Sempra Energy sweetened its offer for Oncor Electric Delivery Co. LLC by saying it will acquire all interests in indirect parent company Energy Future Holdings Corp. for $9.45 billion, all an in effort to further satisfy Texas utility regulators and consumer advocates.
San Diego-headquartered Sempra announced Oct. 4 that it would file its change-in-control application with the Public Utility Commission of Texas on Oct. 5, roughly six weeks after it launched its bid for the Texas transmission and distribution utility on Aug. 21, and following a charm offensive to woo the state's often fickle stakeholders in the wake of Hurricane Harvey. Sempra has already adjusted its overall acquisition package, taking a proactive approach toward allaying the various concerns around ownership and capital structure that have bedeviled suitors in the past.
"We continue to be thoughtful about this transaction and have learned a lot from our meetings in Austin and from working closely with Oncor's senior leadership team," Sempra Chairman, President and CEO Debra Reed said on an update call Oct. 4. "The staff of the PUCT, Texas Industrial Energy Consumers, the cities served by Oncor and the Office of the Public Utility Counsel have confirmed that subject to review of our filings, this new structure substantially addresses many of their key issues."
In doing so, Sempra says it has adjusted its initial bid proposal, in which it would have acquired a portion of Oncor, with another share to be acquired by a third party, so that it will cut out additional third-party investors altogether.
Instead, Sempra will shoulder the entirety of acquisition, financing through the public debt and equity markets by targeting a $9.45 billion capital raise, split 65% in new equity issuance and 35% debt issuance, according to its Oct. 4 investor presentation. The result, should the deal be approved, would give Sempra complete ownership of Energy Future Holding's, or EFH's, 80% equity interest in Oncor. Still, management stopped short of identifying what type of equity issuance it plans to roll out, noting only that it is currently surveying investor interest in the equity markets for such issuance.
Further, under the new structure, Sempra will look to eliminate all debt at the restructured EFH holding company level, a key consideration for stakeholders across Texas. With ring-fencing preventing Sempra from consolidating the EFH debt on its balance sheet, it will look to Oncor to use the equity raised to eliminate the debt.
All told, the new capital structure is expected to increase funds from operations to debt above 20%, up from 16% under the original deal structure, and help Sempra bypass complications around acquiring the third-party stake in EFH at some future date.
"This is really about basically accelerating our strategy to 100% and also making sure that we're responsive to the needs of the stakeholders that we met with," Sempra CFO Jeffrey Martin said, pointing out that the decision to abandon third-party partners was not for lack of interest.
Sempra did indicate it remains open to the prospect of acquiring 100% of Oncor, should the remaining 20% equity owned by Texas Transmission Investment LLC eventually be offered for sale.
"We think that having [Texas Transmission Investment] as a partner is not at all a bad thing," Reed said. "If that were to come for sale, we would certainly be interested in it, and we would be certainly interested in transacting over time to acquire those shares and acquire 100% of the asset."