Electricity Markets

J.P. Morgan investment fund to buy El Paso Electric

An investment vehicle advised by J.P. Morgan Investment Management is buying Texas-based El Paso Electric, an investor-owned utility, for $4.3 billion in cash and assumed debt.

El Paso Electric has about 428,000 retail and wholesale customers in west Texas and southern New Mexico.

Under the deal announced June 3, Infrastructure Investments Fund, an investment vehicle advised by J.P. Morgan Investment Management, will pay $68.25 for each of the utility’s share, a 17 percent premium over the closing price on May 31, the last trading day before the deal was announced.

The deal will help El Paso Electric meet its needs, including renewable energy resources, local generation and other infrastructure needs, according to the El Paso, Texas-based company.

“As we look to the future and the long-term investment required to meet the growing energy needs of our communities, we are confident IIF is the ideal partner for our region and EPE,” said Mary Kipp, El Paso Electric president and chief executive officer.

The new owners pledged to keep the utility’s existing workforce and top management. El Paso Electric’s customers will get $21 million in credits over three years after the deal closes, which is expected to close by June 1, 2020.

Also, as part of the deal, El Paso Electric will set up an economic development fund that will spend $100 million over 20 years.

El Paso Electric expects to spend about $1.3 billion in the next five years, including $450 million on generation and $518 million on its distribution system, according to the company’s annual report, filed with the Securities and Exchange commission in February.

The utility also expects to enter into power purchase agreements for 200 megawatts of utility scale solar and 100 MW of battery storage, moves that aren’t included in the capital investment plan.

El Paso Electric owns 2,085 MW, with its stake in the Palo Verde nuclear plant and its natural gas-fired generation each producing 44 percent of its electricity last year. Power purchase agreements produced 12 percent of the utility’s electricity and solar photovoltaic facilities produced less than 1 percent.

El Paso Electric owns major stakes in four 345-kilovolt transmission lines in New Mexico and Arizona and three 500-kV lines in Arizona, according to the annual report.

El Paso Electric’s income fell last year to $84.3 million, on $903.6 million in revenue, from $98.3 million, on $916.8 million in revenue.

IIF’s $11.3 billion in investments include 11 energy, utility and electric generation companies. The fund has invested about $3 billion in renewable energy projects totaling 3,400 megawatts.

The deal requires various approvals before it can be completed including El Paso Electric shareholders, Hart-Scott-Rodino clearance, the Federal Energy Regulatory Commission, the U.S. Nuclear Regulatory Commission, the Federal Communications Commission, New Mexico and Texas utility regulators and the city of El Paso.

If the deal can’t be completed, depending on the circumstances, JPMorgan faces a $170 million termination fee and El Paso Electric could be required to pay $85 million.