Dive Brief:

• The Public Utility Commission of Texas began hearings this week on a proposal from Hunt Consolidated to purchase the utility Oncor out of bankruptcy and turn the it into a real estate investment trust (REIT).
• Converting Oncor to a REIT would be a first for a utility of its size, and the proposal has sparked contention in the state. The Dallas Morning News has published dueling editorials by former Gov. Rick Perry and Hunt Consolidated Chairman Hunter Hunt, facing off over the deal's merits.
• The former Texas governor wrote the deal could "compromise reliability and potentially increase costs" while Hunt said the proposal would help ensure the utility remains owned and operated within the state.
• But even as Perry and Hunt face off in the newspaper, Oncor's Bob Shapard has testified that the deal isn't currently in the public's best interest, echoing assertations made by the PUCT staff in a late 2015 filing. 

​​​Dive Insight:

Oncor leadership still has concerns with Hunt's plan to purchase the utility, SNL Energy reports. Hearings kicked off this week, and CEO Bob Shapard conceded that right now the deal isn't the best for consumers.

In order to support the deal, Shapard said Hunt's team would need to examine concerns in four areas, including the utility's ability to maintain an investment grade. "We think an independent board at OpCo has to have the flexibility to reduce that lease payment if we can't trim trees. That and we think an investment grade rating is a bare minimum."

"OpCo" would be the customer-facing operating utility still named Oncor.

The proposal to operate Oncor as a REIT would be the first time such a structure was applied to a large utility, and has generated concerns over the deal.  Under the proposal, first lien creditors of Texas Competitive Electric Holdings Company (TCEH), the merchant energy subsidiary of Energy Futures Holdings, 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. 

The newly restructured REIT would be owned by the consortium and managed by Hunt, and will lease the transmission and distribution assets to Oncor, who will operate the system on the REIT's behalf.

In the hearings this week, the PUCT staff repeated assertations made in December 2015 filings that said the deal is not in the public interest as currently proposed. According to the PUCT, the REIT structure would result in "the substantial transfer of wealth from ratepayers to shareholders — in the form of income-tax-related amounts of nearly one-quarter of a billion dollars annually," if the Commission didn't factor in the fact that Oncor would be recovering costs from customers for income taxes that, as an REIT, its parent company would not have to pay. 

Last week, The Dallas Morning News published a pair of editorials taking opposing sides of the deal. Former Gov. Perry wrote the deal "has produced more questions than answers so far," though he said regulators would ultimately make the right decision. And he also raised question's about the utility's ability to maintain an investment grade rating.

On Hunt's side, the company chairman said that if the deal is approved "Oncor communities, residential customers, ratepayers businesses and employees can rest assured that the outlook is stable; the operations and major decisions required daily will be made by Texans; and the investment will hold true for generations to come."