Texas regulators ask hard questions in Sempra’s $9.45 billion deal for Oncor

By: Jeff Mosier |

The $9.45 billion offer to buy Oncor appears to have the clearest path to success after 3 1/2 years of stalled and failed efforts to sell the state’s largest regulated utility.

Still, with a state regulator raising some questions and concerns, this isn’t a done deal for the bidder, San Diego-based Sempra Energy. In a memo filed this week, Ken Anderson, a member of the Texas Public Utility Commission, raised red flags about the debt load on Sempra’s books, its credit ratings and unanswered questions about the California company plans to finance the purchase.

The sale of Oncor — fallout from the bankruptcy of its parent company — can’t be completed until the commission determines that it is in the public’s interest. Oncor delivers electricity to 3.4 million households and businesses, mostly in North Texas.

Anderson wrote that the “point of this exercise is once and for all to get Oncor out from under a risky, rickety, debt-ladened majority owner. … Our objective should be to ensure that Oncor is not being permitted to hop from one frying pan into another or even just into a simmering pot.”

At a Thursday morning meeting where there was little discussion, the three commissioners laid out issues that need to be addressed by April 3. But Anderson’s memo shines a light on some issues that will get close scrutiny.

His memo pointed out that:

  • Sempra’s debt increased from $5 billion in 2007 to $18 billion in 2017. The Oncor purchase would add $3.18 billion to that debt.
  • Sempra’s credit ratings are “investment grade” but near the bottom of that tier. “Credit ratings at this level mean the company is vulnerable to changing economic conditions and could face challenges if overall economic conditions decline,” Anderson wrote. He pointed to Sempra’s liquid natural gas export terminal planned for Louisiana as well as the company’s overseas projects.
  • Sempra needs to provide more financial details about the purchase.

The process has become familiar to many Texas observers. The Sempra deal is the third time the utility commission has been asked to approve an offer to purchase Texas’ largest regulated utility.

Its parent company, Energy Future Holdings, filed for bankruptcy 3 1/2 years ago and has been trying to sell the utility since then. Oncor is the last remaining piece of the original EFH and its most valuable asset. That makes this sale the last hope for creditors waiting to get paid.

Oncor’s fate has been at the mercy of a Delaware bankruptcy court and the PUC since the April 2014 bankruptcy. Both need to approve the purchase.

Previously, Dallas’ Hunt family and Florida-based NextEra Energy took their offers to regulators and other stakeholders in Austin but stumbled there.

The PUC approved the Hunt deal but with conditions that the company couldn’t immediately meet. The NextEra proposal was rejected by commissioners in part over fundamental disagreements about Oncor’s continued independence from its parent company and the amount of debt created.

Two more recent offers — from Warren Buffett’s Berkshire Hathaway and Paul Singer’s hedge fund Elliott Management — never made it through bankruptcy court.

The bankruptcy judge ruled in September that Sempra could take its offer to Texas regulators.

Going into the Thursday meeting, there were no obvious red flags suggesting Sempra’s offer would meet resistance in Austin.

Sempra announced earlier this month that it had made changes to its offer and potentially smooth the way for approval. Company officials said they dropped plans to burden Oncor’s new holding company with $3 billion in debt and wouldn’t team up with third-party investors to finance the purchase.

The current offer closely matches the Berkshire Hathaway deal, which received preliminary support from many of the Texas intervenors.

Commissioners must determine that a deal is in the public interest before approval.

Texas regulators ask hard questions in Sempra’s $9.45 billion deal for Oncor