Former Gov. Rick Perry is raising concerns about Ray L. Hunt’s proposal to buy Oncor, the state’s largest electric transmission company — speaking out as Texas regulators prepare to kick off hearings on the mammoth deal.
“I am very concerned the Hunt proposal, if approved, could compromise reliability and potentially increase costs and risk for Oncor’s more than 3 million North Texas customers,” Perry wrote in a Dallas Morning News editorial published Friday morning.
The longest-serving governor in Texas history joins consumer advocates and big energy users in calling on the Public Utility Commission to scrutinize — if not outright reject — the plan, which is the lynchpin of efforts by Oncor’s parent, Energy Future Holdings, to emerge from one of the largest bankruptcies in American history. He said that the state should prevent history from repeating itself, citing the 2007 buyout that set up Energy Future's current troubles.
Hunter L. Hunt — Ray’s son and Hunt Consolidated Energy’s chairman and CEO — sought to swiftly quell those worries.
"We believe our bid to acquire ONCOR is in the best interest of customers, our fellow Texans, and the economic health of Texas," he wrote in an open letter circulated Friday afternoon.
A Delaware bankruptcy court has already approved Energy Future Holdings' plan to shed $42 billion in debt. But the commission must sign off on the Oncor sale, the deal’s biggest and most contentious piece.
The three commissioners — all appointed by Perry — begin hearings Monday that could stretch into the next week. The energy world will closely watch as the commission seeks to balance Hunt's interests with those of Texas ratepayers and the electric grid.
The agency’s staff experts have called the plan “not in the public interest," writing that it could inflict “significant potential harm to ratepayers.”
Perry called the Hunts “a good name” throughout Texas, and one that is “synonymous with success,” but described fears that the deal could create risks like those that doomed Energy Future.
Hunt — a Dallas oilman, real estate mogul and former Perry donor — is leading a group of investors eyeing Oncor in a deal valued at roughly $18 billion.
Perry’s critique comes one day after Hunt's camp strongly pushed back against a highly critical report from the AARP, calling it the retiree group’s argument “alarmist and misguided.”
Hunt’s plan is complicated, and the business structure he is proposing has never been tried for a utility this big. That's making some watchers nervous.
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 structure would help Oncor borrow money at lower rates, proponents say, which could ultimately translate into lower electric rates for customers.
But the structure is nearly unprecedented for a utility. 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 the highest rates in the state.
The Hunt family calls the experiment a success. Its open letter promised that Oncor's rates "will not change as a result of this proceeding, remaining the lowest in the state."
Critics aren’t so sure.
Several others aspects of the deal have prompted questions, including whether Oncor will be protected from the debt of its new parent, as it was when Energy Future sank.
Perry’s column echoed many of those concerns, but he also offered another: Some of the firms backing Hunt were also involved in the leveraged buyout in 2007 that preceded Energy Future's woes. The conglomerate bet big on natural gas prices that later plummeted.
“I was governor at the time of the buyout, and I supported it. I have learned my lesson,” Perry wrote. “And the lesson is this: the electrical grid is too important to be entrusted to hedge fund investors who are more interested in making huge profits than running an electric company.”
According to testimony submitted on Hunt’s behalf, the family is putting $250 million toward the Oncor purchase, just 3.29 percent of the total commitment.
In his open letter, Hunt agreed that the Energy Future buyout was a bad idea. He wrote that this deal was significantly different from 2007, assuring that his family alone would call the shots at Oncor.
"We would not be proposing this transaction if we would not maintain 100 percent operational control," the letter said.
If the commission rejects Hunt's plan or adds major stipulations, Energy Future could be thrust back into bankruptcy negotiations that cost it some $1 million each day in legal fees. Ending this limbo, the Hunts argue, would benefit ratepayers and Oncor employees.
A Perry aide did not immediately respond to a message Friday.
Disclosure: AARP is a corporate sponsor of The Texas Tribune. Oncor and Energy Future Holdings were corporate sponsors of the Tribune in 2012. A complete list of Texas Tribune donors and sponsors can be viewed here.