By Tom Kleckner

The Texas Public Utility Commission on Thursday formally rejected NextEra Energy’s proposed acquisition of Oncor, unanimously approving an order denying the $18.7 billion deal.

The PUC telegraphed the decision during its previous open meeting March 30. All three commissioners made it evident then that they believed the risks posed by NextEra’s ownership outweighed the benefits. (See Texas PUC Puts Brakes on NextEra’s Oncor Acquisition.)

Little changed Thursday.

“NextEra Energy ownership of Oncor would subject the company and its ratepayers to significant new risks,” the PUC said in the order. “The tangible benefits to Texas ratepayers that are specific to the proposed transactions are minimal and would do little to compensate ratepayers for any of the additional risks imposed.

“When the commission weighs the additional risks and the lack of tangible benefits … the commission finds that the proposed transactions are not in the public interest.”

The commission noted NextEra’s proposal “is premised on the ability to link Oncor’s credit profile with that of NextEra Energy,” and that the Florida company objected to removing two protections from Oncor’s existing ring fence: restrictions on NextEra’s ability to appoint and replace members of Oncor’s board of directors, and the board’s ability to limit dividends or other “upstream distributions” from Oncor.

The PUC said those two ring-fence provisions had insulated Oncor from parent Energy Future Holdings’ bankruptcy. It said “a truly independent” board with control over decisions on capital expenditures and operating expenses is a “critical part of the ring fence.”

NextEra and Oncor declined to comment on the order and future steps, as they have done throughout the process.

NextEra proposed last summer to purchase Oncor in three transactions:

• The approximately 80% interest indirectly held by EFH;
• The 19.75% interest indirectly held by Texas Transmission Holdings Corp.; and
• The 0.22% interest held by Oncor Management Investment.

The PUC considered all three transactions as one. It said NextEra’s “expansive and diversified structure” would subject Oncor to “new and potentially substantial risks.” It said NextEra would be refinancing current debt with new debt, making Oncor responsible for supporting 15% of $45 billion in consolidated obligations.

The commission approved the order before gathering in public Thursday, but brought it up briefly during the open meeting to substitute the word “difficulties” for “calamity” in a reference to how “a robust ring fence” protected Oncor’s ratepayers from the impact of EFH’s bankruptcy.

It was the second failed attempt to acquire Texas’ largest transmission and distribution service provider in less than a year. Dallas-based Hunt Consolidated withdrew its application with the PUC last May over requirements it found too onerous. (See Texas PUC Denies Rehearing on Oncor Sale, Ends Hunt Bid.)

Oncor has been ring fenced since 2007, when EFH, a collaboration of several private-equity firms, acquired TXU Corp. in a leveraged buyout. EFH, saddled by nearly $50 billion in debt when it bet wrong on high gas prices, declared Chapter 11 bankruptcy in 2014. It has since spun off its generation and retail electric service providers as Vistra Energy.

NextEra’s proposed acquisition was part of EFH’s eighth amended plan of reorganization, which was confirmed by a bankruptcy court in Delaware in February. That court has scheduled another hearing on the case Monday, where it and EFH’s creditors could look for another suitor for Oncor or divvy up a potential independent public offering.

NextEra shares fell briefly to $130.22 after the commission’s meeting opened, before recovering to close at $130.79. The company’s stock has gained more than $11/share since the year began.