facilities in each Indiana and Tennessee; and individual projects in Colorado, Connecticut and Utah. It also has a trio of wind projects in Maine, a pair of wind assets in Texas, and individual wind farms in North Dakota and Washington state.
Novatus is 100%-owned by IIF US Holdings 2, according to a March 2017 FERC filing, as well as a presentation prepared for the City of Cincinnati Retirement System Investment Committee that same year. More recent FERC filings also show the renewable assets listed on Novatus' site are wholly or partly owned by IIF US Holdings 2.
IIF also invests in renewables through a vehicle named Coastal States Wind Holdings. According to the Port Orange presentation, IIF owns 354 MW of wind assets in New York state, Oregon and Texas through the company. The 2017 Cincinnati presentation stated that IIF's investment in that platform is 36.9%.
Similarly, in a Feb. 11 filing with the New York Public Service Commission, IIF Coastal Winds Investment, a subsidiary of Coastal States Wind Holdings LLC, owns 100% of the Class C units in the 112-MW High Sheldon Wind project in Wyoming County, N.Y. The Class C interests account for approximately 36.9% of the project's equity interests. The filing addressed IIF's acquisition of 43.64% of the Class A units, or 17.03% of total equity in High Sheldon, owned by JPM Capital Corp, JPMorgan Chase's tax equity investment arm. The tax equity arms of MUFG and Wells Fargo own the remaining 56.36% of the Class A interests, while sponsor Invenergy LLC owns 100% of the Class B interests.
Upon closing of the High Sheldon transaction, IIF US Holding 2 owned a 53.93% stake in the project. Because the deal involved a transfer of shares from a JPMorgan subsidiary to IIF, Public Citizen cited the deal in calling on FERC to establish an evidentiary hearing for the El Paso Electric acquisition.
Aside from wind and solar investments, IIF owns over 1,000 MW of gas-fired facilities in the Western U.S. through Southwest Generation Operating Co. LLC. The assets in Southwest Generation are owned by IIF US Holding, according to FERC filings.
IIF's foreign investments included stakes in Ventient Energy Services Ltd., an owner of 37 contracted wind farms in the U.K. totaling 800 MW, as well as 100% of Swedish heating company Värmevärden, a 59% stake in Spanish gas distribution system Nortegas Energía Distribución S.A.U. and a stake in European passenger and freight leasing platform Beacon Rail Leasing Ltd., according to investor presentations.
Also in the U.K., IIF and Colonial First State Group Ltd. own a combined 50% stake in U.K. electricity company Electricity North West Ltd., which they have agreed to sell to a group of investors.
As of the 2017 Cincinnati presentation, IIF owned 97.7% of solar developer Sonnedix Power Holdings Ltd.., 50% of Koole Terminals BV in the Netherlands, 49.9% of North Queensland Airports Pty Ltd in Australia, a 41.3% stake in Nieuport Aviation Infrastructure Partners GP in Canada and 31.2% of U.K. water and wastewater utility Southern Water Services Ltd., as well as investments in two ports owned by Noatum Ports S.L.U. in Spain.