PUC experts urge rejection of Hunt bid for Oncor

Oncor is the state’s largest electric transmission company.
Oncor is the state’s largest electric transmission company. Star-Telegram/Paul Moseley

Experts at the Public Utility Commission of Texas are urging its three commissioners to reject plans by a Dallas oilman and real estate tycoon to take over the state’s largest electric transmission company, a recommendation that could loom large for Texas’ ratepayers and electric grid.

“The proposed transaction is not in the public interest and I recommend that the Commission reject the applicants’ application,” Darryl Tietjen, who oversees rate regulation for the agency, wrote in public testimony submitted Wednesday.

Tietjen was weighing in on a proposal from Ray L. Hunt and other investors to buy Oncor, whose 119,000 miles of transmission and distribution lines deliver power to more than three million homes and businesses in North and West Texas.

A consultant hired by the agency joined Tietjen in calling for a rejection.

To avoid paying federal income taxes, Hunt wants to transform Oncor into a real estate investment trust, a nearly unprecedented structure for a utility that has worried consumer advocates.

His $18 billion-plus bid for the company is the lynchpin of a broader push to deliver Energy Future Holdings, Oncor’s parent, from one of the biggest corporate bankruptcies in American history.

A Delaware bankruptcy judge approved Energy Future’s reorganization plan last week after 19 months of wrangling between Wall Street firms and other creditors. For it to become reality, however, Texas regulators must sign off on Hunt’s Oncor deal.

The Texas agency set a hearing for January, when its three commissioners must decide whether the plan fits the interests of everyday Texans.

Jeanne Phillips, a Hunt spokeswoman, declined to comment on the proceedings.

Tietjen wrote that Hunt’s plan to avoid paying income taxes would amount to a “substantial transfer of wealth from ratepayers to shareholders” totaling nearly $250 million each year.

As a real estate investment trust, Oncor would essentially split into two companies, with one owning the physical assets such as power lines, trucks and transformers and the other renting and operating the equipment and dealing with customers.

The unorthodox structure, more commonly used for shopping malls and elsewhere in the real estate world, would help Oncor borrow money at lower rates, proponents say, which could ultimately translate into lower electric rates for customers.

But it makes some watchers nervous, particularly consumer advocates who want Hunt to pass his tax savings directly to ratepayers.

With the monopoly utility paying virtually no federal income taxes under the proposed structure, Tietjen wrote, Oncor’s shareholders would earn a rate of return of so high that it “could not be considered acceptable under any reasonable application of economic and regulatory standards.”

A consultant analyzing the plan for the agency also recommended that the commissioners reject it.

Craig Roach, president of Boston Pacific Company, wrote of “significant potential harm to ratepayers” in testimony submitted Wednesday.