Texas PUC Approves Hunt Acquisition of Oncor, Merger With Sharyland To Be Studied; Does Not Require $100 Million Rate Credits Via REPs

The Public Utility Commission of Texas yesterday adopted a final order approving the acquisition of Oncor by subsidiaries and affiliates of Hunt Consolidated

Regarding a potential merger of Oncor and Sharyland Utilities, LP rates, the PUCT's final order provides for a study on the issue, specifically stating, "Oncor AssetCo and OEDC [Oncor Electric Delivery Company] must fund a study as soon as practicable in consultation with Commission Staff to determine any additional net benefits to ratepayers or operational synergies that may be derived from the relationship that will exist between the sister companies or the possible future combination of Oncor AssetCo and OEDC with Sharyland Distribution & Transmission Services, LP, and Sharyland Utilities, LP."

Regarding the treatment of tax expense, the Commission ordered, "Subject to the results of the rulemaking on federal income-tax expense, if Ovation Acquisition I elects to be taxed as a REIT and exposes ratepayers to the risks associated with this structure, any reduction in their federal income-tax expense resulting from the use of the REIT structure may be reflected in rates such that the savings are shared with ratepayers. The amount of tax savings shall be an issue to be addressed in the next rate proceeding of Oncor AssetCo and OEDC. The Commission's public interest determination on this transaction is based, in part, on this possible sharing of the tax savings with ratepayers."

The PUCT also is not conditioning approval on the issuance of $100 million in rate credits to Oncor customers, which was proposed to be accomplished through retail electric providers. The suggested use of the rate credit as a proxy for potential future sharing of tax savings with customers was rendered unnecessary by the expected filing of a rate case sooner than anticipated, and the accounting for amounts related to the tax expense as a regulatory liability, such that the future sharing of any savings will not be considered retroactive ratemaking.

While the change in control has been approved, consummation of the acquisition is subject to various other factors, including resolution of the Energy Future Holdings bankruptcy, and the Hunt companies' ability to win investor support for the transaction with the conditions approved by the PUCT