Did JP Morgan Tamper With The Independence Of A Utility Board Member?
By Tyson Slocum
Read the full pdf filing here: WynterAnswer
Today in Federal Energy Regulatory Commission docket EC25-119, we question whether IIF and JP Morgan compromised the required independence of a designated independent board director seat of El Paso Electric when it negotiated his advancement to become an IIF “owner”. We queried whether conceding Mr. Wynter’s status as an independent director of El Paso Electric violated the terms and conditions of the Commission’s 2020 approval of IIF’s acquisition of El Paso Electric.[1]
IIF’s August 27 answer claims, at page 3, that “Contrary to Protestors’ contention, there is no requirement that Mr. Wynter be independent in order to continue to be a director of El Paso, a privately owned company.” This claim by IIF is categorically false.
Attached as Exhibit A is the February 12, 2020 Amended Certification of Stipulation order of the New Mexico Public Regulation Commission, which details the terms and conditions of IIF’s 2020 acquisition of El Paso Electric. The order mandates roles for El Paso Electric’s independent and disinterested members of its board of directors. Regulatory approval of IIF’s acquisition of El Paso Electric was explicitly conditioned on the existence of a majority of El Paso Electric’s board composed of members independent and disinterested from the interests of IIF and JP Morgan. Therefore, IIF’s tampering of one of the independent directors in order to promote him to become an IIF owner violates the terms and conditions of IIF’s acquisition of El Paso Electric, es evidenced by the following sections of the order:
- The New Mexico Public Regulation Commission order affirms that a JP Morgan executive (Mr. Gilbert) pledged that IIF would “hold its portfolio companies as separate entities [from IIF] with individual governance structure, including standalone management teams integrated into local communities and boards of directors made up of a majority of independent directors.”
- It stipulates that the “volumes and types of [El Paso Electric] equity and debt issuances will be determined by vote of the EPE Board of Directors including majorities of both the entire EPE Board of Directors and of its Independent and Disinterested Directors. No [IIF or JP Morgan entity] will have the power to alter or override such votes.”
- Section IX details the composition of El Paso Electric’s 10-member Board of Directors, with seven of the 10 (including the role of Chairperson) “will satisfy the definition of New York Stock Exchange (NYSE) Independent Directors. No Independent Directors shall be a then-current officer of any IIF subsidiary … At least four [of the seven independent directors] will be Disinterested”, with footnote 13 expounding that “Disinterested Directors are Independent Directors who are also independent of IIF US 2 and its affiliates and J.P. Morgan, and have no material financial relationship with IIF US 2 and its affiliates and J.P. Morgan currently or within the last five years.”
- The order explains the purpose for four of the Independent Directors be “Disinterested”: it is the result of the PUCT settlement negotiations to strengthen the independence of EPE’s Board of Directors.
- A vote of at least four of the seven independent board directors is needed to approve the appointment of El Paso Electric’s CEO, and requires “at least four of the seven Independent Directors, approve (1) any capital or any expense budget; and (2) any capital project or series of projects that would exceed the approved annual budget by more than 10%”.
- Finally, it outlines ring fencing provisions to protect El Paso Electric ratepayers from affiliate abuses involving IIF and JP Morgan, with “the most important” the requirement of “majority approval of EPE’s Independent and Disinterested Directors of the volumes and types of EPE equity and debt issuances”.
These regulatory mandates requiring independent and disinterested members of El Paso Electric’s board of directors underscore how Mr. Wynter’s role as an independent director is essential for compliance with IIF’s 2020 acquisition of El Paso Electric. The dearth of detail on how negotiations to promote Mr. Wynter to an IIF owner conformed with his duties as an independent director of El Paso Electric invite questions on whether the discussions created a conflict of interest of Mr. Wynter’s obligations as an independent director, thereby violating the public interest and the terms and conditions of the Commission’s 2020 approval of IIF’s acquisition of El Paso Electric.
Furthermore, applicant’s decision to actively mislead the Commission—falsely claiming that “there is no requirement that Mr. Wynter be independent in order to continue to be a director of El Paso” Electric should require FERC to ensure New Mexico and Texas regulators are aware of potential violations of state stipulation agreements of IIF’s acquisition of El Paso Electric.