November 12, 2019 • EPE Related News
J.P. Morgan Chase ties to El Paso Electric buyer draw concerns, questions
J.P. Morgan Chase ties to El Paso Electric buyer draw concerns, questions
Vic Kolenc, El Paso TimesPublished 7:00 a.m. MT Nov. 12, 2019
Will J.P. Morgan Chase, one of the world’s largest banks, have ultimate control of El Paso Electric if the utility’s pending $4.3 billion sale to the Infrastructure Investments Fund goes through?
That’s what Tyson Slocum and others want to know.
Slocum is Energy Program director for Public Citizen, a liberal, not-for-profit consumer watchdog organization based in Washington, D.C.
“I think it’s a big deal to know precisely the ownership of who is trying to buy your local electric utility,” Slocum said in a phone interview.
"I remain concerned that IIF is heavily influenced or controlled by J.P. Morgan," he said.
Public Citizen filed a protest Sept. 30 with the Federal Energy Regulatory Commission (FERC) raising concerns about the fund's "lack of candor" and "significant omissions" about the Infrastructure Investments Fund's (IIF) "extensive financial and contractual ties with J.P. Morgan Chase" in its original application seeking FERC's approval of the El Paso Electric sale.
Public Citizen also requested a long list of details about IIF's ownership structure in several filings with FERC.
Slocum also has raised concerns about three people that J.P. Morgan officials tied to IIF have identified as general partner owners with ultimate control over the fund buying El Paso Electric.
J.P. Morgan’s Infrastructure Investments Group is investment adviser for IIF, according to IIF and El Paso Electric's regulatory filings.
J.P. Morgan officials tied to the fund have continually insisted in regulatory filings that the only relationship the bank has to the fund is being its investment adviser, and that J.P. Morgan is not an affiliate of IIF or any IIF entities.
However, IIF and El Paso Electric officials also have filed information indicating that the investment advisory role includes many non-investment services, including administration and financial management of the fund's portfolio of companies, or as the filings refer to them, investments.
J.P. Morgan investment advisers also serve on boards of directors of IIF companies.
Public Citizen requested FERC hold an an evidentiary hearing “to ensure the proposed transaction is in the public interest.”
FERC is one of four government agencies, including El Paso City Council, that must approve the sale.
However, in 20 years of dealing with FERC, Slocum said he's never seen the agency require an evidentiary hearing, and has never seen it reject a proposed merger.
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.
EPE ownership structure, J.P. Morgan ties concern consultants
Slocum is not the only one raising questions and concerns.
Charles Griffey, a Houston-area engineer and energy-industry consultant hired to review the proposed sale for Texas Industrial Energy Consumers, said in testimony filed with the Public Utility Commission of Texas (PUC), that the many layers of companies created in the complex ownership structure appear to not be necessary for the sale.
Instead, they "exist as vehicles for adding debt, increasing leverage, and boosting equity returns" for IIF in the future, he said.
Infrastructure Investments Fund US Holding 2, one of three partnerships making up the entire Infrastructure Investments Fund, is the entity that would own El Paso Electric. But J.P. Morgan’s Infrastructure Investments Group is setting up a chain of seven other companies as the ownership structure for the purchase. (See list below).
“I’ve never encountered a corporate structure like this, and I am very confused,” Slocum said.
James Daniel, a consultant hired by the Rate 41 Group of El Paso area school districts to review the proposed sale, also doesn’t buy IIF officials' argument that the fund is not affiliated with J.P. Morgan Chase.
IIF claims it's not an affiliate of JP Morgan, but IIF employees hold JP Morgan business cards, Daniel noted in Texas PUC testimony.
"To protect EPEC (El Paso Electric) from any actual or potential influence JP Morgan may put on EPEC, a Code of Conduct should be in place" between the two entities, he recommended.
Daniel also recommended the Texas PUC stipulate that J.P. Morgan is an affiliate of El Paso Electric if the commission approves the sale.
IIF, EPE officials say assertions 'misleading, inaccurate'
IIF and El Paso Electric officials in a statement sent to the El Paso Times said the assertions made by Public Citizen and others are "misleading and inaccurate" and "have already been addressed with El Paso Electric’s regulators."
"We respect the regulatory review process and will continue to work directly with the regulators to ensure they have the facts," the statement read.
The statement also included a copy of IIF and El Paso Electric's answer to Public Citizen's protest. In that answer, IIF and EPE officials said their original application for FERC approval did not focus on J.P. Morgan's role as investment adviser "simply because it (J.P. Morgan) is not an affiliate of IIF US Holding 2," the buyer of EPE, nor of any of the owners of the investment fund.
In the answer, IIF also described J.P. Morgan's "advisory services" to IIF as including "fundraising, sourcing and recommending potential investments, administration, and financial management of IIF US Holding 2's portfolio of investments," or companies, it owns.
Three people have 'ultimate control' over fund buying utility
J.P. Morgan’s Infrastructure Investments Group is setting up a complicated chain of ownership for El Paso Electric, but ultimate control over the fund buying El Paso Electric comes down to the fund's general partner, IIF US Holding 2 GP LLC, and three people identified as owners of the general partner, IIF and EPE regulatory filings show.
The general partner has oversight of IIF US Holding 2 for more than 500 limited partners, according to an IIF filing with the Texas PUC. The filing doesn't identify the limited partners.
