The Hunts Get Oncor

The deal still awaits government approval.

The deal still needs government and bankruptcy court approval, but Energy Future Holdings (the former TXU Corp.) has agreed to sell Oncor — its subsidiary that handles power lines — to Ray L. Hunt and his partners. Energy Future filed for bankruptcy last year, the result of what’s proven to be a disastrous leveraged buyout. As the DMN reports:

The deal is expected to leave the private equity firms that led the deal, KKR & Co. and TPG, with none of the $8 billion they invested when they bought TXU in 2007. More critical is the question of how other creditors will react to the plan – one group had been working with the investment firm Fidelity on their own bid for Oncor.

The Hunt consortium plans on placing Oncor into a real estate investment trust, a corporate structure that would shift income tax away from the company to its shareholders. A REIT has never been applied to a power utility of Oncor’s size – it serves more than 3 million customers across North and West Texas.

Among attorneys working on the deal, a looming question remains how the Texas Public Utility Commission, which must sign off on the sale of all utilities, will consider the REIT structure in determining what rates Oncor will be allowed to charge electrical customers.

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Comments

  • OldLakeHighlandeer

    This can only mean good news for our electricity rates.

  • Mavdog

    Don’t see why there is any question on what the Public Utility Commission will decide, after all there’s a reason it is best called “Utility Owner’s Commission”. When is the last time the PUC did not do exactly as a Utility asked them to do?

    The REIT structure removes the double taxation on its net income, instead of the Utility profit being taxed and then the stockholder’s dividend income also taxed when paid, with the REIT structure there is just the dividend income being taxed. Theoretically on the same amount of net achieved by the utility the dividend payout to stockholders will be greater than with the current corporate structure.

    My question is how the REIT will generate the amount of income from its real estate to qualify, as opposed to its income from production. Perhaps they will set up Oncor as the Landlord who leases the production units to a separate operating entity?