Texas Regulators Are Wary of Sempra's Deal to Buy Oncor -- Update

By Peg Brickley Features Dow Jones Newswires

Sempra Energy Inc.'s proposed $9.45 billion takeover of Oncor, a Texas electricity transmission business, is drawing skepticism from a regulator who was a key critic of two earlier suitors whose offers were killed by the state.

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Commissioner Ken Anderson of the Public Utility Commission of Texas is worried about the debt Sempra plans to take on to finance the buyout, and the risks posed by the California suitor's other projects.

Sempra needs a "yes" from the commission to go through with the deal, which grows out of the long-running bankruptcy of Oncor's parent company, Energy Future Holdings Corp., formerly known as TXU Corp.

A hearing Thursday by the commission was the start of a process that could last months, with Sempra fielding questions about its debt load, credit picture, and projects it has undertaken that could mean more risk for Oncor.

Two other commissioners agreed with Mr. Anderson on Thursday, when Sempra's offer for Oncor got its first public glance from the state PUC. Oncor carries power to 10 million Texans and is a crucial element of the state's power grid.

Sempra has more questions to answer, the commissioners said.

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In a memo released before the hearing, Mr. Anderson noted Sempra's debt has risen from less than $5 billion in 2007 to about $18 billion in 2017.

In an email, Sempra spokesman Doug Kline noted the company's market capitalization has also grown over the past 10 years, from $15 billion to nearly $29 billion.

Sempra is still reviewing Mr. Anderson's memo, Mr. Kline said.

Besides a wary panel of regulators, Sempra has to sway big energy customers, cities that rely on power carried by Oncor and the Texas Legal Services Center, an advocacy group for low-income residents that says it is worried they might be stuck with higher bills.

Oncor is also the last remaining asset of Energy Future, which has been in bankruptcy since April 2014. Described by Mr. Anderson as "risky, rickety," Energy Future owns 80% of Oncor, and is counting on the sale to Sempra to bail it out of bankruptcy.

Two earlier attempts to sell Oncor failed because of regulatory action in Austin. A deal led by Texas-based Hunt Consolidated Inc. fell through after the PUC put conditions on it that caused investors to close their wallets. Earlier this year, NextEra Energy Inc. of Florida was rejected, because it refused to accept safeguards insisted on by regulators.

Next up was Warren Buffett's Berkshire Hathaway Energy Co., which sought to buy Oncor for $9 billion. Berkshire dueled with hedge fund Elliott Management Corp., Energy Future's largest creditor, for the right to buy the transmission business. Berkshire gained the support of big power customers and Texas cities, but Sempra swooped in with a richer offer that had Elliott's support. Berkshire's offer didn't advance to the stage of being debated by the Texas PUC.

Energy Future creditors are impatient to sell Oncor. The Texas PUC is moving ahead on Sempra's offer with caution, however.

"The point of this exercise is once and for all to get Oncor out from under a risky, rickety, debt ladened majority owner and into a situation where Oncor and its management can, for the benefit of its ratepayers, move forward without the nagging specter of a financially troubled parent," Mr. Anderson wrote in the memo.

Sempra has an investment-grade credit rating, but the Texas PUC wants assurance that geopolitical risks from far-flung projects won't weigh on Oncor, forcing the transmission business to ask for rate increases.

Of particular concern are Sempra's interests in Chilean and Peruvian utilities, which means risks from currency fluctuations, political and economic change, according to the memo.

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

(END) Dow Jones Newswires

October 26, 2017 16:51 ET (20:51 GMT)