During the Public Utility Commission of Texas (PUCT) open meeting today, the commissioners unanimously approved, with no substantive discussion, a proposed order finding that the sale of Oncor Electric to NextEra Energy is not in the public interest.
On October 31, 2016, NextEra and Oncor had filed a Joint Report and Application with the PUCT seeking the regulatory approvals required for NextEra to acquire Oncor. NextEra was hoping to acquire both the approximately 80% interest in Oncor indirectly held by Energy Future Holdings Corp. (EFH), which is currently in bankruptcy, and the 19.75% interest indirectly held by Texas Transmission Holdings Corporation. In addition, the application disclosed NextEra’s agreement to purchase the 0.22% interest in Oncor held by Oncor Management Investment LLC, subject to closing the proposed transaction with EFH. NextEra’s plan to pay $12.2 billion in order to obtain 100% of Oncor was confirmed by the bankruptcy court. A hearing on the merits was held by the Commission in February of this year.
In the approved order, the Commission expressed concern that the transaction would expose Oncor to a substantial amount of debt at NextEra and risks associated with NextEra’s unregulated businesses, including generation development. The order also found that the conclusion of the bankruptcy proceeding of EFH is not a benefit that is unique to NextEra’s proposal, and that removal of EFH and its un-ring-fenced subsidiaries from bankruptcy will be obtained by any transaction that the Commission approves. The Commission does not appear to consider the ongoing EFH bankruptcy as a concern; the Order states that throughout the pendency of the EFH bankruptcy proceeding, Oncor has been able to safely provide reliable service to Texas customers and has been able to make $6 to $7 billion in capital investments over the past five years. The Commission further noted that the transactions would eliminate some of the current ring-fencing protections and that without these protections Oncor will not be adequately insulated from the additional risks resulting from NextEra ownership.
The commission stressed that if the transaction were to close, a majority of Oncor’s board would need to be independent and disinterested and retain all of the authority that the Oncor board currently possesses, and a majority of independent and disinterested directors would need the authority to veto dividends. All of these provisions were rejected by NextEra as being unacceptable. The commission therefore found that, based on the evidence and testimony presented during the hearing, the transactions described in the application are not in the public interest and therefore the application is denied.
With the Commission denying Hunt Consolidated’s previous attempt to purchase Oncor and now their rejection of NextEra’s attempt, what is the fate of Texas’ largest transmission and distribution utility? Who will buy Oncor and how will the EFH bankruptcy proceeding move forward? These are all unresolved questions and the Commission, Oncor, and consumers will have to wait and see if another party petitions to purchase Oncor.