By Tom Kleckner
Hunt Consolidated’s bid for Texas utility Oncor may not be over after all.
The Hunt group filed a lawsuit Thursday in state court against the Public Utility Commission of Texas, seeking a review of its March order that accepted the proposed acquisition but imposed restrictions that led to the deal’s unraveling.
The lawsuit says the PUC made a number of errors in its ruling on plans to split Oncor into two companies and incorporate a real estate investment trust (REIT) structure (Docket No. 45188).
The order approved the creation of Oncor AssetCo, which would own the transmission and distribution facilities, while Oncor Electric Delivery Co. (OEDC) would rent the facilities to provide electric delivery services. As a REIT, AssetCo would avoid paying federal income taxes if it derived at least 90% of its profits from property rents.
But the PUC’s order included conditions that made it less attractive to investors, including requiring federal tax savings be set aside for possible refunds to customers. The REIT structure would have allowed Hunt to funnel as much as $250 million a year in tax savings to shareholders.
According to the lawsuit, the PUC “prejudiced” the group’s rights by finding the leases between the Oncor companies would be tariffs subject to commission approval; by not treating AssetCo and OEDC on a consolidated basis for ratemaking purposes; by failing to give the restructured Oncor the standard income tax allowance; and by failing to vacate the final order and dismiss the docket.
The lawsuit says the PUC made “administrative findings, inferences, conclusions and decisions” in violation of the state Public Utility Regulatory Act and that were not “reasonably supported by substantial evidence in the record.”
“Because the merger agreement terminated, there was no longer a transaction for the PUCT to approve,” the lawsuit says. “At that time, the PUCT still had jurisdiction over the final order. … Therefore, the PUCT should have vacated the final order and dismissed the proceeding without prejudice. This would have avoided the errors.”
“It sounds like they want to reopen the case, which is confusing at best,” said PUC spokesman Terry Hadley when notified of the lawsuit Thursday evening. “This is unusual.”
“Businesses often file appeals within the court system to preserve their legal rights going forward,” Hunt spokesperson Jeanne Phillips said in a statement. “That is the intent here.”
The Hunt bid appeared to be dead in May, when the PUC rejected all motions for rehearing in the case and let its March order stand. The Hunt group and creditors of Oncor’s bankrupt parent, Energy Future Holdings, had asked the commission to vacate the order and dismiss the proceeding, thus leaving open the possibility of a new application. (See Texas PUC Denies Rehearing on Oncor Sale, Ends Hunt Bid.)
A litigation analyst for Bloomberg Intelligence, Julia Winters, told Bloomberg News that if the Dallas-based Hunt group’s lawsuit is successful, “there’s a chance they would get back to the negotiating table with the debtors and move forward on a deal to buy Oncor.”
“It would be a lot easier to move forward with the plan that was already on the table and approved by the bankruptcy court,” Winters said.
The Hunt group has been pursuing an acquisition of Oncor, the largest transmission and distribution utility in Texas, for several years. Oncor is widely seen as the key to EFH’s bid to restructure almost $50 billion in debt and emerge from two years of bankruptcy. (See EFH Files New Chapter 11 Plan.)
NextEra Energy is also thought to be a potential suitor.
The original plan EFH filed with a Delaware bankruptcy court included a Hunt-led purchase of Oncor for more than $17 billion.
Hadley said the PUC would have no additional response to the lawsuit. It will be represented in the proceeding by the Texas attorney general’s office.
