Texas regulators on Jan. 7 completed a hearing on Sun Jupiter Holdings's proposal to acquire El Paso Electric Co. for $4.3 billion including net debt, following a Dec. 17, 2019, settlement among most of parties with a $21 million rate credit to be paid to customers over three years.
With equity supplied by IIF US Holding 2, Sun Jupiter's subsidiary, Sun Merger Sub, plans to merge into El Paso Electric with El Paso Electric as the surviving corporation. El Paso Electric will be a wholly owned direct private subsidiary of Sun Jupiter and a wholly owned indirect subsidiary of IIF US Holdings 2 LP, according to the joint stipulation agreement. (Public Utility Commission of Texas Docket No. 49849).
IIF US 2 is advised by J.P. Morgan Investment Management Inc., a subsidiary of JPMorgan Chase & Co. The U.S. Federal Energy Regulatory Commission, which is also reviewing the proposed acquisition, has asked for an explanation of the relationships between Sun Jupiter, IIF US 2 and J.P. Morgan Investment Management, after the consumer advocacy group Public Citizen questioned the connection between the IIF US 2 owners and JPMorgan.
El Paso Electric's shareholders will receive $68.25 per share, a 17% premium to the utility's stock closing price on May 31, 2019, on the New York Stock Exchange, resulting in an enterprise value of about $4.3 billion, including net debt.
Ultimately, PUCT Chairman DeAnn Walker said the commission would take some time to review documents before discussing the matter again at its Jan. 16 meeting. She asked representatives of the applicants to have someone present to answer any questions that may arise during that time.
Under state law, the PUC has until Feb. 9 to either approve or deny the application, and another PUCT meeting is scheduled for Jan. 31.
The intervenors who agreed to the December 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 and the U.S. Department of Defense and other federal executive agencies.
One intervenor that is on record as not opposing the settlement is the Rate 41 Group, which 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.
Resident questions economic development funding
The only intervenor testifying against the settlement agreement Jan. 7 was Richard Bonart, an El Paso veterinarian, who objected that the settlement agreement lacked the commitment to "community" and "sustainability" in the original application as filed.
The settlement does require the dedication of $100 million to promote economic development in the El Paso Electric service area, which stretches from West Texas into southeastern New Mexico, with $80 million to be spent on the Texas service area over 15 years, administered by the city of El Paso's Economic Development Department.
None of this $100 million economic development fund is to be recoverable in rates, but Bonart expressed doubt that these funds will not be recovered from ratepayers.
"What kind of business offers a $100 million gift to consummate a deal?" Bonart asked. "If it were in any other country — the Philippines, Mexico – you would consider that normal business procedure, not in the United States."
The $21 million rate credit to be paid over three years is the only impact to rates from the transaction, which would otherwise remain as set in the company's Dec. 18, 2017, base rate settlement, El Paso Electric Vice President of Regulatory Affairs James Schichtl said in direct testimony.
El Paso Electric and its potential buyers filed a stipulation in New Mexico on Jan. 3, saying benefits to ratepayers are equal "in their totality" to the Texas proposal.
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.