Some amazingly smart business people, led by top investment experts at KKR, TPG Capital and Goldman Sachs, joined in 2007 to buy the former TXU Corp. power company for $45 billion.
Then came the recession, energy market shocks and other unfortunate economic jolts. The company formed by those very smart people, Energy Future Holdings, filed for bankruptcy in April 2014.
Nobody’s perfect. Keep that in mind for what comes next.
One thing about the way EFH was assembled worked out very well. TXU’s unregulated electric generation side (renamed Luminant) was split from its regulated electric delivery business (renamed Oncor).
Luminant lost money, but Oncor, operating under a regulatory structure, has made money.
Under this new EFH structure, consumer advocates insisted on a financial “ring fence” around Oncor so that any economic misfortune on the Luminant power-generation side would not drag down the electric delivery side.
EFH owns 80 percent of Oncor but only has two seats on its 11-member board of directors.
The ring fence turned out to be crucial. Now the same thing is crucial again.
EFH is trying to emerge from bankruptcy. Last month, the Delaware judge who is handling the case gave preliminary approval to an agreement under which Dallas-based Hunt Consolidated and a group of EFH bondholders would take over Oncor.
The Hunt-led group and its co-owners plan to raise more than $12 billion to pay off debt held by other EFH lenders.
The Hunt group has plans for Oncor’s business structure that, while not unheard-of, are unusual in the regulated utility business.
Hunt plans to divide Oncor again. One side would be the company’s physical assets (119,000 miles of power lines and other transmission infrastructure).
The other side would be Oncor’s ongoing business operations.
The unusual part is that Hunt plans to organize the physical assets as a real estate investment trust, in which investors could buy and sell ownership units.
The business side would lease the assets for delivering electricity.
And that’s where another ring fence is needed. Again, the electric delivery side has to be protected from the ups and downs of the wheeler-dealer investment side.
The Public Utility Commission of Texas, Oncor’s regulator, has six months to study the Hunt proposal, with ultimate care, and decide whether to allow it.
Three million Oncor customers are depending on PUCT commissioners to protect them.