Dive Brief:
- The Federal Energy Regulatory Commission on Monday approved Sempra Energy's $9.5 billion plan to purchase Oncor Electric, the largest distribution utility in Texas.
- FERC approval was largely expected; the companies must still win the support of the Public Utilities Commission of Texas — a hurdle that's tripped up more than one major suitor in recent years.
- Sempra announced its bid to buy the Texas utility in August after Oncor's parent company rejected a bid from Berkshire Hathaway Energy. Previously, the PUCT rejected acquisition proposals from NextEra Energy and real estate firm Hunt Consolidated.
Dive Insight:
FERC approval was largely expected in Sempra's case, and moves the two companies closer to the critical PUCT approval process. FERC largely assesses whether merging utilities could exert market power, and both utilities operate under retail competition where they do not have captive customers.
Oncor, with more than 10 million customers in Texas, has been looking for a buyer since the bankruptcy of its parent company, Energy Futures Holdings, in 2014.
Since then, the search has evolved into a regulatory saga, with three major companies turned back from purchasing EFH's prized subsidiary.
In 2015, Hunt Consolidated and a group of smaller creditors banded together to buy Oncor out of EFH's bankruptcy. But Hunt wanted to operate the utility as a real estate investment trust, which would have secured significant tax savings for investors. The PUCT said that money would be better used elsewhere and rejected the proposal.
NextEra Energy then approached with a more typical $18.4 billion plan that many believed was heading towards approval. But Texas regulators were unhappy with what they saw as enhanced customer risk in NextEra's large merchant generation portfolio, and turned down the proposal three separate times when the company refused to make changes.
Berkshire came next with a $9 billion offer — one that EFH creditor Elliot Management said undervalued the utility. Elliott briefly considered its own $9.3 billion bid for Oncor, but then turned to support Sempra Energy's $9.45 billion bid, giving the deal an enterprise value of about $18.8 billion.
This latest round of merger negotiations is set to conclude by April of next year. On Oct. 16, the PUCT set a procedural schedule to complete a review of Sempra Energy's and Oncor's case within 180 days.
