Top officials at Oncor, Texas’ largest electric utility, aired concerns on Monday about Dallas billionaire Ray L. Hunt’s $18 billion proposal to take over and reshape their company.

The testimony came as the Texas Public Utility Commission kicked off hearings on Hunt’s effort to transform Oncor into a “real estate investment trust,” which is the lynchpin of efforts by Oncor’s parent, Energy Future Holdings, to emerge from one of the largest bankruptcies in American history.

In hearings that could stretch into next week, the commission’s three, governor-appointed members are charged with weighing the interests of the Huntswho have deep roots in the Texas energy world with those of Texas ratepayers and the electric grid.

Testifying in front on of state regulators, Oncor CEO Bob Shapard suggested that Hunt's plan could leave the hulking utility without the flexibility to smoothly handle unplanned events, such as a drop in revenue or major storms.

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“You’re operating a major utility on a fraction of the economics we have today,” he said of Hunt's bid for Oncor, whose transmission and distribution lines deliver power to more than 3 million Texas homes and businesses in North and West Texas.

Shapard also expressed concerns that the deal as written could jeopardize the utility’s credit rating. If Hunt does not address those misgivings, the CEO said he would not recommend that state regulators approve the sale.

A complicated plan

A Delaware bankruptcy court has already approved Energy Future Holdings’ plan to shed $42 billion in debt. But Texas regulators still need to sign off on the Oncor sale, the bankruptcy deal's biggest piece.

With thick binders on hand for reference in the crowded hearing room, the regulators heard the intricate details of a complicated plan that the Hunts say fits the public interest — even though the business structure they are proposing has never been tried for a utility this big. 

Consumer advocates call the plan risky. Other critics include big electricity users, staff experts at the Public Utility Commission and, in a surprise twist last week, former Gov. Rick Perry.

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The Hunts have pushed back, calling the concerns “alarmist and misguided.” The family — with its respected name and business acumen — is well-positioned to run Oncor and help deliver Energy Future Holdings from its messy bankruptcy, it argues.

The plan "resolves one of the most complex bankruptcies in history,” James Bushee, an attorney for Hunt's acquisition company, said. “The transaction would retain local control over Oncor ... This is not just a financial transaction.”

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.

Current plans call for Oncor’s “asset” company to hold some 97 percent of the utility’s net income, which would go largely untaxed. The “operating” company would hold the rest. The two sides would negotiate equipment leases every few years.

The trust would be required to pay out at least 90 percent of its taxable income to shareholders thorough dividends.   

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 initially help Oncor borrow money at lower rates, which the Hunt family says would help keep the utility financially healthy and potentially lead to lower rates in the long run.

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 the highest rates in the state.

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Hunt calls that experiment a success. Critics aren’t so sure.

Several other aspects of the idea have prompted questions, including whether Oncor will be protected from the debt of its new parent, as it was when Energy Future Holdings sank.

The Hunts promise that Oncor’s rates — which are among the lowest in the state — would not go up under the deal.

Opponents, however, say the more pressing question is whether the Hunts would pass Oncor's tax savings onto consumers directly, by cutting rates accordingly. The current proposal does not call for such a rate cut.

“The issue is not whether Oncor ratepayers will pay higher rates. The issue is whether rates are just and reasonable,” testified Sam Chang, a Public Utility Commission attorney. “If you’re going to take a deduction, reflect that in rates.” 

Oncor’s concerns

Oncor has a solid relationship with the Hunts — their respective Dallas headquarters are across the street from each other — and the Hunts have alleviated some of Oncor's concerns in recent months, Shapard, the CEO, testified.

They have tentatively agreed to ensure that Oncor can cover more than $2 billion in employee pension liabilities, which had previously been in doubt. The Hunts have also agreed to set aside $500 million that Oncor operators could tap if they ran into unexpected expenses — like costly storms — in between their lease negotiations.

But Shapard said the Hunts have provided few details on how that fund would work, and much of the relationship between Oncor’s “asset “and “operating” companies remains “fairly undefined.”

The utility is “going to rely on this commission to adequately protect Oncor,” Shapard told regulators on Monday.

If the regulators reject Hunt's plan or add major stipulations, Energy Future Holdings could be thrust back into bankruptcy negotiations that cost it an estimated $1 million a day in legal fees. 

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.