Dive Brief:
- Texas regulator Commissioner Kenneth Anderson Jr. issued a memo this week addressing the possible purchase of Oncor Electric by Sempra, outlining a range of concerns about the deal and how best to protect customers in the Lone Star State.
- Anderson wants to know how decisions in California, where Sempra is based, could impact the Texas utility, and questioned whether Sempra's finances are stable enough to take on additional debt needed to complete the deal.
- Sempra plans to fund the $9.45 billion deal with 65% equity and 35% debt, and is now seeking full ownership over Energy Future Holdings, Oncor's bankrupt parent company.
Dive Insight:
As each successive bidder tries to lay claim to Oncor, applications and proposals have become more straightforward and aligned with regulators' wishes. So far, bidders like NextEra, Hunt Consolidated and Berkshire Hathaway have all been pushed out in some way—either by a competing bid or by the Public Utilities Commission of Texas.
To address regulators' concerns about the independence and financial stability of the utility, Sempra proposed ring-fence protections for Oncor that would separate it financially from the parent company. And the California-based utility company's application also preserves Oncor's board independence, maintains its current management team, supports its five-year, $7.5 billion capital investment plan and shields its customers from transaction costs.
While the deal is expected to close in the first half of 2018, assuming it is approved, Anderson's memo makes clear it is not a done deal. Energy Choice Matters has published extensive excerpts from the memo here.
"The point of this exercise is once and for all to get Oncor out from under a risky, rickety, debt-ladened majority owner and into a situation where Oncor and its management can, for the benefit of its ratepayers, move forward without the nagging specter of a financially troubled parent," Anderson wrote "Our objective should be to ensure that Oncor is not being permitted to hop from one frying pan into another or even just into a simmering pot."
Anderson said the PUCT would need to focus on the structure of the transaction itself, and the resulting financial effects on both Sempra and Oncor. But he was critical of Sempra's application, saying more data was needed.
"Sempra's current application provides very limited details to assist that analysis. Specifically, the application lacks detailed information relating to financing the proposed transaction and Sempra's ability to manage liabilities associated with its debt and far-flung operations," Anderson said.
Anderson also questioned how decisions in California, where Sempra is headquartered, might impact the Texas company. In his memo, Anderson asked, "how is Oncor insulated from attempts either by the California legislature or California regulators to affect Oncor's finances, policies or practices?"
