By Tom Kleckner

AUSTIN, Texas — The Public Utility Commission of Texas on Thursday threw a bit of cold water on Sempra Energy’s proposed $9.45 billion acquisition of Oncor after issuing a preliminary order that calls for Sempra to prove it’s financially fit to own the state’s largest utility.

Whether that’s enough to short-circuit yet another bid — the third — for Oncor remains to be seen.

Commissioner Ken Anderson filed a memo last week asking for more information on Sempra’s debt, the transaction’s financing, Oncor’s governance structure, the effect of Sempra’s other projects on its credit rating and Sempra’s corporate relationship with Oncor (Docket 47675).

“These issues are important because Sempra creates uncertainty when it fails to produce details about how it will fund the transaction,” Anderson wrote. “The purchaser must be able to prove it has the financial strength and stability to complete the purchase on its own, without impairing itself or Oncor.”

Hunt Consolidated and NextEra Energy failed in previous acquisition attempts to meet the PUC’s ring-fencing measures. Sempra announced it would make a bid for Oncor in August. (See Sempra Outmuscles Berkshire for Oncor.)

Anderson said Sempra’s current application before the commission provides “very limited details” on how it will finance the transaction and manage “liabilities associated with its debt and far-flung operations.” He noted the company’s debt has risen from $5 billion in 2007 to about $18 billion, but that cash from operations increased slightly through 2009 and has remained relatively stable since.

“So far, it seems Sempra has not realized a proportional increase in cash flow from its projects,” Anderson wrote.

Anderson reminded Chair DeAnn Walker and fellow Commissioner Brandy Marty Marquez that the PUC’s goal is to “once and for all” help Oncor escape a “risky, debt-laden majority owner” and “move forward without the nagging specter of a financially troubled parent.”

Oncor parent Energy Future Holdings, which declared bankruptcy in 2014, has retained an 80% stake in the utility since going into Chapter 11.

“Our objective,” Anderson said, is to “ensure that Oncor is not being permitted to hop from one frying pan into another, or even just into a simmering pot.”

He added a list of additional issues to be considered in the preliminary order, which Walker and Marquez approved.

Spokesperson Amber Albrecht took exception to Anderson’s comments, saying Sempra is a “very strong, growing and conservatively financed company.”

“We have investment-grade credit ratings at the holding company level, as well as at all of our operating subsidiaries, and our market capitalization over the past 10 years has grown to nearly $29 billion from about $15 billion,” she said.

Anderson allowed that while Sempra’s current credit ratings of Baa1 (Moody’s) and BBB+ (Standard & Poor’s) are investment grade, they are also “bottom tier.”

“The company is vulnerable to changing economic conditions and could face challenges if overall economic conditions decline or if Sempra continues to experience significant challenges,” Anderson said, pointing to the company’s $10 billion LNG export project in Louisiana and international holdings in South America.

Sempra has already revised its financing structure since its initial bid in an effort to appease intervenors in the previous attempts to acquire Oncor. (See Sempra Reworks Oncor Bid to Erase EFH Debt.)

The PUC has scheduled a Feb. 21-23, 2018, hearing on the proposed acquisition in Austin.

PUC Orders Refiling in NextEra Ownership Bid for Oncor

The commission also rejected NextEra’s bid to acquire a 19.75% interest in Oncor and directed the parties involved to refile an application that includes Oncor as an applicant.

Walker had suggested in a memo that the filing be dismissed, saying the state’s Public Utility Regulatory Act (PURA) requires the “statutorily specified entity” to submit the filing. Anderson and Marquez agreed.

NextEra and Texas Transmission Holdings Corp. (TTHC), which owns the 19.75%, filed a joint application with the PUC in July. However, staff in August ruled the application deficient, saying neither applicant is a public utility under state regulations and that the case should not proceed without Oncor’s involvement (Docket 47453).

Oncor intervened in the proceeding in September, telling the PUC that it was not “seeking commission approval of the proposed sale.”

In her memo, Walker referenced statutory language that “an electric utility or transmission and distribution utility must report to and obtain approval of the commission before closing any transaction in which … a controlling interest or operational control of the electric utility or transmission and distribution utility will be transferred.”

Noting that neither NextEra nor TTHC complies with the requirements, Walker wrote, “In this case, Oncor must file the relevant report regarding this proposed transaction.”

Walker said the refiling would allow the commission to determine whether the proposed transaction should close.

Vinson & Elkins’ Matt Henry, representing Oncor, promised action within a few weeks. He said the utility intended to consult with NextEra and TTHC to determine how to proceed with a final filing, and that it would have to talk with Oncor’s board as well.

Commission Rules Against SPS’ Right of First Refusal

The commission issued a final order that made official its earlier rejection of Southwestern Public Service’s exclusive right to build new regionally funded transmission facilities in its service territory (Docket 46901).

The PUC discussed the issue publicly in July, making it clear how it would rule. (See Texas Commission Rejects SPS ROFR Request.) SPS said at the time it would seek a rehearing and an appeal; spokesman Wes Reeves said Monday the company plans to file a motion for rehearing by Nov. 20.

The commission further concluded that transmission facilities serving the public cannot be constructed in Texas without first obtaining a certificate of convenience and necessity (CCN) from the commission.

“Such a right would be inconsistent with the commission’s authority to issue CCNs for transmission facilities, which is not limited to only utilities that have a certificated service area in which the facilities would be located,” the commission wrote.

Walker abstained from the order, as the proceeding occurred a month before she joined the commission.

SPP and SPS in February requested the PUC determine whether the utility has the exclusive right to construct and operate new, regionally funded transmission facilities in areas of Texas that lie within its certificated service area. (See SPS, SPP Ask Texas to Rule on Transmission Competition.)

SPS contended that as an incumbent utility operating outside ERCOT, PURA gave it a right of first refusal to build in the service area prescribed by the PUC. SPP claimed that no such right existed, giving the RTO the ability to solicit and designate transmission-only utilities to construct and operate new transmission facilities within SPS’ service area under FERC Order 1000.

The project in question, the 345-kV Potter-Tolk transmission line in the Texas Panhandle, was pulled from SPP’s 10-year planning assessment in April. SPP’s Board of Directors directed staff to conduct a congestion study in the area, due within a year. (See SPP Board Cancels Panhandle Line, Seeks New Congestion Study.)

ERCOT’s Budget, Admin Fee Approved

The commission formally approved ERCOT’s 2018/19 biennial budget, which will keep the ISO’s system administration fee flat at 55.5 cents/MWh for the next two years (Docket 38533). The fee was raised from 46.5 cents/MWh in 2015.

The ERCOT board approved the budget in June, setting operating expenses, projects and debt-service obligations at $222.3 million and $228.0 million for 2018 and 2019, respectively.