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Oncor CEO: NextEra filings do not impact Berkshire bid

Oncor Electric Delivery Co. LLC CEO and Executive Director Bob Shapard said Aug. 1 that recent NextEra Energy Inc. filings do not impact the proposed purchase of the Texas company by Berkshire Hathaway Energy, or BHE.

NextEra, which attempted to acquire Oncor, has petitioned for judicial review of Texas regulators' rejections of the proposed deal. NextEra is also seeking a minority ownership share of Oncor majority owner Energy Future Holdings Corp., or EFH.

But Oncor seems to have moved on from NextEra, as EFH terminated a letter of agreement with NextEra on July 6.

"No," Shapard replied when asked on an earnings call if NextEra's filings affect BHE's bid. The CEO added he does not know whether the judicial filing is an effort by NextEra to collect a $275 million termination fee.

Oncor expects a Delaware court on Aug. 21 to hear BHE's proposed purchase — $9 billion cash for an 80% stake — which must be approved by a judge in light of EFH's bankruptcy. Shapard has said the deal "would be great," and two of the largest retail electric providers in Texas have pledged their support.

Per EFH's request, Oncor and BHE have entered into a letter of agreement, which sets forth certain rights and obligations of the companies as they cooperate on steps toward the acquisition. They have also agreed to cooperate to prepare and file all necessary applications for government approval, including with the Public Utility Commission of Texas.

BHE, a Berkshire Hathaway Inc. subsidiary, has also reached an agreement with PUC staff and major intervening parties on proposed ring-fencing and governance structure proposals, which Shapard said was "a major step."

A merger application has not been filed with the PUC, but Shapard said Oncor is "pleased with the progress ... and how BHE has worked with us and our stakeholders."

"We don't know when that would be filed at this point," he added. "We're still kind of assessing where we stand in Delaware, and when would be the right time to do that."

Senior Vice President and CFO David Davis was asked about Oncor's plans for its short-term debt balance of nearly $1.2 billion, and whether the company would wait to term it out until a transaction closed.

"I think we would consider managing that short-term debt level just to be normal course of business," Davis said. "We have maturities coming up in September. If you look at last year, we were in a similar position about this time of the year. And last year's history, we got the short-term debt level down to $800 million or so. So I can't tell you exactly what we're going to do this year, but I can tell you we're very aware of the debt level."

Rate case, Sharyland swap, PUC seat

Shapard said Oncor has reached a settlement on its March 7 rate case, which calls for a 3.5% rate increase, along with a 9.8% return on equity and 42.5% debt-equity ratio. "It's a good outcome for our customers and for the company," he said.

Oncor has also reached an agreement with Sharyland Utilities LP and Sharyland Distribution & Transmission Services LLC, in which Oncor will swap $400 million of its transmission rate base to Sharyland in exchange for a like amount of their distribution rate base. "The swap will serve customers well and, combined with certain aspects of the rate case settlement, the swap is economically neutral to Oncor," Shapard said.

He expects the settlement and the agreement to close by the end of November. Both will go through PUC proceedings. If the Sharyland swap does not close, Shapard added, the rate case settlement will need to be renegotiated.

When asked what analysts should think about any of the incremental capital expenditures on the Sharyland assets that Oncor is picking up, Shapard said, "All of the CapEx, obviously, on the distribution system will now be ours, and the vice versa on the transmission we transfer to them. And we do think there is some growth opportunity on that distribution network for us, which will allow us to grow our customer base. We think it's positive for us."

Shapard added, "The growth rate out there is roughly that of most of our distribution business, and given what energy prices do, we could see better-than-average growth out in that West Texas area."

Shapard also said he expects an empty PUC seat to be filled sometime this summer. Commissioner Ken Anderson, whose term is scheduled to expire at the end of August, has not made any indication to Oncor of a plan to imminently step down, Shapard added.