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Sunday, March 27, 2016 7:34:52 AM
By Jeffrey Weiss
Texas electric power customers will need to wait a year or so to find out if a buyout plan of Oncor approved Thursday by the Public Utility Commission will affect their rates.
In fact, there are still questions about whether conditions imposed by the PUC will challenge the plan crafted by a group of investors led by Dallas billionaire Ray L. Hunt and his son, Hunter Hunt.
The Hunt group wants to buy part of the state’s largest utility. Energy Future Holdings went into bankruptcy in 2014. The Hunt group wants one piece: Oncor, which owns about 119,000 miles of transmission and distribution lines that deliver power to more than three million homes and businesses in North and West Texas.
Rates are not supposed to go up because of the deal, if it goes through. Whether rates might go down and by how much was left unresolved in the PUC order.
For legal reasons, there’s a hard deadline of March 27 for the PUC either to set conditions on the plan or have no input. So Thursday’s meeting was its last shot.
Here’s what’s going to happen in the next few months:
•The Hunt group must find out whether its other investors are willing to buy into a deal with the fiscal uncertainties left in the PUC order. Hunt officials had no answers Thursday.
•The Hunt group will immediately initiate a process for the PUC to set rates charged between parts of a proposed new corporate structure – a technical but necessary step in preparing to buy Oncor. The process can take several months but it must be finished no later than November 5 to meet a deadline in the larger bankruptcy proceedings.
•An alliance of cities served by Oncor plans to initiate a rate case in April – an attempt to challenge the price the company is allowed to charge for wholesale electricity. Normally, Oncor would not face a rate case until next year.
Several important issues were addressed in the order approved by the PUC.
The Hunt group wanted a guarantee that it would be able to take full advantage of a tax benefit worth about $250 million a year. It did not get the guarantee.
The tax break comes along with an unusual corporate structure that would chop Oncor into two separate companies, one of which would be a Real Estate Investment Trust. The REIT would own the wires; the other company would pay rent to use them. If the REIT pays at least 90 percent of its taxable income as dividends, it pays no federal income tax.
The PUC sets rates based in part on a utility’s cost of doing business. Should the Hunt-led REIT be able to charge as if it would pay that tax while never intending to do so? Texas State senators Kelly Hancock, R-North Richland Hills, and Royce West, D-Dallas, called into Thursday’s meeting to say they thought not. They were only the latest in a list of individuals or groups raising the objection.
The commission left the question unanswered, with two of the commissioners deciding that was an issue to be addressed in a formal rate case and that the commission needed to set new rules about whether any utility should be able to charge higher rates despite getting tax breaks.
Those commissioners, Ken Anderson and Brandy Marty Marquez, also made it clear they thought that at least some of the Hunt-led REIT savings should be shared with rate payers. Commission chairwoman Donna Nelson sided with the Hunt group.
Dozens of pages of restrictions addressed the REIT structure, including a requirement for a level of independence of members of the various boards of directors and a demand that the credit rating be kept at “investor grade.”
No utility this size has ever been run by a REIT. The only other utility REIT in Texas is the Hunt-led Sharyland that serves about 50,000 customers.
Hunter Hunt, CEO of Hunt Consolidated Energy, attended Thursday’s meeting. He said nothing to indicate that he thought any of the PUC’s restrictions were deal killers.
After the meeting, a representative of the Hunt group released only a bland statement of satisfaction about the PUC vote: “We will continue to work with all parties in the EFH bankruptcy proceeding over the coming months to reach a successful closure of the transaction consistent with the order approved today.”
The plan for cities to initiate a rate case is, in part, a challenge to whether the Hunt-led REIT should be forced to lower its rates, said Geoffrey Gay, a lawyer representing the Steering Committee of Cities Served by Oncor, made up of about 150 Texas cities.
Normally, Oncor or its successor company would face a rate case next year, which would be resolved in 2018. If the cities trigger the case in April as Gay intends, that would move the process up by about a year.
“The whole objective of the review initiated by the cities is to be able to get lower rates,” he said.
On the one hand, that early trigger means investor uncertainty would end sooner about how much of the tax break would be available as dividends. On the other hand, interim rates using that tax benefit could be cut off quicker.
Gay said he thought the requirements set by the PUC were a step in the right direction.
“I think the conditions imposed by the commission have done a significant job in making this whole transaction better,” he said. “But it remains an incredibly complicated procedure.”
http://bizbeatblog.dallasnews.com/2016/03/puc-texas-hunt-oncor-public-utility-commission.html/
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