By: Jeff Mosier |
Berkshire Hathaway was knocked out of the Oncor sweepstakes this summer. But the new bidder for Texas’ utility giant is borrowing from Warren Buffett’s playbook.
Sempra Energy released a list of 47 regulatory commitments Thursday intended to woo the Texas Public Utility Commission, including a promise to return 90 percent of savings from lower interest rates to Oncor customers. Most of the commitments are very similar to the ones offered by Berkshire Hathaway.
Other commitments include maintaining Oncor’s independence from its new owner, a PUC requirement. Previous Oncor bids were derailed by companies that didn’t provide enough independence or consumer benefits.
“Since we announced our transaction in August, we have met with many stakeholders to gain their perspectives on how we can best meet the needs of Oncor customers and the state of Texas,” said Debra Reed, chairman, president and CEO of Sempra, in a written statement Wednesday. “Our application responds to their feedback and details our financing plan and regulatory commitments, as well as our approach to resolving the long-running [parent company] EFH bankruptcy proceeding.”
Sempra filed its initial application and other paperwork with the PUC Thursday morning. The PUC has up to 180 days to decide whether the $9.45 billion deal is in the public’s interest.
Geoffrey Gay, an attorney representing a coalition of 150 cities served by Oncor, said he’s optimistic this might “finally might do the trick.” Although, he hadn’t read Thursday’s filings yet, Gay said Sempra had provided the Oncor cities with a list of commitments.
“My expectation is that this will result in approval,” he said. “Third time out might be a charm.”
On Wednesday, the San Diego company said it was reversing an earlier proposal to burden Oncor with the $3 billion it planned to borrow to complete the proposed acquisition. And, Sempra said it won’t be teaming up with third-party investors to close the deal.
The effort to find a new owner for Oncor started after its parent company, Energy Future Holdings, filed for bankruptcy in 2014. Several deals failed because bidders couldn’t convince a Delaware bankruptcy judge that the price was right or they failed to please the PUC.
The court’s goal is to provide the best return for EFH creditors. The PUC is only concerned with protecting customers of Oncor, Texas’ largest regulated utility. This will be the third time an offer for Oncor has gone to Texas regulators.
The most recent scuttled deal came from Berkshire Hathaway, which offered $9 billion for Oncor. New York hedge fund Elliott Management, which acquired much of EFH’s debt at a deep discount, blocked the transaction saying debt holders weren’t getting a good deal.
Sempra then entered the scene in August with a better price. And now it has made comparable regulatory commitments.
Although Sempra has been responsive, Gay said he wants to see a commitment that Oncor wouldn’t seek to increase utility rates for several years after the purchase. Oncor is currently seeking a rate increase with the PUC.
“Ratepayers have a right to say, ‘You came up with 400 million bucks to buy off your creditors, but you can’t sweeten any deal for the ratepayers?'” Gay said.
Although Oncor has been without a financially healthy parent company for more than three years, it has continued to operate normally. Oncor owns and operates power lines for about 3.4 million homes and businesses, mostly in North Texas. Since its rates are regulated, it generates a consistent profit.
Sempra is a Fortune 500 company that serves 7.3 million homes and businesses through San Diego Gas & Electric and Southern California Gas. It also owns utility companies in Chile and Peru and is developing a a natural gas export facility in Port Arthur.