By Tom Kleckner

Sempra Energy said Wednesday that it has reworked its proposed $9.45 billion acquisition of Oncor with a new financing structure that wipes out the debt of the utility’s parent company, Energy Future Holdings.

Sempra on Thursday submitted a change-in-control filing with the Public Utility Commission of Texas (Docket 47675) that adds the new financial provisions and offers 47 regulatory commitments, possibly clearing the way for a regulatory approval that eluded previous Oncor suitors.

The California-based company’s top executives told financial analysts Wednesday that the joint application with Oncor stems from discussions with key Texas stakeholder groups and guidance from Oncor CEO Bob Shapard and General Counsel Allen Nye.

“We’ve learned a lot from meetings in Austin and working with Oncor’s senior leadership,” CEO Debra Reed said. “We believe the revised financial structure addresses concerns made by certain stakeholders … and substantially addresses many of their key issues.” (See Sempra Begins ‘Listening Tour’ of Key Stakeholders.)

Reed said stakeholder groups likely to participate in the case — PUC staff, Texas Industrial Energy Consumers, a coalition of cities served by Oncor and the Office of the Public Utility Counsel — have agreed to continue working on regulatory settlement discussions with Sempra and Oncor representatives.

“We do feel this improves our likelihood of being able to reach regulatory resolution,” she said. “We made a conscientious decision to make this change after we got a lot of stakeholder input. One of their greatest concerns was the holding company debt. We thought addressing those issues up front would help us get regulatory approval.”

The previous financing arrangement would have added $3 billion in new debt to Oncor, but Sempra’s revisions essentially match a previous deal intervenors agreed to with Berkshire Hathaway Energy. Sempra out-bid Berkshire in August. (See Sempra Outmuscles Berkshire for Oncor.)

Sempra expects to fund approximately 65% of the EFH purchase with equity and 35% with company-issued debt, eliminating the need to rely on third-party investors. CFO Jeff Martin said the “simpler and more conservative financing approach” will erase the EFH debt. Sempra’s original proposal would have given the company 60% of EFH, with the goal of acquiring 100% over a period of time.

“Our revised financing structure for the transaction is both clear and simple. This eliminates the need to take future additional steps to achieve full control of EFH,” said Martin, noting it will allow Sempra “to fund additional growth initiatives.”

Wall Street was cool to Sempra’s revised financing proposal. The company’s stock lost $2.63 off Wednesday’s close of $114.57/share, a 2.30% drop. It finished the week at $111.95/share.

Florida-based NextEra Energy has its own application for a share of Oncor before the PUC (Docket 47453), seeking the remaining 19.75% interest owned by a collection of private-equity funds operating under the name Texas Transmission Holdings Corp. (See Texas PUC Resistant to NextEra’s Minority Interest in Oncor.)

Asked about acquiring the minority interest, Reed reminded analysts, “We have said over time we would like to own the entirety” of Oncor.

Sempra’s regulatory commitments “are intended to preserve the independence of Oncor and help ensure that Oncor is protected for the customers it serves in Texas … and able to continue to perform in accordance with its financial plans for its customers and shareholders,” Reed said.

The regulatory commitments include:

• Preserving Oncor’s board independence;
• Maintaining the utility’s current management team, workforce and Dallas-based headquarters;
• Not incurring any debt at EFH as part of the transaction or in the future;
• Keeping strong ring-fence provisions to maintain both legal and financial separation among Oncor, Sempra and their affiliates;
• Ensuring Oncor’s customers don’t bear any of the transaction costs; and
• Supporting Oncor’s five-year, $7.5 billion capital investment plan.

NextEra’s inability to abide by similar ring-fencing measures imposed by the PUC sank its own bid to acquire Oncor earlier this year. The commission also rejected Dallas-based Hunt Consolidated’s attempted acquisition over concerns that taxing savings wouldn’t be shared with Texas ratepayers.

With the filing, the PUC now has 180 days to render a decision. The 2017 state legislature approved a bill that was recently signed into law giving the commissioners an extra 60 days if they find “good cause.”

Sempra and Oncor already cleared one regulatory hurdle after a U.S. Bankruptcy Court in Delaware approved the merger agreement in September. (See Bankruptcy Court Advances Sempra Bid for Oncor.)

The agreement remains subject to customary closing conditions, including further approvals by the PUC, Bankruptcy Court, FERC and the U.S. Department of Justice.