Texas Regulators Wary of Latest Deal for Utility Business Oncor

By Peg Brickley Features Dow Jones Newswires

Sempra Energy's deal to purchase power transmission company Oncor includes a commitment to pay off up to $3 billion in debt within seven years, a promise designed to calm jittery Texas regulators who must approve the takeover of a key piece of the state's power grid.

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Oncor is one of the largest electricity distribution systems in the country, and Sempra is offering $9.45 billion for 80% of it. That 80% is in the hands of Energy Future Holdings Corp., the former TXU Corp., which filed for bankruptcy more than three years ago.

On Sunday, Energy Future turned its back on a $9 billion buyout offer from Warren Buffett's Berkshire Hathaway Energy Inc. and agreed to a buyout led by Sempra, which owns Southern California Gas Co. and San Diego Gas & Electric.

One of the commissioners who will decide the fate of Sempra's takeover effort summoned Oncor Chief Executive Bob Shapard to a session, slated for next week, to answer questions about the proposed Sempra deal.

Commissioner Ken Anderson of the Public Utility Commission of Texas wants to know when regulators will see details of the transaction. Mr. Anderson also wants to know how much Oncor has spent on lawyers over the two years as it sought to disentangle itself from its bankrupt owner, according to a letter he sent Wednesday.

An Oncor spokesman said the company's leaders will attend the meeting.

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"Oncor leadership will attend next week's open meeting, and we look forward to the dialogue with the Commission," Oncor spokesman Geoff Bailey said.

Earlier deals for Oncor have fallen flat in Austin, Texas, frustrating both the bankruptcy court and the Texas utility commission. Regulators want to make sure the lights stay on in Texas, while the court wants to make sure creditors get the maximum value out of Energy Future's crown jewel, Oncor.

Unlike the earlier attempted deals -- with Hunt Consolidated Inc. and NextEra Energy Inc. -- Energy Future won't ask the bankruptcy judge to confirm a chapter 11 plan built around the Sempra buyout until after regulators make their decision.

The legacy of Energy Future's failed efforts to cash out its Oncor holdings is weighing on the company's creditors, who have been supporting a platoon of bankruptcy lawyers and advisers.

The most recently rejected Oncor deal, a sale to NextEra Energy Inc., could force creditors to give up as much as $275 million to the Florida company, which says it earned a so-called breakup fee after regulators spurned its proposal.

New chapter 11 plan documents say if NextEra wins the litigation over the breakup fee, Energy Future creditors will suffer. For some, such as former employees who put money into special retirement accounts, the NextEra breakup fee is an all-or-nothing proposition, chapter 11 plan documents say. If Energy Future wins the argument, they get all their money. If Energy Future loses, they could lose all, too.

For other Energy Future creditors, losing to NextEra could cut the recovery to 23 cents on the dollar, down from the estimated 39 cents on the dollar they will get if NextEra's claim for a breakup fee is disallowed.

Sempra has an ally in Elliott Management Corp., a New York hedge fund that is Energy Future's largest creditor. Elliott, which opposed the Berkshire deal, has agreed to support Sempra's buyout, which will likely ease the plan's passage in the bankruptcy proceedings.

Sempra patterned its Oncor transaction after the Berkshire deal with the exception of the debt left over at the parent company. Cash-rich Berkshire had curried favor with Texas stakeholders by pledging to remove the debt that sits at a corporate layer above Oncor.

Instead of getting Energy Future out of bankruptcy debt-free, Sempra is offering to pay the debt off over a period of years. The $3 billion debt at issue belongs to Energy Future, not to Oncor. However, Oncor is the only source of cash to service the debt, and that has made it a matter of concern to regulators.

Additionally, Sempra is leaving in place the Oncor "ringfence," a set of provisions designed to keep the utility on solid financial ground. Unlike Berkshire, which proposed to buy all of Oncor, Sempra is only seeking the 80% owned by Energy Future. The rest of the company belongs to investors, including one of Canada's largest public pension plans, the Ontario Municipal Employees Retirement System, who have won the trust of regulators.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

August 24, 2017 16:51 ET (20:51 GMT)