Afterthe termination of a deal for an investor group led by to acquireOncor Electric Delivery Co.LLC and convert it into a real estate investment trust, Texasregulators on May 4 delayed a decision on whether to grant a motion forrehearing on the transaction.
ThePublic Utility Commission of Texas voted to extend their time for considerationon the motion for rehearing until June 10, one day after its scheduled meetingthat month. But the PUCT plans to make a decision on the issue at its May 19meeting. "We need to deal with this rather quickly," PUCT ChairmanDonna Nelson said. "So I would be amenable to extending it to the nextopen meeting but I don't want to extend it past that because I think we need tomake a decision."
Theacquisition and REIT conversion of Oncor by the Hunt-led investors is injeopardy after Oncor's majority owner, Energy Future Holdings Corp., filed an reorganization plan May 1. The Hunt-Oncor deal had beenthe linchpin in theprevious EFH reorganization plan, with the investor group agreeingto provide approximately $13 billion in debt and equity to address creditorclaims at various levels.
Butthe complicated nature of the Hunt investors' plan to convert Oncor into a REITprompted the Texas commission, in its March 24 approval of the deal, to postpone decisionsaround several key elements of the transaction. The two key issues dealt withregulation of the leases between the two entities into which Oncor would besplit, and whether the tax benefits Oncor would enjoy as a REIT should beshared with utility customers, who would still be charged on their bills forincome tax expenses Oncor's parent would not have to pay.
Becauseall the approvals necessary to consummate EFH's restructuring plan had not beenachieved by April 30, certain parties were released from the agreement, and agroup of senior noteholders for the unregulated side of EFH's business,Texas Competitive ElectricHoldings Co. LLC, delivered a termination notice causing thecourt-approved plan to become null and void.
As aresult of these developments, attorneys for the Office of Public UtilityCounsel and the committee of cities served by Oncor urged the PUCT May 4against approving the motion for rehearing, saying that with the dealterminated, the application is basically irrelevant. "This companyhas failed to come out of bankruptcy court with a recommendation," GeoffreyGay, an attorney for the steering committee of cities served by Oncor, said."The support for it is gone."
In a filing, the PUCT legal staff noted that,"OV1," a co-applicant in the original proceeding and the entitycreated to be the parent company of Oncor's transmission and distributionassets, had been dissolved as a result of the merger termination.
The Hunt-led investors had asked for a rehearing on theOncor approval on April19 related mostly to the lease and tax-sharing issues. Since EFHfiled an alternative Chapter 11 plan May 1, Hunt has maintained it willcontinue to pursue the acquisition and REIT conversion of Oncor.
"We would like to request the commission to continuewith the rehearing process," Richard Noland, an attorney for thepurchasers said. "The important element in the plan of reorganization thatwas filed by EFH is that the door has been left open for the creditors and thebankruptcy court to approve as a confirmed alternative restructuring plan theREIT structure that is the subject of this proceeding. Now there are otheroptions that are available as well, obviously. But that is truly still a viableoption as a potential outcome of the bankruptcy proceeding. We intend to pursuethat. We've received a lot of interest from investors in continuing to pursuethat particular option. And whether or not we can put that all together willdepend on what the final order in this proceeding looks like."
Oncor CEO Robert Shapard, who about the Hunt-ledtransaction previously, said the utility executive team was no longer bound tosupport that deal and was free to work with any potential buyers. In astatement, Oncor Director ofCommunications Geoff Bailey said, "Regardless of the timeline or ultimateoutcome of these proceedings, Oncor's strong financial performance and healthycash flows will allow us to continue delivering value for both our customersand our shareholders." (PUCT Dockets 45188 and 45815)