The proposed, $4.3 billion sale of El Paso Electric to a J.P. Morgan Chase-advised investment fund has drawn additional opposition.

The Texas Office of Public Utility Counsel, the state agency representing residential and small commercial electric consumers, concluded the sale as proposed is not in the public interest and should not be approved unless more conditions are added.

An El Paso union representing about 400 of El Paso Electric's 1,100 employees also is against the sale as proposed; and two large industrial companies in El Paso — Vinton Steel and Freeport-McMoRan — have concerns about the sale, according to documents recently filed with the Public Utility Commission of Texas, one of four government agencies that must approve the proposed sale for it to be completed.

The PUC is scheduled to hold a hearing on the proposed sale Wednesday to Friday, Nov. 20-22, in Austin to help it determine if the sale should be approved, modified, or denied.

Meanwhile, officials tied to the Infrastructure Investments Fund, or IIF, and the utility are defending the sale in newly filed testimonies rebutting opposition from four consultants hired to review the proposed sale for government regulators and for two groups representing large electric users.

The deal as proposed "does not provide sufficient tangible, quantifiable benefits to EPE's customers and does not adequately protect EPE's customers from the additional risks created by the post-closing corporate structure and governance of the company," attorneys for the Office of Public Utility Counsel said in a position statement filed Nov. 14 with the PUC.

The consumer advocacy office supports proposals by several consultants to add more benefits and protections for El Paso Electric customers in order for the PUC to find the proposed sale in the public interest, the attorneys concluded.

Consultants for the Texas PUC's staff, the city of El Paso, the Rate 41 Group of El Paso-area school districts, and the Texas Industrial Energy Consumers also recently concluded that the proposed sale is not in the public interest.

The city consultant, Daniel Lawton, an Austin economist, attorney, and electric utility expert, said the PUC should not approve the deal. The other consultants said the deal needs more requirements to get approved.

Consultants' findings wrong, El Paso Electric, IIF officials say in rebuttals 

The rebuttal testimonies filed by two El Paso Electric executives, an official tied to IIF, and two consultants for IIF, concluded that the consultants' findings that the sale is not in the public interest are wrong for a number of reasons, including that the sale's provisions satisfy state law and the PUC's standards, and 40 regulatory commitments made by IIF "appropriately address risk and ensure real benefits for customers and the public interest." 

The testimonies also maintain that the board of directors' proposed makeup under the sale is similar to the company's current board membership, and that a proposed Delegation of Authority agreement will keep EPE's board independent from IIF. 

J.P. Morgan executive tied to IIF surprised by consultants' views

Andrew Gilbert, managing director of J.P. Morgan Investment Management Inc., the investment adviser for IIF, said he was surprised by the consultants' "minimization of the benefits of the proposed transaction and their focus instead on ill-defined, speculative risks or issues."

"IIF US 2 will be a strong financial partner and a great resource for EPE going forward, and accordingly, this relationship is far preferable to the status quo," Gilbert said.

"To demonstrate its strong relationship philosophy, IIF US 2 came to the table with an unprecedented package of (40) regulatory commitments, which I believe warrant a 'public interest' finding,'" Gilbert said.

IIF US 2, one of three partnerships making up the entire Infrastructure Investments Fund, would own El Paso Electric.

The New York-based, $12.2 billion Infrastructure Investments Fund invests for pension organizations across the country and owns 19 companies as part of those investments.

It agreed on June 1 to acquire El Paso Electric for $4.3 billion, which includes assuming $1.56 billion in El Paso Electric debt.

$21 million rate credit part of debate

IIF's regulatory commitments include creation of a $100 million community economic sustainability fund, and $21 million rate credit for El Paso Electric's 428,000 customers in the El Paso and Las Cruces areas.

Several consultants and the Office of Public Utility Counsel said the $21 million rate credit is too small. One consultant said the rate credit would have to be at least $87 million to make it equitable with the millions of dollars being given to shareholders and El Paso Electric officials.

Comparing the sale's benefits to customers, shareholders, and company officials "is not the correct standard for evaluating the public interest of a proposed merger," Nathan Hirschi, El Paso Electric chief financial officer, said in his filed rebuttal.

"What sense would it make to deny approval of a transaction, one that reflects market prices and includes significant benefits to all stakeholders, including employees, customers, and the regional community, based on the notion that the benefits to certain stakeholders, while real, are not good enough," Hirschi said. "Moreover, how would one accurately determine equality given the different needs of and risks borne by the various stakeholders."

Hirschi also provided stock market price comparisons between El Paso Electric and other electric utilities as a way to debunk what Hirschi said was the mistaken conclusion by Lawton, the city's consultant, that IIF is over paying for EPE. 

Gilbert, the J.P. Morgan executive tied to IIF, in previous PUC-filed testimony, said the sales price is reasonable. 

IIF not affiliated with J.P. Morgan, says executive tied to IIF 

Gilbert stressed in his rebuttal that J.P. Morgan is not an affiliate of IIF, "as I understand that term is defined in the (Texas) Public Utility Regulatory Act."

A consultant for the Rate 41 Group of El Paso area school districts recommended that the PUC stipulate that J.P. Morgan is an affiliate of El Paso Electric if the commission approves the sale.

J.P. Morgan’s Infrastructure Investments Group is the fund's investment adviser, which includes many non-investment services, including administration and financial management of the fund's portfolio of 19 companies. 

J.P. Morgan Investment Management employees that advise IIF are obligated by federal law "to act in the best interests of IIF's limited partners," Gilbert said.

The 500-plus limited partners are pension funds, insurance companies, governmental entities, and municipalities that IIF has refused to specifically identify as requested by consultants for the PUC and the Texas Industrial Energy Consumers.

However, the PUC staff and industrial group won an appeal to the PUC, which Nov. 15 ordered IIF to identify the limited partners and ownership percentage of each of the partners.

IIF submitted the list of investors in IIF US 2, the El Paso Electric buyer, in a confidential filing with the PUC late Nov. 15.

The list is not for public disclosure, and keeping it confidential "is of paramount importance to many of IIF US 2's investors," the filing stated.