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Home | Opinion | Op-Ed: Question still unresolved: Who will control EPE if the sale goes through?

Op-Ed: Question still unresolved: Who will control EPE if the sale goes through?

On Feb. 4, the El Paso City Council voted 4-2, with one abstention, to grant the use of city rights of way – a franchise – to Sun Jupiter, one of a dizzying array of companies connected to the proposed purchase of El Paso Electric (EPE).

That vote marks the City’s final action in the proposed deal. However, it still must pass muster at the federal level with both the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission.

Those bodies are studying the vital question of who would control El Paso Electric if the deal goes through. As stated above, Sun Jupiter is one of a series of companies involved in the purchase, which would actually be by an entity called IIF US Holdings 2 GP LLC (IIF).

However, there is evidence that these purchasers are controlled by JP Morgan, which would mean that EPE, one of the community’s most significant institutions, would be owned by a Wall Street bank.

Why does that matter? IIF initially denied affiliation with JP Morgan, but in December finally agreed to be treated in Texas as though it was an affiliate, which does provide regulatory oversight at the state level. Although the belated concession is helpful, by stipulating that it was not admitting a legal affiliate relationship, it avoids federal oversight of that relationship, leaving a loophole in the regulatory framework of protections for our constituents.

EPE is a publicly traded company. The purchasers are private. The transfer of EPE from public to private, coupled with the possible affiliate relationship between IIF and JP Morgan, would potentially allow market transactions that are not in EPE ratepayers’ interest but are outside the reach of Texas regulators, while shielding those transactions from federal reporting requirements.

IIF is managed by the Infrastructure Investments Group (IIG), which is a division of JP Morgan. JP Morgan is paid through a calculation of profits described in FERC filings as an incentive fee that is “15% of an investor’s return over an annual net 7% return but subject to a cap of 13.5% and is measured over a three year period and payable over a subsequent three year period.” This is incomprehensible, and not meaningful. Understanding how much in actual dollars JP Morgan makes from its management of IIF is crucial to understanding this proposed deal.

Further, IIF “owners” may not be owners in the common sense of the term. They serve set terms, which are term-limited. They rotate through a system of nominations by two current IIF owners and a General Partner of IIF International. The latter’s involvement was only revealed in a Jan. 6th response by the purchasers, and the person’s identity is unknown. And while they put down $10,000 to become owners, they don’t actually put any money, as the $10,000 from a previous owner is assigned to them.

In recent filings with the Federal Energy Review Commission (FERC), the purchasers reveal new information: There is a new owner among the owners of IIF, and there is a previously unmentioned “General Partner” who selects new owners.

All of these facts raise obvious questions: Who is the new owner? Who is the General Partner? Why did it take the intervention of Public Citizen to generate the new information about a General Partner? Why would owners of a management fund pay nothing to become owners, and what is the criteria for choosing them? How much does JP Morgan make from consulting services provided through IIG to IIF, and what other possible sources of income does JP Morgan derive from this relationship, and does it profit from those as well?

Some of the major elements of this deal have been well publicized, including IIF’s commitments to keep EPE headquarters in El Paso for 10 years, and maintain current employee obligations for five years. Although these commitments seem favorable on the surface, for a company that has been in our community for over a century, the commitments are minimal at best.

In contrast, executives would receive a reported $80 million in bonuses. This dwarfs the $21 million committed to ratepayers, an amount that is likely to be offset by rate increases in the next year or two.

In addition, the City of El Paso would receive $80 million over 15 years for economic development. These funds would help alleviate the City government’s need for revenue, which has driven significant tax increases and debt obligations in recent years, but it does not guarantee any specific benefits to ratepayers or the public in general.

Utilities are core elements of a municipality; without water and power, there is no modern city. In fact, the origin of EPE is part and parcel of El Paso’s emergence as a modern, highly urbanized, progressive municipality.

El Paso, unlike other many other regions in Texas, is a captive market. El Paso Electric operates a monopoly, with no competition. Accordingly, given both its essential nature and lack of customer options for utility-generated power, a decision regarding the future of EPE is one of the most consequential votes City Council can take.

Agreeing to provide a franchise without truly knowing who is at the other end of the deal didn’t have to happen now, before all the facts are in. That is why I urged the City Council to delay action, and why I am looking forward to the federal review.

Author: Senator José R. Rodríguez, District 29

Senator Rodríguez represents Texas Senate District 29, which includes the counties of El Paso, Hudspeth, Culberson, Jeff Davis, and Presidio. He represents both urban and rural constituencies, and more than 350 miles of the Texas-Mexico border. Senator Rodríguez currently serves as the Chairman of the Texas Senate Democratic Caucus, and is a member of the Senate Committees on Agriculture (Vice Chair), Transportation, Natural Resources and Economic Development, and Water and Rural Affairs.

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