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NRG Asks Texas PUC To Require That NextEra Divest Retail Electric Providers As Condition Of Oncor Acquisition

January 12, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

In a statement of position filed with the Public Utility Commission of Texas, the NRG Companies have recommended that the PUC should require NextEra to divest its Texas retail electric providers as a condition of acquiring Oncor

NextEra Energy owns two retail subsidiaries that participate in ERCOT retail markets: (1) Gexa Energy, LP (Gexa); and (2) NextEra Retail Texas, LP (NRT). An additional NextEra Energy affiliate, NextEra Energy Power Marketing, LLC (NEPM) is also registered as an Option 2 REP, although as of October it was not serving any customers.

"[I]n order to ensure that Oncor does not favor its affiliated retail electric providers ('REPs'), the Commission should require NextEra to divest those REPs within a specified time period after the closing of the transaction," NRG said

"The safeguards that the Commission put in place as part of its approval of the last merger proceeding regarding Oncor in 2008 included a number of protections that depended upon a strongly independent board of directors and corporate separation for the utility. This strong governance structure was important to protect against the potential for favorable treatment by a utility towards its affiliates in the competitive space in the ERCOT Region. In the Application in this proceeding, Applicants propose a materially different corporate structure that suggests a need for greater protection for customers, yet Applicants also seek to weaken the independence of the Oncor board of directors," NRG said

"Additional protections are necessary to ensure the efficient operations in the competitive arena and to prevent the possibility of corporate self-dealing and favorable treatment of affiliates, which is very difficult to police," NRG said

"Under the current Oncor structure, the utility has a separate and independent board, separate debt structure, and other measures to ensure independence and protection of the competitive market. However, the proposed transaction, with a blending of debt, sharing of executives and common, ultimate financial outcomes, would result in high incentives and opportunities for bias and favorable treatment by the utility towards competitive affiliates that demand a higher, not lower, standard of corporate separation," NRG said

"In regards to the competitive retail market ... there is a great deal of discretion on the part of utilities regarding the treatment of REPs including the processing of customer transactions, data access and processes, financial settlement, and other actions that, again, create too great a risk of bias and favorable treatment towards affiliates vs. non-affiliates to be permitted. Given the nature of the retail business model, which is ubiquitous in terms of ERCOT-wide applicability of processes administered by utilities to support REP business processes in the ERCOT Region, the only effective solution is to require divestiture of those competitive affiliates if the proposed transaction is to be found in the public interest," NRG said

"In the end, the interests of Oncor and NextEra and its competitive affiliates cannot be separated. The ownership of the overall company will be publicly traded as NextEra Energy stock and by other equities. In order to find that the proposed transaction is in the public interest, the Commission must not allow those dynamics to occur," NRG said

In addition to the, "[t]imely divesture of NextEra Energy's REPs in the ERCOT Region," NRG proposes that, "in order to ensure the efficient operation of competitive markets, the Commission should prohibit the interconnection of any NextEra Energy generation to the Oncor transmission system."

Competitive affiliate concerns were voiced by a number of stakeholders, though no other stakeholder proposed a required divestiture of the NextEra retail providers

Texas Industrial Energy Consumers said that NextEra Energy's growth strategy is to, "leverage Oncor to support unregulated investment," with TIEC citing, among other things, a presentation to NextEra's board (the specifics of which were filed under seal)

With more of its business in the "Excellent" credit rating business profile as a result of acquiring the regulated utility Oncor, TIEC said in testimony that NextEra Energy, "can increase financial leverage and grow its non-regulated business."

"Effectively, NEE [NextEra Energy] is using Oncor's credit profile to increase the regulated business mix and move NEE to the low end of S&P's 'excellent' business risk profile while at the same time largely using low-cost [redacted] debt to finance the transaction," TIEC said

TIEC proposed various ring fencing and governance conditions to address such concerns, as well as rate credits required to be passed through to customers by retail electric providers (click here for more details in related story today).

Docket 46238

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