Texas regulatorsapproved a preliminary order Oct. 7 directing to re-file itspending rate case, a decision likely to postpone any ruling until mid-2017.

How the Public Utility Commission of Texas rules in the casecould have implications for whether real estate investment trusts, or REITs,remain a viable corporatestructure for electric utilities. Publicly traded REIT is the majorityowner of Sharyland Distribution& Transmission Services LLC, which leases its transmission anddistribution assets to Sharyland Utilities.

The procedural order adopted by the PUCT directs SharylandUtilities and SDTS to file two separate rate cases by the end of 2016, insteadof the consolidated case the two entities filed initially. The commission notedthat, "nothing," in the preliminary order required SDTS to be ownedby an entity treated as a REIT, "and any party may argue that maintainingREIT status is not in the public interest."

The commission also opted not to revisit in the preliminaryorder any "threshold issues." On Aug. 30, Sharyland submitted to the PUCT a jointproposal on the so-called threshold issues in the rate case, reached with PUCTstaff and several intervenors, that contained an acknowledgement that the aimof the process was to preserve the company's REIT status. Some analysts notedthe language was significant because it suggested the parties would avoidimposing terms on Sharyland that could result in InfraREIT generatinginsufficient qualifying income to maintain its REIT status.

By deferring adecision on the joint proposal and adopting a revised preliminaryorder requiring an amended rate filing, the PUCT may not take up key issuesaround the leases between Sharyland Utilities and SDTS until 2017. (TexasDocket No. 45414)