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Florida-based NextEra agrees to $18.4 billion deal to buy Texas electricity giant Oncor

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It looks like Texas’ largest electric utility may be about to get a new owner. And the name is not really a shocker. Florida-based NextEra has been pursuing Oncor for several years. This would mean the Dallas-based Hunts have lost their star-crossed battle to make a deal.

Here are five key takeaways from Friday’s annoucement:

  • If it goes through, the $18.4 billion plan is the biggest step in ending bankruptcy proceedings that enmeshed Oncor, the power-plant company Luminant and the retail electricity company TXU Energy for a couple of years. Getting this settled matters to people who don’t own stock in or work for these companies because it will stabilize the businesses that produce and transmit most of the electricity in Texas.
  • It’s not official yet. Because the Energy Future Holdings, the parent corporation of those three power-related companies, filed for Chapter 11 in 2014, a bankruptcy judge in Delaware needs to bless the deal for it to happen. (Oncor was not part of the bankruptcy and in fact has continued to turn a significant profit.) NextEra will also need to get the approval of  the Texas Public Utility Commission. The Delaware court could issue a ruling in a few weeks. The PUC has six months to chew over the proposal.
  • It’s a lot more likely to get regulatory approval than the plan proposed by the Hunts. That deal depended on a complex corporate structure called a real estate investment trust that was attacked by advocacy groups and the PUC’s own staff. By contrast, the NextEra proposal is an enormous but relatively simple purchase plan.
  • Employees and leaders of Oncor can figure their jobs are secure for a while. In the news release and in an investor call Friday morning, NextEra repeatedly praised how Oncor has been run during the bankruptcy period. And NextEra pledged to keep the Oncor name and headquarters where it is.
  • Finally, the Hunts have not given up. And given the various hurdles still sitting between now and final approval of the NextEra bid, it’s not totally impossible that someone other than NextEra will end up owning Oncor.

Here’s how NextEra explained the deal Friday morning:

“We are pleased to have reached a definitive agreement to acquire EFH’s 80 percent indirect interest in Oncor,” said Jim Robo, chairman and chief executive officer of NextEra Energy.

“We are incredibly impressed by Oncor’s management team and its employees, and we are committed to retaining the Oncor name, its Dallas headquarters and local management,” he said. “We look forward to working closely with Oncor’s leadership team and filing our joint application with the Public Utility Commission of Texas.”

The PUC is where the Hunts’ effort to make the deal foundered earlier this year.  Even though the PUC approved the Hunts’s plan, the approval had so many strings attached that ultimately the investors were unwilling to stick with it.

The Hunts say they still are in the game, however:

“This announcement is not a surprise and, as we know, is just another step in a very long process. Any buyer must have approval by the Public Utility Commission of Texas and the bankruptcy court. Therefore, Hunt will continue to work with our investors and other stakeholders to maintain ownership of Oncor by Texans for Texans,” says a written statement by Jeanne Phillips, official spokeswoman for Hunt Consolidated.

Between court rulings and regulatory filings, NextEra expects the deal to actually close early next year.  But that’s not the same as a guarantee.  News reports have said Berkshire Hathaway and Edison International have also expressed interest in buying Oncor. Other bidders have 21 days to try to simply beat the NextEra bid.  And even after that, the NextEra offer could be scrubbed for a $275 million breakup fee.

The NextEra bid is already larger than what the Hunts put forward, at least based on the estimated value of the company. The Hunts pegged Oncor’s value earlier this year at about $17.6 billion.

There are technical aspects to the proposal that investors will take a hard look at, says Angelo Thalassinos, senior legal analyst at Reorg Research:

“While the NextEra Energy deal appears to move the EFH restructuring forward, the devil is always in the details. For instance, the anticipated disclosure of the specific breakdown between cash and NextEra common stock to be provided to EFH and EFIH creditor classes will be closely scrutinized.”

It’s not just investors who will be putting the deal under the microscope.

Geoffrey Gay is an attorney representing  the Steering Committee of Cities Served by Oncor, made up of about 150 Texas cities. he was not a fan of the Hunt plan.

“This is a much more straightforward proposal,” he said Friday. “It is not clear if there are benefits for rate payers or if this will end up with some kind of rate increase in the future.”

He’s already had some preliminary talks with NextEra. And in a couple of weeks, his group will host the bosses of Florida Power & Light, a large utility owned by NextEra.

“We need to start a discussion about how NextEra deals with cities and their interests,” Gay said.

Tom “Smitty” Smith is director of the Texas office of the Public Citizen advocacy group. He’s more concerned about the coal-burning plants owned by Luminant than the power lines held by Oncor. But he said NextEra has a record of integrating renewable power sources in its existing business that makes him hopeful about what it could influence in Texas.

Oncor reported $3.9 billion in revenue last year and serves about 3.4 million customers with over 121,000 miles of transmission lines.

According to NextEra materials, the current company has $82 billion in total assets , serves about 5.3 million customers and owns more than 76,000 miles of power lines. The combined company would have $102 billion in total assets, serve 8.6 million customers and own about 200,000 miles of power lines.