By: Jeff Mosier |
After a tumultuous decade that started with a record-setting leveraged buyout and ended with a prolonged bankruptcy brawl, Dallas-based electricity distributor Oncor is finally headed toward stability.
The state Public Utility Commission unanimously approved a $9.45 billion deal to sell Texas’ largest regulated utility to San Diego-based Sempra Energy. There was little debate and even less drama Thursday as the commission approved the sale of the company that owns and operates power lines for about 3.5 million Texas customers.
Commissioners praised the years of work by PUC staff, the leadership of Oncor and the willingness of Sempra executives to listen to state regulators. Then PUC chairwoman DeAnn T. Walker ended the four-year ordeal by telling the two parties: “Y’all are done.”
Sempra had already agreed to several dozen conditions requested by key stakeholders, including the PUC staff, officials in cities served by Oncor, business customers and consumer advocates.
Those concessions include an Oncor board that would remain independent and finances that would be insulated from its bankrupt parent company. And almost all of Oncor’s interest rate savings generated by the deal will go back to customers for the next couple of years.
“We believe this is an excellent outcome for our company, our customers and our employees. Sempra Energy is a well-run company, and we believe they will be a strong, stable majority owner for Oncor and an excellent partner for Texas,” Oncor CEO Bob Shapard said in a written statement.
This deal to buy Oncor succeeded where previous efforts by Dallas’ Hunt family, Florida-based NextEra Energy and Warren Buffett’s Berkshire Hathaway failed. The Sempra offer, which included lessons learned from the earlier failures, was the third to make it the PUC since October 2015.
Austin’s approval of this deal comes barely more than 10 years after a different set of commissioners approved the creation of Oncor parent company Energy Future Holdings. That vote was just as quick and anticlimactic after contentious public debate.
“What rolled in here like a lion will roll out like a lamb,” Commissioner Paul Hudson said at the time.
The $45 billion deal was largest U.S. leveraged buyout at the time. But it didn’t take long for low natural gas prices and high debt levels to send the company into a tailspin.
Aside from rate relief, Oncor customers aren’t likely to notice a change with this latest deal. The company’s charges flow through the retail electric providers, so Oncor doesn’t have a direct relationship with its customers.
Also, a great deal of the focus in Austin in recent years has been finding a stable parent company for Oncor while changing little else about how the utility operates.
Sempra has also promised no workforce cuts or other major shake-ups at the utility, which serves most of North Texas and parts of West Texas.
The three Texas commissioners agreed unanimously Thursday that the sale was in the public’s interest. The bankruptcy court overseeing the dismantling of Oncor parent company Energy Future Holdings had already signed off on the deal.
“We are pleased the commission has found our transaction to be in the public interest. Sempra Energy is committed to being a good partner for the state and is supportive of Oncor’s mission to provide Texans with safe, reliable and affordable electric service,” Sempra president and CEO Debra L. Reed said in a written statement.
The deal gives Sempra, which also owns San Diego Gas & Electric Co. and Southern California Gas Co., 80 percent ownership of Oncor. Almost all of the other 20 percent is owned by a investors led by large Canadian pension fund OMERS and CIG, a sovereign wealth fund in Singapore. Sempra officials have said they would be interested in buying that remaining share in the future.
The delay in finding a new owner for Oncor was largely a result of a split between Texas regulators, who focused on ensuring Oncor’s stability, and the bankruptcy court, which was interested in getting the most money for creditors.
The PUC rejected one earlier offer for Oncor and placed restrictions on another deal that the buyer couldn’t meet. Those decisions led to litigation and verbal attacks but no reversal from the PUC.
A Delaware bankruptcy court also passed over another offer that appeared likely to get PUC approval in favor of Sempra’s larger offer.
This time, the PUC and bankruptcy court were in agreement even with their different goals.
“The commissioners stuck to their guns and did the right thing with this vote today,” said Geoffrey Gay, an attorney representing about 150 cities in Oncor’s coverage area.
Although it has been financially stable, Oncor has been caught up in Energy Future Holding’s bankruptcy case since 2014. That energy powerhouse started struggling financially soon after its creation and wasn’t able to recover.
In its short existence, Energy Future Holdings generally posted losses of $2 billion or more. Meanwhile, Oncor reported steady profits that ranged between $320 million and $450 million.
TXU Energy and Luminant — Texas’ largest retail electric provider and largest electricity generator — were already spun off under new parent company Vistra. Oncor, which is low-risk and has state-guaranteed profitability, was considered the crown jewel of Energy Future Holdings when the company finally collapsed.
As part of the deal, Shapard will become Oncor’s executive chairman and vice president, and general counsel Allen Nye will take over as CEO. Shapard announced his planned retirement as CEO in October 2016, and previous deals featured that change in their transition plans.