Dive Brief:
- A group of investors led by Hunt Consolidated withdrew their proposal to Texas regulators to purchase Oncor Electric Delivery, the largest transmission operator in the state. Regulators had approved the plan in March, but Hunt filed for reconsideration due to stipulations on the deal.
- In a filing May 18, Hunt asked regulators to vacate the approval order and dismiss the proceeding. Conditions on the deal, such as a requirement to share tax savings with ratepayers, caused a group of senior investors at Energy Future Holdings (EFH), Oncor's parent, to back out of the deal.
- The Oncor sale is seen as critical to EFH's plans to emerge from Chapter 11 bankruptcy. While Hunt said it would file a new application if the deal can be salvaged, the move could open up an opportunity for other companies, such as NextEra Energy, to pursue EFH's prized asset.
Dive Insight:
From the beginning, Hunt Consolidated's plan to purchase Oncor and convert it into a Real Estate Investment Trust (REIT) raised eyebrows in the Texas power sector. While the practice is common in other sectors, no utility of Oncor's size had ever attempted REIT organization before.
The intent behind the reorganization was to avoid some $250 million in annual taxes, EFH estimated, but that desire may have also been the acquisition's ultimate undoing. When Texas regulators approved the deal in March, they indicated they would push for those savings to be split more equitably with ratepayers, among other conditions.
Hunt balked at the provisions, saying in an April filing that the sale could not go through under those conditions and petitioning for a rehearing. The company continued to pursue Oncor despite a new bankrupcy plan filed by EFH that deal opponents said invalidated the sale.
On May 5, Texas regulators delayed a decision on whether to reconsider the Hunt proposal, planning a vote for their May 19 meeting. But Hunt headed them off, pulling its request just a day before.
"While we wanted to have a rehearing on the order, it is obvious now that, as written, the transaction will not close, so we believe that it is best to clean the decks and start over," a Hunt spokesperson told SNL. "Hunt is working to develop a model that can work for all parties involved, including EFH, investors, Oncor customers and management."
While Hunt says it will continue to pursue the acquisition, Bloomberg reports the withdrawal of its offer could open the door for other suitors — notably NextEra, which has already shown interest. Last November, as regulators considered the Hunt proposal, NextEra made an unsolicited offer for Oncor, saying its plan to buy the company could pass regulatory muster easier than the REIT structure.
Oncor, a transmission and distribution utility that serves more than 10 million customers, is seen as the prized asset of Energy Future Holdings. Before Hunt's offer, Warren Buffett's Berkshire Hathaway and investment firm Fidelity were also named as potential buyers, while any opportunity to buy the company is expected to generate significant interest.
"Pretty much anyone would be looking at Oncor and thinking about it now," Kit Konolige, a Bloomberg Intelligence utility analyst, told the news outlet. "We have seen a lot of utilities bought by other utilities or infrastructure funds and certainly from offshore interests as well."
