Future Oncor Dealmaking Faces High Hurdles If NextEra Acquisition Falls Through

The following post is an excerpt from a report by Regulatory Research Associates (RRA), a group within S&P Global Market Intelligence. To learn more about the full report, please request a call.

Last summer, it appeared that the long-awaited battle for Oncor Electric Delivery Co. LLC, or OEDC, had ended with the acquisition offer from NextEra Energy Inc (NEE). In recent months, the Public Utility Commission of Texas (PUC) has conducted regulatory approval proceedings, rather than the Office of Administrative Law. The review by the PUC became focused on issues of control over OEDC in the form of robust ring-fencing provisions, and the process culminated in an unexpected move on March 30, when the PUC directed its administrative staff to draft an order finding that NEE's proposed acquisition of OEDC is not in the public interest, as currently constituted. The PUC is expected to consider the order at its next public meeting, which is scheduled for April 13. The deadline for a PUC decision is April 29.

The PUC's March 30 action again raises the question, would other suitors be willing to reenter into the fray if the transaction currently on the table is terminated. Restrictive ring fencing commitments sought by the PUC could represent distasteful obstacles for other investor-owned-utility suitors, particularly the emphasis on board of director independence, control over dividend distribution, and protection from involuntary, as well as voluntary, bankruptcy proceedings.

Should NEE's pursuit of OEDC fall apart, it would be NEE's second failed merger in less than a year. The Hawaii Public Utilities Commission dismissed NEE's proposed acquisition of Hawaiian Electric Industries Inc. in July 2016, finding that NEE and HE failed to show that the deal is in the public interest. The PUC also cited among its concerns the companies' clean energy commitments, the merger's effect on local governance, and the deal's effect on competition to local energy markets.