A group of minority investors is threatening to derail a plan to lift Texas’ biggest power conglomerateout of one of the largest corporate bankruptcies in American history.
Dallas oilman Ray L. Hunt’s $18 billion plan to buy Oncor, Texas’ biggest transmission company, is the lynchpin of a broader proposal to deliver the company’s parent — Energy Future Holdings — from a bankruptcy that has stretched 19 months. At stake is the future of a company that helps deliver electricity to millions of Texans.
But in filings on Thursday, Texas Transmission Investment LLC, which owns 20 percent of Oncor, objected to Hunt's plan, saying it would force the group of investors to give up its share of the transmission company without meeting a complicated list of conditions.
The group, led by a Canadian pension fund, “specifically bargained for the right to remain in its chosen long-term investment in Oncor unless and until certain clearly identified conditions were met,” the investors told a Delaware bankruptcy court.
“Those conditions have not been met,” attorneys for the investors wrote. And from the looks of Energy Future Holdings’ filings, they added, the demands “will never be met.”
If the court agrees, several people following the case say, Hunt and Energy Future Holdings would need to pitch a new plan — abandoning what some call the company’s best option to clear its debt but others consider risky.
The plan “could be in jeopardy,” said Geoffrey Gay, general counsel for the Steering Committee of Cities Served by Oncor, who is particularly skeptical of the oilman’s proposal. “The plan may change yet again and the bankruptcy court might not approve it.”
A Hunt spokeswoman declined to comment. An Energy Future Holdings spokesman also declined to comment.
Hunt’s financial plan for claiming Oncor is complicated, and it’s never been tried for a utility this big.
To save on federal income taxes, Hunt wants to reorganize Oncor into a “real estate investment trust,” essentially dividing it into two companies, with one owning the physical assets such as power lines, trucks and transformers and the other renting and operating the equipment and dealing with customers.
The unorthodox structure, more commonly used for shopping malls and elsewhere in the real estate world, 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, which makes some consumer advocates nervous.
Hunt’s plan would buy out Oncor’s minority investor, giving his group sole control over the company, whose 119,000 miles of transmission and distribution lines deliver power to more than 3 million homes and businesses in North and West Texas.
That has prompted questions about whether the new Oncor would still be protected from the debt of its parent.
When Energy Future was formed eight years ago, the state Public Utility Commission insisted on a financial "ring fence" around Oncor to keep bankruptcy from dragging it down. That’s where Texas Transmission Investment, with its 20 percent stake in the company, came in.
By many accounts, the plan worked. Of the three crucial pieces of the Texas energy grid that Energy Future owns, Oncor is the only company that’s consistently making money.
Energy Future, saddled with more than $42 billion in debt, kicked off hearings on its reorganization plan early this month. Its bankruptcy continues to rack up about $1 million per day in legal fees, according to court documents.
The Public Utility Commission — charged with regulating monopoly utilities — has about four more months to evaluate the proposal. It must sign off on the plan for it to go forward, but it could add stipulations of its own before doing so.
Disclosure: Oncor and Energy Future Holdings were corporate sponsors of The Texas Tribune in 2012. A complete list of Texas Tribune donors and sponsors can be viewed here.