The Public Utility Commission of Texas, in a March 8 order, said that it finds that the transaction through which Sempra Energy will acquire Energy Future Holdings’ approximately 80.03% indirect interest in Oncor Electric Delivery Company is in the public interest, provided that certain regulatory commitments are met.
The commission noted that an initial non-unanimous settlement agreement signed by Oncor, Sempra, commission staff, the Office of Public Utility Counsel, the Steering Committee of Cities Served by Oncor (Cities), and the Texas Industrial Energy Consumers was filed last December. A revised version of the settlement agreement was filed in January, and included the Alliance for Retail Markets and the Texas Energy Association for Marketers as additional signatories. Later in January, a revision to the revised settlement agreement was filed, and included Golden Spread Electric Cooperative and Nucor Steel-Texas as signatories, the commission added.
The Energy Freedom Coalition of America and the Texas Legal Services Center initially opposed the revision to the revised settlement agreement, but have since joined as signatories to that agreement. With the addition of those two parties, the commission added, all parties to the proceeding signed the settlement agreement.
As noted in the order, Sempra Energy, Sempra Texas Merger Sub I, Energy Future Intermediate Holding Company, and Energy Future Holdings last August entered into a merger agreement. Under that agreement, Sempra Texas Merger Sub will merge with and into reorganized Energy Future Holdings, with reorganized Energy Future Holdings surviving as a wholly owned subsidiary of Sempra Energy.
At the conclusion of the transaction, the commission added, the approximately 80.03% indirect interest in Oncor currently owned by Energy Future Holdings will be owned by Sempra Energy. Texas Transmission Investment will maintain its 19.75% ownership interest in Oncor.
The parties have agreed that Sempra Energy must receive commission approval of any transaction in which Sempra Energy seeks to acquire the 19.75% ownership interest in Oncor held by Texas Transmission Investment, and the regulatory commitments set forth in the order and the settlement agreement are to apply to both the approximately 80.03% and the 19.75% interest, if the 19.75% interest is acquired by Sempra Energy.
The commission also noted that Sempra Energy will fund the $9.45bn purchase price for EFH’s approximately 80.03% interest in Oncor using a combination of about 65% equity and 35% long-term debt issued at the Sempra Energy level. Immediately after the closing of the proposed transaction, Sempra Energy commits to extinguish all debt that resides above Oncor at Energy Future Intermediate Holding Company and Energy Future Holdings. The merger agreement governing the transaction at issue in the docket is part of a joint plan of reorganization of Energy Future Holdings, Energy Future Intermediate Holding Company, and certain debtors under Chapter 11 of the U.S. Bankruptcy Code, the commission added. The U.S. Bankruptcy Court for the District of Delaware issued an order confirming the joint plan of reorganization on Feb. 27, the commission noted.
Discussing the evaluation of the transaction, the commission said that the proposed transaction provides an opportunity to end the bankruptcy proceeding faced by Oncor’s majority parent company, Energy Future Holdings, and it will allow an energy-services holding company with an investment-grade credit rating, as well as experience in managing and operating utilities, to acquire an approximately 80.03% interest in Oncor.
Based upon the regulatory commitments contained in the settlement agreement, the transaction will not adversely affect the health or safety of Oncor’s customers or employees, and it will not result in the transfer of jobs of citizens of Texas to workers domiciled out of the state, the commission said. Furthermore, the commission said that under the settlement agreement, the joint applicants have committed that interest-rate and merger-synergy savings will be passed through to customers.
Accordingly, subject to certain conditions and regulatory commitments, the commission said that it finds that the transaction is in the public interest.
The regulatory commitments include that at closing and thereafter, Oncor Electric Delivery Holdings Company (Oncor Holdings) and Oncor will have separate boards of directors that will not include any employees of Sempra Energy’s competitive affiliates in Texas, any members from the boards of directors of Sempra Energy’s competitive affiliates in Texas, or any individuals with direct responsibility for the management or strategies of such competitive affiliates. Upon the consummation of the transaction, Oncor will have a board of directors comprised of 13 directors, and Oncor Holdings will have a board of directors comprised of 10 directors.
The commission added that Oncor is to make minimum capital expenditures equal to a budget of at least $7.5bn over the five-year period beginning Jan. 1, 2018, and ending Dec. 31, 2022, subject to certain adjustments to the extent reported to the commission in Oncor’s earnings monitor report.
In addition, Oncor is to make minimum cybersecurity expenditures equal to a budget of $35m over the five-year period beginning Jan. 1, 2018, and ending Dec. 31, 2022.
Among other things, the commission also said that Oncor will maintain its separate headquarters and management in Dallas, Texas, and that effective no later than the transaction’s closing, Robert Shapard will assume the role of executive chairman or chairman of the Oncor board, while E. Allen Nye, Jr., will assume the role of Oncor CEO.