A consortium led by Dallas billionaire Ray Hunt formally gave up its bid to buy Texas’ largest power transmission company and turn it into a tax-friendly real estate investment trust.
The proposed acquisition was already on life support, but the Hunt group had sought a hearing with the state utility commission to contest several onerous stipulations on the deal that caused potential investors to back off. The Public Utility Commission of Texas was scheduled to consider the matter on Thursday.
“While we wanted to have a rehearing on the order, it is obvious now that, as written, the transaction will not close, so we believe that it is best to clean the decks and start over,” Hunt spokeswoman Jeanne Phillips said Wednesday in a prepared statement. She emphasized that Hunt will still pursue a deal that can keep Oncor under Texas ownership.
The Hunt consortium originally proposed buying the Dallas-utility Oncor from the utility’s bankrupt parent company for $18 billion and turn it into a real estate investment trust, or REIT. The change would have meant that nearly $250 million in taxes collected from customers each year would go, instead, to investors in the company. Hunt, in turn, promised to maintain Oncor’s headquarters and jobs in Dallas.
The utility commission would have allowed the deal to go through only if the tax savings were set aside in escrow for potential sharing with customers, but some of Hunt’s investors wouldn’t go along with that condition. Consumers pay transmission fees to companies such as Oncor and Houston’s CenterPoint as part of their electricity bills.
The transformation of Oncor into a REIT, could have set a precedent for other utilities, including CenterPoint, to follow suit. The REIT structure is commonly used for real estate deals such as shopping malls, not public utilities. Such trusts pay out at least 90 percent of their income to investors through dividends.
Critics say a REIT is too unstable and risky to own a significant portion of the state’s electricity transmission. The Hunt decision to give up on the deal is just the logical next step because the financing had already fallen apart, said Geoffrey Gay, an attorney for municipalities in the Oncor service area that oppose the deal. “We’re back to square one as to who is ultimately going to become the [Oncor] owner,” Gay said.
The Hunt group’s offer for Oncor was the only one on the table for Dallas-based Energy Future Holdings, which is trying to emerge from bankruptcy. Energy Future Holdings also owns the state’s largest power producer, Luminant, as well as TXU Energy, a retail electricity firm, and Oncor.
Florida-based NextEra Energy also has expressed interest in buying Oncor, but no formal offer has been made public. Gay said he suspected NextEra already has submitted a private bid to buy Oncor. NextEra declined to comment.