Hunt plan for Oncor is too risky for North Texas consumers

Hunt Consolidated Energy and several unsecured creditors are proposing to purchase Oncor, the huge North Texas energy distribution company, from the bankruptcy court and restructure it as a real estate investment trust.

While I’m confident that the Hunt organization is well qualified and fully capable of such an acquisition, I am very concerned about the potential impact of higher rates that Oncor’s 10 million customers may be forced to pay if the acquisition is structured in such a way.

Hunt Consolidated previously tried this approach with the Sharyland Electricity Co., a much smaller utility, resulting in skyrocketing rates that negatively affected consumers.

While real estate investment trusts are commonly used for building shopping malls that operate in a free-market environment, the IRS frowns on them for electric utility companies, which do not operate in truly free markets.

When the Hunt proposal became public information, Moody’s indicated that, if approved, it would negatively affect Oncor’s credit rating. Additionally, the American Association of Retired Persons cautioned that the sale would ultimately harm consumers while creating new risks.

The proposal would split Oncor into two companies: An $11.6 billion assets company that would own the infrastructure, and an operations company — which includes nearly all of Oncor’s employees — that would be capitalized with only $150 million.

That latter company would be solely responsible for $2.4 billion in pension obligations as well as for responding to any catastrophic weather events — which happen frequently in North Texas.

I am primarily concerned that this plan is financed by many of the same investment funds that previously bet big, and subsequently lost big, in the 2007 TXU leveraged buyout.

The current proposal would take advantage of the tax laws associated with the real estate investment trust to generate larger profits for the investors at the expense of the operations side.

This could mean not enough capital to ensure that power delivery remains reliable.

In fact, as the Hunt proposal specifies, the money collected as tax expenses from Oncor’s ratepayers would be used to pay dividends to shareholders instead of making tax payments to the IRS.

I question the wisdom of experimenting with a trust structure for a large utility company at a time when access to electricity is just as important as food and water.

To keep rates under control and to ensure the company’s ability to secure vitally needed future financing, Oncor must receive an investment-grade credit rating.

Unfortunately, there is no certainty that Oncor will actually benefit from the special credit rating, nor is there any assurance the IRS will even approve any takeover with the kind of structure Hunt is proposing.

The Hunt name is a good name in Texas, as it should be, and Texas has benefited from the Hunt family businesses.

However, I believe the precedent this proposal will set if approved is not in the best interest of the Oncor customers in my Senate district.

Since reliable electricity service is at stake, we hope the Texas Public Utility Commission will insist on answers to these questions and many others before approving such an unorthodox business structure to the largest utility in Texas.

I strongly urge the commission to make the best interests of consumers the most important consideration in the decision process.

This story was originally published January 13, 2016 at 5:44 PM with the headline "Hunt plan for Oncor is too risky for North Texas consumers."