By Tom Kleckner
FERC on Monday conditionally approved an investment fund’s $4.3 billion purchase of El Paso Electric, directing the companies to file a mitigation plan addressing market power screen failures (EC19-120).
The Infrastructure Investments Fund (IIF), Sun Jupiter Holdings and EPE announced the transaction last June. FERC is the final regulatory body to sign off on the deal, which was approved by the Texas and New Mexico utility commissions earlier this year. (See Texas PUC Approves EPE’s $4.3B Sale.)
At issue before FERC was IIF US Holding’s ownership of the 595-MW Mesquite natural gas plant in Arizona. All the plant’s capacity is committed to third parties.
Mesquite currently sells 271 MW to 20 parties under a power purchase agreement, with the balance of the plant’s capacity sold to other parties not affiliated with IIF or Sun Jupiter. The PPA’s term is set to terminate at the end of April 2021, when it will be replaced by a PPA that increases the volume of capacity committed under the contract to 483 MW. (IIF US Holding is one of three master partnerships that hold all investments for IIF, an open-ended infrastructure fund.)
The applicants submitted an “alternative analysis” of the Mesquite plant that assumed early termination of the PPA, which would result in more generation capacity from Mesquite becoming available for sale in the EPE balancing authority area under IIF’s control, resulting in market screen failures for the region. FERC said the screen failures are “significant and occur in moderately to highly concentrated markets,” indicating reduced competition. It directed the applicants to file a mitigation plan within 45 days that addresses the potential adverse effects on competition.
The commission found the transaction would not have an adverse effect on rates, noting it will retain its authority to approve EPE’s rates for jurisdictional services and the state commissions will regulate its retail rates.
The commission rejected calls by Public Citizen for an evidentiary hearing over the transaction’s complexity and the web of financial affiliates involved. Sun Jupiter is the sole shareholder of Merger Sub, a corporation formed for the purpose of merging with and into EPE, with EPE as the surviving entity. Sun Jupiter is an indirect, wholly owned subsidiary of IIF Sun Jupiter Ultimate Holdings.
J.P. Morgan Investment Management officials advise and help manage IIF’s portfolio of 19 companies. EPE would become part of that portfolio. IIF and EPE officials have argued that does not mean J.P. Morgan is a legal affiliate of IIF or any IIF entities. The commission agreed with the applicants’ assertion that any affiliation between the IIF companies with J.P. Morgan would not change its analysis under the Federal Power Act.
“Even if there are disputed issues of material fact in a proceeding, the commission is not obligated to establish an evidentiary hearing if [it] can determine whether the proposed transaction is consistent with the public interest based on the written record,” FERC said. “[The applicants] have demonstrated that even if Sun Jupiter were affiliated with J.P. Morgan or any of its affiliates, such affiliation would not change the outcome of the commission’s analysis.”
