Hunt Oncor Deal Involves $250 Million a Year You and I Either Get or Don't Get
Ever since EFF went into bankruptcy, the question always has been whether Oncor, its wholly owned subsidiary but a public utility, can truly be firewalled from EFF"s creditors.
According to repeated public statements from Dallas oilman Ray Hunt and his son Hunter, the main benefit to me of letting them take over Oncor, the big state-regulated electrical transmission utility, will be, “…to keep control of Oncor here in Texas where it belongs.”
Is that where it belongs? I really don’t know. Is it important to me for my electricity to come to my house over wires owned by Texans? What would it be like to get electricity from wires owned by Hoosiers? Would I be able to tell on my TV set that it had Hoosier electricity in it?
You may surmise that I am not well schooled about electricity. Most of the stories about the proposed takeover of Oncor by the Hunt family have gone not just over my head but way over my house.
But I did find one thing in the coverage that I thought I recognized — “$250 million,” as in simoleons. I know what those are. It said there was some kind of question in the minds of state officials and public advocates about where the simoleons should go — to the Hunts or to me.
Oh, that’s an easy choice. I vote for me. Definitely. I’m not saying that giving the simoleons to me is the best and proper course, because I’m not sure of that. I am simply saying that it is the course that I would prefer.
The $250 million is in some kind of federal tax break that would be created by the Hunt proposal. The Hunts and their investors want to keep it, which is exactly like me. I salute them for their sagacity. I want to keep it, too. I feel that they and I have a lot in common.
Can I offer any personal claim on the simoleons, like serial numbers or something? Not really, except that tax money is something that is paid to the government to be used in the public interest, and I do happen to be a member of the public. I could argue that by not paying the $250 million in federal taxes, Oncor will be kind of taking that money out of the public purse, which is really my purse.
Oh, but I’m not going to push that one too far. You know, they are the public, too. And everybody hates taxes. This is the only part I would stick to: a federal tax break is not electricity. I do know that much. So this is not money Oncor would earn by supplying more electricity. It’s a tax break.
The Texas Public Utilities Commission, in what seems like a very un-Texas-like concern for the public, ruled earlier this year that the Hunts could buy Oncor if they agreed to share some of the tax break with me, John Ratepayer. The Hunts have objected that by forcing them to give the tax break money to me, the PUC will make the deal less attractive to investors, because investors want the money. By the way, I take my hat off to the investors for their sagacity. Right on! We are all on the same page, I think. We all want that money.
What is it worth to us in dollars and cents to have our electricity delivered over wires owned by Texans as opposed to wires owned by Yankees?
Jarek Tuszynski / CC-BY-SA-3.0 Wikipedia
But, wait. Really. What money is it again?
Oncor is up for grabs because of the bankruptcy of the company that owns Oncor, Energy Future Holdings or EFH. EFH was born in 2007 when a Wall Street buyout company, Kohlberg Kravis Roberts, bought out the old TXU Electric and saddled it with $37 billion in debt and an inscrutably complex governance structure.
Everyone at the time thought that was brilliant, just damn brilliant, but then the damn world economy collapsed. Oops. EFH ent down the tubes with the rest of it.
The sale of Oncor now is part of an effort to get EFH out of bankruptcy, and the basic idea, which everyone seems to agree is just damn brilliant, is to saddle Oncor with $5 billion in new additional debt and a governance structure so complex that … wait, you’re not going to believe this … when the Hunt group gets done with it, Oncor will be a real estate company.
I know. It’s so brilliant, it’s impossible to understand. Or even believe. That’s how it is with brilliant. You just don’t even know what’s going on.
Except for the simoleons. The Texas chapter of the American Association of Retired Persons submitted a report to the PUC last February in which they called giving the $250 million tax break to investors rather than ratepayers “an unacceptable wealth transfer from ratepayers to shareholders.” By the way, the PUC staff and former Gov. Rick Perry agreed with AARP. Rick Perry.
AARP characterized other aspects of the Hunt deal as a way to allow creditors who got skinned on the EFH deal, the damn brilliant one that collapsed right away, to get their claws into Oncor in order to claw back some of their EFH losses. Oncor, as a public utility, is supposed to by “ringed” or protected from the EFH creditors, but the Hunt deal, according to AARP, cuts some holes in the ring.
The $250 million not shared with ratepayers, the $5 billion in new debt and the holes in the ring will add up, AARP predicts, to enormous pressure to jack up rates right away. AARP cites Sharyland Electric, the only other electric utility owned by the Hunts, as an example of what can happen: “Rates charged by Sharyland are among the state’s highest, and customer complaints against Sharyland skyrocketed during 2015,” AARP reports.
AARP wanted to see the whole Hunt takeover scuttled or radically redrawn. In the end the three-person Public Utility Commission endorsed the Hunt deal two months ago but agreed with AARP on that one point about the simoleons.
If turning an electric utility into a real estate company creates a $250 million-a-year windfall for somebody in unpaid federal taxes, the PUC said, then the ratepayers need to be cut in on the windfall.
At first it looked as if the Hunts might go for it on those terms, but they said they had to take the deal back to their investors. At the end of last week, the Hunts came back and said the deal was no good. They said their investors want the whole $250 million, or they will take a powder, and the deal will not happen. The PUC is supposed to consider this week the Hunts' request that the Hunt group be allowed to keep all of the simoleons.
There are some smart people watching this deal who say it’s a bungle by the PUC. Mitchell Schnurman, who was one of the country’s smartest business writers when he worked for the Fort Worth Star Telegram, is still pretty smart even though he has worked for The Dallas Morning News now for several years. Schnurman wrote last week:
“The Hunt family’s $18 billion deal for Oncor is about to fall apart after Texas regulators bungled the case. … Texas regulators are on the clock, and the business world is watching.”
If he says the business world is watching, then you can bank on it. The business world is watching, and I don’t blame them. I know I’m watching, too.
Here is what worries me in that AARP report. Their characterization is that the whole Hunt deal is a densely camouflaged scheme to set Oncor up as a cow to be butchered by all of those people who got taken to the cleaners on the Kohlberg Kravis Roberts deal in 2007. They’re all lurking just outside the campfire ring, according to this scenario, ready to jump in there and start hacking off the meat they think they’re owed.
So how do you think we should read the $250 million issue? Sounds kind of like some sharp knives already, does it not, like they want all of it and right now today? I don’t hear a huge amount of concern for all those AARP widows and widowers having to choose between food and utilities. At least it doesn’t come off that way.
The Hunt family does bring an enormous asset to the table that nobody can really argue with, and that’s their name in Dallas, Texas and the world. It’s impeccable. It would be unjustified and totally unfair to suggest they would ever try to pull off a deal that was dishonest.
But even an honest deal can lean one way or the other. If there’s a short end and a long one, everybody can’t get the long one. So I’m back thinking about that trade-off. If the PUC knuckles under this week and says the Hunts can keep the $250 million, well, OK, there’s my $250 million gone, right out the window.
The trade-off, according to the Hunts, is that my electricity will come to the house on wires owned by Texans. And I don’t want to disrespect that. I can think of situations — let’s say the wires were owned by North Korea — that I might not like. But just the Texas thing alone, as opposed to wires owned by people in other parts of the United States? I’m having a hard time making that one come up equal with the $250 million rate cut.
If there is something that they forgot to mention, perhaps, some other issue or consideration, I hope the PUC will put it on the table if they take this $250 million away from us. If not, I wish they would stick to their guns even if the Hunt deal walks, and then I’m ready to hear some offers from Oregon or New Jersey, provided their electricity won’t make the people on my TV set talk with a weird accent or walk funny or something.
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