Dive Brief:

• Staff at the Public Utility Commission of Texas say regulators should reject Ray Hunt's plan to purchase Oncor out of bankruptcy and turn the utility into a real estate investment trust, the Fort Worth Star-Telegram reports. 
• The plan, which would help avoid federal income taxes involved in the deal, would move $250 million each year from ratepayers to shareholders, a staffer wrote.
• As part of the plan to pull Energy Futures Holding out of bankruptcy, a group of creditors wants to split the company into two halves, with Hunt Consolidated leading a group of creditors which will own regulated transmission and distribution utility Oncor, and another group taking over the struggling power generation assets.

Dive Insight:

Last week, regulatory staff in Texas recommended rejection of Hunt Consolidated's plan to purchase and restructure Oncor, throwing another complication into the saga to find a buyer for the prized asset of Energy Future Holdings, a utility holding company now working its way through a bankruptcy trial.

Darryl Tietjen, director of the Rate Regulation Division at the Public Utility Commission of Texas, has told PUC regulators that the deal will move millions from ratepayers to shareholders, and has recommended the state reject the deal.

“The proposed transaction is not in the public interest and I recommend that the Commission reject the applicants’ application,” Tietjen wrote in testimony filed last week. He said the deal would involve a “substantial transfer of wealth from ratepayers to shareholders," to the tune of $250 million annually.

The testimony of the regulatory staff is only a recommendation to regulators — not a final decision. The commissioners themselves must still approve the deal and have set hearings for January 2016. 

A bankruptcy judge has approved the plan to turn Oncor into a real estate investment trust, a structure the Fort Worth Star-Telegram reports is more common for shopping malls than enormous electric utilities. It would be the first time a utility of Oncor's size has attempted to operate under the structure.

But the proposal is still in front of a Delaware bankruptcy court, which is now focused on how fairly the proposal will treat creditors.  Earlier this month, a Delaware federal judge approved the EFH's restructuring plan, though skeptics are skeptical that the deal will succeed. To further complicate matters, NextEra made a bid to acquire Oncor last month as an alternative to Hunt Consolidated's proposal. 

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.