San Diego power company Sempra Energy anticipates closing a $9.45 billion deal to buy Dallas electricity provider Oncor soon after a key state regulator’s approval is expected to come down next week.
“We see great growth potential in the Texas market,” Sempra CEO Debra Reed told analysts Tuesday. “We are very happy that we are getting close to closing this transaction.”
A bankruptcy judge gave approval Monday for Energy Future Holdings to sell its 80 percent ownership stake in Oncor to Sempra.
It was a key hurdle to clear before the Texas Public Utility Commission decides as early as March 8 whether to approve the deal. In a hearing earlier this month, officials appeared to be in support of it as they directed staff to draw up an order they would rule on at the hearing next week.
Reed told analysts that they would consider buying the additional 20 percent stake in Oncor held by outside investors should they decide to sell in the future, though right now she said their interests were aligned. She also said they hope to prove to Texas regulators they can be good enough stewards of the utility that in time they would be allowed to remove a key feature of the deal meant to keep Oncor independent and protect rate payers.
These protections, known as ring-fencing, were put in place in 2007 that allowed Oncor’s board members to set dividends and make other financial decisions without being overruled by its bankrupt parent company Energy Future Holdings.
“We don’t like the idea of having something that other parties in the state don’t have,” Reed said, alluding to other utilities in Texas, though she added they would be fine if the protections were left in place over the long term.
Should the deal go through, the years-long saga of what would become of Dallas’ electricity provider would at last come to a close:
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- Oncor’s parent company Energy Future Holdings, formerly TXU Corp., filed for bankruptcy in 2014 as it struggled with severe debt burdens and bad bets on natural gas prices. It had to refile a bankruptcy plan in 2016.
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- In 2016, the Texas PUC imposed stiff requirements on a $17 billion deal organized by local billionaire Ray Hunt and his firm Hunt Consolidated, effectively forcing investors to pull out of the carefully designed financing.
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- The panel struck down an $18 billion bid from NextEra Energy in early 2017 over concerns about the independence of Oncor’s board.
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- Last summer, investment legend Warren Buffett and the energy arm of his firm Berkshire Hathaway reached a deal with Oncor to buy the utility for $9 billion. Buffett sought to get support from the Texas PUC by agreeing to keep Oncor’s board apart from any influence from Berkshire.
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- Debt holders of Oncor’s parent EFH, led by hedge fund Elliott Management, balked at Buffett’s proposal for being too low and began rounding up outside investors – many in Texas – to outbid the Oracle of Omaha.
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- Sempra swooped in with a $9.45 billion bid for Oncor in August and received an initial approval by a bankruptcy court the month after.
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- Oncor agreed earlier this month to provide more funding to help low-income customers make energy improvements to their homes and agreed to measures to ensure savings from the deal are passed onto homeowners. The steps were taken in order to get sign-off from a key consumer advocacy organization that had been the last outside group holding out on the deal.
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