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Report: EFH to present alternative Chapter 11 plan, as Hunt works to close Oncor deal

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Report: EFH to present alternative Chapter 11 plan, as Hunt works to close Oncor deal

An attorneyfor Energy Future Holdings Corp.reportedly told a bankruptcy judge April 28 that the sale of Oncor Electric Delivery Co. LLC to a group of investors ledby Hunt Consolidated Inc.will not close, and EFH will soon present a new plan to resolve the long-runningbankruptcy, Reuters reported April 28.

The Oncoracquisition is the keyto EFH's Chapter 11 bankruptcy reorganization, and the failure of the deal wouldbe a major setback for the proceeding almost exactly two years after the company filed for Chapter 11 with a debtload of more than $40 billion.

In astatement suggesting that the purchasers still intend to pursue the acquisitionof Oncor, Hunt spokesperson Jeanne Phillips said: "The ability of parties to the bankruptcy proceedingto file notice of termination is what we pointed out in our motion for rehearing.Hunt will continue to pursue the motion, in order to allow our proposal to remainthe transaction of choice."

The investor consortiumled by Hunt on April 18 filed forrehearing with the Public Utility Commission of Texas due to conditionsthe regulators placed on the acquisition of Oncor when they approved the deal March 24. The purchasers proposed acquiringOncor and converting it into a real estate investment trust, or REIT, in returnfor providing $12.6 billion in debt and equity for EFH, which owns 80% of Oncor,to address creditor claims. The Hunt-led investors plan to separate Oncor into twoentities, a REIT subsidiary called the AssetCo that would own the utility's transmissionand distribution assets, and the customer-facing entity that would operate the assetsand make lease payments to the AssetCo.

In itsapproval, the PUCT decided to regulate the internal Oncor leases as tariffs. Butin their motion for rehearing, the purchasers contended the leases are narrowerin scope than a typical base rate proceeding because their structure will not affectratepayers.

Anotherkey issue was whether and to what extent the income tax savings Oncor would enjoyas a REIT should be shared with its customers. As a REIT, Oncor would pay essentiallyno income tax but the utility's current rate structure allows it to collect fromcustomers costs related to income tax expenses. The PUCT ultimately decided thatthe tax question was better left for a future rate case, but ordered the purchasersto track federal income tax expenses that may be subject to refund. , the Hunt investor group argued,"recovery of such expenseconstitutes impermissible retroactive ratemaking."

If the Hunt deal doesnot close by April 30, EFH can pursue alternative paths for exiting bankruptcy.In order to close the Hunt-led acquisition of Oncor, the PUCT must issue a finalorder approving the proposed leases by Aug. 5, giving the consortium 90 days toraise more than $8 billion in equity to fund the transaction and close by Nov. 30.