Hunt-Oncor marriage on the rocks before PUC vote

Energy Future Holdings was created by the biggest leveraged buyout on record. The electricity supplier’s bankruptcy was the largest ever by any company in the industry. Now it’s making headlines as it tries to get out of Chapter 11.

With less than a month to go before Texas regulators must decide whether to allow a group led by Hunt Consolidated to buy Energy Future’s Oncor Electric Delivery utility, an unlikely hurdle has been thrown up. By Oncor. The power distributor, which maintains power lines throughout North Texas, has raised red flags about key aspects of the deal, which is the cornerstone of the plan to allow Dallas-based Energy Future to emerge from bankruptcy.

“Normally, when these things are happening the parties are all in agreement on the applicant’s side,” said Paul Patterson, a New York-based analyst for Glenrock Associates. “In this case, it doesn’t appear that way. This is kind of uncharted territory.”

Oncor’s questions bolster the concerns of a long list of opponents to the deal, from consumer advocates to the Texas Public Utility Commission’s own staff. While Oncor hasn’t asked that the transaction be rejected, it said in filings with the commission that the terms of the purchase might not be good for its customers, revenue and credit ratings. In fact, Oncor Chief Executive Officer Robert Shapard was blunt when asked at a hearing if the sale as initially proposed would be in the public interest.

His answer: “No.”

Should Texas reject the deal, Energy Future would return to bankruptcy court. While the state has until March 27 to decide, the commission could vote as soon as Thursday, Chairwoman Donna Nelson said last week at the IHS CERAWeek energy conference in Houston.

Energy Future believes “this option is the preferred path to exit bankruptcy court,” spokesman Allan Koenig said via e-mail. Hunt declined to comment but said in a Feb. 3 filing that “by working with Oncor management to address its concerns, the transaction has been made stronger.”

Oncor spokesman Geoff Bailey said by e-mail that the utility’s role “is to ensure that the financial and operational structure put in place is in the best interest of our shareholders, customers and company.”

Energy Future filed for bankruptcy reorganization in April 2014, with nearly $50 billion in debt, mostly racked up by the record leveraged buyout of TXU Corp. seven years earlier by KKR, TPG Capital and Goldman Sachs. That bet went bad when natural gas prices plunged.

The Energy Future unit that owns Oncor would be converted into a real estate investment trust owning 121,000 miles of wiring that delivers power throughout Texas.

A main issue for opponents is the federal income-tax savings the buyers would get by forming a REIT. Some parties have demanded those savings be shared with rate payers. The buyers called the argument “illogical” in a recent filing with the PUC.

This story was originally published February 29, 2016 at 2:49 PM with the headline "Hunt-Oncor marriage on the rocks before PUC vote."