© 2017 The Texas Lawbook.
By Mark Curriden
(June 27) – NextEra Energy is making one final plea with the Texas Public Utility Commission to reconsider its decision earlier this year that rejected the Florida power company’s $18.7 billion acquisition of Dallas-based Oncor.
In a blistering 44-page petition, lawyers for NextEra argue that the PUC overstepped its authority, ignored evidence, misinterpreted Texas laws and simply used bad judgment when the state commission refused to allow NextEra to purchase Oncor, which is the state’s largest regulated utility.
Energy Future Holdings, which was the parent company of Oncor, filed for Chapter 11 bankruptcy protection in April 2014. EFH claimed more than $45 billion in debt. As part of the restructuring, EFH proposed selling its profitable Oncor subsidiary to NextEra to meet the demands of creditors.
The federal bankruptcy judge approved the Oncor sale, but the Texas PUC ruled in April that the deal is not in “the public’s best interests.”
NextEra, in its second motion for rehearing filed Tuesday, says the PUC’s opinion “constitutes arbitrary and capricious decision-making and an abuse of the Commission’s discretion.”
The NextEra brief, which is authored by Austin lawyers Ann Coffin and Julie Caruthers Parsley, says the PUC’s final order contains 14 errors of law and seems to lay the groundwork for a possible legal challenge that the energy company might want to bring against the PUC in court.
“The Commission must determine whether a proposal to ‘change the ownership of the largest utility in Texas is in the public interest’ or whether the public interest is better served by leaving the state’s largest utility under the constraints of ownership by financial investors mired in bankruptcy,” NextEra’s petition states.
NextEra asks the commission to “reverse its ultimate decision to deny approval of a change in ownership that would provide Oncor with a traditional utility holding company parent that is A- rated, widely diversified, and highly liquid instead of subjecting Oncor to the continuing financial risk and credit rating contagion of EFH ownership, including exposure to the EFH legacy liabilities and the burden of servicing the approximately $11 billion in debt that currently resides directly above Oncor.”
The foundation of the PUC’s opinion – that NextEra “is a financially risky company” and that a NextEra bankruptcy would threaten Oncor – is unjustified and unfounded, the petition states.
“There is simply no credible substantial evidence in the record that the hypothetical circumstance of a NextEra Energy bankruptcy will come to pass,” the brief argues. “The Order on Rehearing cites no evidence to support any risk of a NextEra Energy bankruptcy filing. Nor could it.
“The undisputed evidence in the record showed that NextEra Energy has held an A- or higher credit rating for years and that NextEra Energy is expected to retain its A- rating following the close of the Oncor transaction,” NextEra lawyers state. “The evidence is unequivocal that all three credit rating agencies, after considering the risks, determined that the outlook for NextEra Energy’s credit ratings will remain stable and not result in any downgrade — much less present any risk of bankruptcy.”
NextEra points out that all three credit rating agencies have concluded that it “has a higher credit rating than Oncor itself.”
In addition, NextEra lawyers point out that the PUC failed to admit that the company has met the two key requirements that would avoid Oncor assets being consolidated into the liabilities of a parent company’s bankruptcy: That separate books and records would be maintained and that creditors would be informed that they could not seek the utility’s assets.
NextEra also claims the PUC “erroneously found” that the company’s “expansive and diversified structure” would increase the financial risk to Oncor.
NextEra argues the record shows the exact opposite.
“The risk to Oncor would be reduced precisely because NextEra Energy’s business is widely diversified,” the petition states. “When a business is widely diversified, the risk exposure to any single company within the enterprise is decreased, not increased.
“NextEra Energy itself consequently has less overall risk than Oncor, as shown by the fact that NextEra Energy’s credit ratings are several notches higher than Oncor’s. By linking Oncor’s credit profile with NextEra Energy, the proposed transactions will reduce Oncor’s risk and thereby improve Oncor’s credit ratings.”
Finally, NextEra points out that the PUC order failed to consider the significant risks and consequences going forward to Oncor, which remains under a bankrupt parent.
“EFH has been in bankruptcy for three years, and faced insurmountable financial challenges for years before that,” NextEra lawyers argue. “The record evidence demonstrates that allowing Oncor to remain under a bankrupt parent with the prospect of a stand-alone equitization or a hypothetical alternative transaction would be riskier and less beneficial than NextEra Energy ownership.”
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