A Nov. 5 filing by a consultant for the PUC staff reported the limited partners are "passive investors," including pension funds, insurance companies, governmental entities and municipalities."
The Texas PUC staff and Texas Industrial Energy Consumers have requested the identities of the 500-plus owners and their percentages of ownership in the fund. A Texas administrative law judge denied the request, but an appeal of that denial is scheduled to be heard by the commission Nov. 14.
The three owners of IIF US Holding 2 GP, the general partner, are: Dennis Clarke, Rita Sallis and Chris Ward, who IIF later identified, and provided short biographies, only after being questioned by Public Citizen and others in regulatory filings.
- Clarke is identified as principal of Northern Lights Power, LLC, an independent power generation company. However, it appears the company is no longer in business, Public Citizen's Slocum said. IIF officials did provide the status of the company when requested to do so by the El Paso Times. . The biography does not mention that Clarke is a member of the board of directors of Novatus Energy, an IIF-owned solar- and wind-energy company.
- Salis is former deputy comptroller and former pension investment officer for New York City, and now is senior adviser for Blueprint Capital Advisors, a New York investment firm.
- Ward is former executive vice president and chief executive of the Los Angeles-based engineering and construction firm AECOM's New York metro region. He also is former executive director of the Port Authority of New York and New Jersey, in which he led the rebuilding of the World Trade Center.
IIF's definition of 'owners' is suspect, Public Citizen official claims
These people are “not owners in the traditional sense of what we think as owners," Slocum maintained.
The three people appear to be functioning as a board of directors, and not as owners, he said.
IIF and EPE regulatory filings refer to the three people as both owners and managers of the general partner.
Clarke notified the other two owners that he plans to resign from being an owner of the general partner, IIF Holding 2 GP, by Dec. 31, 2019, according to an El Paso Electric filing with the Nuclear Regulatory Commission (NRC), Slocum noted. The NRC filling does not indicate why Clarke is resigning.
In a filing with the Texas PUC, IIF officials reported the general partner's Nominating and Governance Committee found Clarke's replacement, but did not identify that person.
Owners don’t typically resign, but members of a board of directors do, Slocum noted. Board members usually have less authority than owners, he added.
"I don’t know how much capital the 'owners' put up for IIF US Holdings 2 GP LLC," Slocum said. "They haven’t disclosed that."
However, one filing made by IIF disclosed that US Holdings 2 GP paid only $10 to be a partner in one subsidiary of a company being set up in the El Paso Electric ownership chain.
If the three people don't need to pay any "meaningful amount" to be owners, then IIF's and EPE's characterization of them as “owners” appears to be aimed at "evading regulatory scrutiny of its (IIF's) structure and operations," Slocum maintained in a FERC filing.
In testimony filed with the Texas PUC, Andrew Gilbert, managing director of J.P. Morgan Investment Management Inc., said, "IIF US 2 GP (the general partner overseeing the IIF fund buying EPE) is independent of JP Morgan and the Infrastructure Investments Group and acts in an independent capacity to oversee the Infrastructure Investments Group for the benefit of the (more than 500) IIF investors."
However in a later filing with the Texas PUC, IIF officials reported that J.P. Morgan officials recommended Clarke and Ward for their general partner positions. And that, Slocum noted in a recent filing with FERC, shows J.P. Morgan "wields influence over the selection of IIF 'owners." That also indicates the general partner is an affiliate of J.P. Morgan, he claimed.
The three owners of the general partner approved the proposed purchase of El Paso Electric, Gilbert reported.
Slocum said if these three people are the owners of the general partner overseeing the fund buying El Paso Electric, then they should be required to appear before El Paso City Council, the Texas PUC and others tasked with approving the proposed sale.
"We have no statements from these people," instead it's J.P. Morgan officials making statements and signing documents for IIF, Slocum said.
IIF officials did not make the three owners available for interviews.
Instead, a statement attributed to the three owners, which IIF officials said also are the general partner's board of directors, was emailed to the El Paso Times. The statement concluded by saying:
"IIF sees this investment as an exciting opportunity to partner with EPE and support their continued growth and success, while also being consistent with our objectives as long-term stewards for the pension funds and other investors on whose behalf we invest.”
Ownership chain
This is the proposed ownership structure for El Paso Electric under proposed purchase by the Infrastructure Investments Fund:
Buyer (Sun Jupiter Holdings LLC) is a Delaware limited liability company and is the sole shareholder of Merger Sub (Sun Merger Sub Inc.), a Texas corporation that was formed for the purpose of merging with and into EPE (El Paso Electric), with EPE as the surviving entity. Buyer is a wholly-owned, direct subsidiary of Sun Jupiter Parent LLC, which is a wholly-owned direct subsidiary of Sun Jupiter Topco LLC. Sun Jupiter Topco LLC is a wholly-owned direct subsidiary of IIF Sun Jupiter Ultimate Holdings LP (IIF Sun Jupiter Ultimate). IIF Sun Jupiter Holdings LLC, a wholly-owned direct subsidiary of IIF US Holding 2 LP (IIF US Holding 2), holds the general partnership interests in IIF Sun Jupiter Ultimate. IIF US Holding 2 holds the limited partnership interests in IIF Sun Jupiter Ultimate. IIF US Holding 2 (which has agreed to buy El Paso Electric) is an infrastructure investment fund managed and controlled by its general partner, IIF US Holding 2 GP, LLC, which is owned by three private individuals (IIF GP Owners).
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