Dive Brief:
- Texas regulators did not vote last week on Hunt Consolidated's plan to purchase Oncor out of bankruptcy, and instead opened a separate proceeding to consider how to share substantial federal tax savings which would result from the utility's new structure.
- Two of the PUC's three commissioner's voted to have commission staff draw up a proposal outlining how Hunt's plan to operate Oncor as a Real Estate Investment Trust would function, including how ratepayers and investors can split $250 million in annual federal tax savings.
- The Texas Tribune reports the commission will likely review the case on March 21, and that the proceeding has caught the attention of other utilities considering a similar structure.
Dive Insight:
The REIT structure and resulting federal tax savings continue to vex Texas regulators considering Hunt's plan for Oncor, and it now appears there is renewed focus on what to do with the $250 million in annual federal taxes which would be avoided. The company's plan has investors benefiting, but regulators say they want to make sure the windfall is shared with ratepayers.
Staff's proposal, which is expected to contain more safeguards for ratepayers as well as a sharing mechanism, would be reviewed March 21 by the commission, just days ahead of the six-month decision deadline on the $18 billion deal. But how the company will share the avoided federal taxes remains a question. And it remains to be seen if Hunt will accept the altered proposal.
The Texas Tribune reports Richard Noland, counsel for Hunt Consolidated, told the commission “we understand what you want, and we’ll try to sell it to our investors."
The Tribune reported Chairman Donna Nelson opposed setting up a new proceeding to consider the structure, while Commissioners Brandy Marty Marquez and Ken Anderson Jr. favored more investigation. Marquez has previously cast doubt on the arrangement, saying "there’s something very lucrative and attractive about this particular structure, and I cannot be okay with a windfall on the back of those ratepayers. ... In my opinion, they’re not entitled to any of it.”
Under the proposal, Hunt said the first lien creditors of Texas Competitive Electric Holdings Company (TCEH), the merchant energy subsidiary of EFH, will receive TCEH's assets in a tax-free spinoff. That portion of the deal will satisfy approximately $25 billion in claims. Following that, the consortium would acquire EFH and its 80% ownership stake in Oncor and EFH's prized asset.
The newly restructured REIT will be owned by the consortium and managed by Hunt, the company said, and will lease the transmission and distribution assets to Oncor, who will operate the system on the REIT's behalf. An operating company will be created and will keep the Oncor name, with its headquarters remaining in Dallas.
Hunt's plan to transform Oncor into a REIT could spark a movement. CenterPoint Energy last week announced it is evaluating strategic alternatives for the company's investment in Enable Midstream Partners, and said it is also considering the REIT structure for all of its utility business.
"The REIT structure has recently received significant attention in the regulated utility industry in Texas and could have substantial potential for CenterPoint," said President and CEO Scott Prochazka "We will continue to study the possibilities and monitor developments, including related regulatory proceedings and will present any findings to our shareholders at the appropriate time."
