A group of investors led by a Dallas oilman and real estate mogul has officially launched its bid to take control of Oncor, the state’s largest electric transmission company, putting forth an unprecedented plan that could hold huge implications for Texas ratepayers and the electric grid.
Joined by several partners, Ray L. Hunt on Tuesday filed an application with the Public Utility Commission of Texas to take over the monopoly utility whose 119,000 miles of transmission and distribution lines deliver power to more than 3 million homes and businesses in North and West Texas.
The deal, valued above $18 billion, is part of a larger effort to deliver Oncor’s parent company, Energy Future Holdings, from one of the largest corporate bankruptcies in U.S. history. That company, saddled with more than $40 billion in debt, owns all or part of three crucial pieces of the Texas electric grid:
Luminant is the state's largest generator, with a fleet of 14 coal, natural gas and nuclear plants that can power nearly 20 percent of the grid. TXU Energy is one of the state's largest retail electric providers, serving more than 1.7 million Texans. Then there’s Oncor, the only Energy Future asset that’s consistently making money.
Hunt’s deal would give him and his partners control of Oncor. It would also spin off Energy Future’s electric generation side to its creditors, allowing them to be paid in full.
The specifics of the takeover are complicated and have never been tried for a utility this big.
"We believe our proposed plan represents the best path forward for Oncor, its employees and the communities they serve," said Hunter L. Hunt, co-chief executive officer for Hunt Consolidated, Inc., and chief executive officer of Hunt Consolidated Energy. "We are fully committed to working closely with the PUCT Commissioners and their staff, as well as with all interested stakeholders, to ensure our proposed transaction receives a thorough, open and transparent review.”
Oncor, through a statement from its CEO Bob Shapard, says it “looks forward” to working with the Hunts and regulators, and that its employees will stick to “business as usual” as regulators weigh the proposal.
The Public Utility Commission — charged with regulating monopoly utilities — has up to six months to evaluate the proposal. It must sign off for the plan to go forward, and it could add stipulations of its own.
The proceedings, which will include a flood of filings culminating in hearings, promise to draw plenty of attention in and outside of Texas.
To save on federal income taxes, Hunt wants to reorganize Oncor into a “real estate investment trust,” essentially dividing it into two companies: one owning the assets (power lines, trucks and transformers, for instance), while the other rents the equipment, operates it and deals with customers.
That financial structure has long served the real estate world. Shopping malls, for instance, commonly use it, as investors back a broad entity that rents space and other assets to individual stores.
The unorthodox structure would help Oncor borrow money at lower rates, proponents say, which could ultimately translate into lower electric rates for customers.
But it’s nearly unprecedented in the energy world. Hunt owns the only other U.S. utility organized in such a trust: Sharyland Utilities, which serves just 50,000 customers in small patches of rural West and North Texas and has much higher rates than Oncor.
The deal’s experimental nature makes some consumer advocates nervous, and it has prompted questions about whether Oncor would still be protected from the debt of its parent.
When Energy Future Holdings was formed eight years ago, the commissioners insisted on a financial "ring fence" around Oncor to keep bankruptcy from dragging it down. It worked, keeping Oncor financially healthy even as its parent sank. Under the mechanism, a minority investor owned 20 percent of Oncor, which also had separate leadership.
Hunt's plan could eliminate Oncor's minority investor.
Consumer advocates will likely call for a solid ring fence around Oncor this time, and assurances that any tax savings in the reorganization will translate into lower rates for consumers.
Disclosure: Energy Future Holdings is a corporate sponsor of The Texas Tribune. Oncor was a corporate sponsor in 2012. A complete list of Texas Tribune donors and sponsors can be viewed here.