Warren Buffett to buy big Texas utility Oncor
DALLAS – Berkshire Hathaway has agreed to buy Oncor, Texas’ largest regulated utility, and the famed Omaha company has the support of most parties that could block the deal, according to documents from the two companies.
The offer must still be approved by a bankruptcy judge and go through a months-long process to get Texas Public Utility Commission approval. But the offer already has the support of PUC staff, the Texas Public Utility Counsel, the Texas Industrial Energy Consumers group and a coalition of 150 cites served by Oncor, according to company documents.
Brian Lloyd, the PUC’s executive director, praised the proposal and said in a written statement that he looks “forward to an expeditious filing of this agreement for the Commissioners to consider.”
Oncor has been in an ownership limbo since its parent company, Energy Future Holdings, filed for bankruptcy in 2014. Despite the long-term financial troubles of Energy Future, Oncor has been financially stable and has been called the crown jewel of Texas utilities.
“Oncor is an excellent fit for Berkshire Hathaway, and we are pleased to make another long-term investment in Texas – when we invest in Texas, we invest big!” Warren Buffett, chairman of Berkshire Hathaway, said in a written statement. “Oncor is a great company with similar values and outstanding assets.”
Oncor owns and operates the electric grid for most of North Texas, which serves more than 3 million homes and businesses.
Berkshire Hathaway Energy has a large portfolio that includes electrical grids, natural gas pipelines and power producers, mostly in the West and Midwest. The company has 8.5 million customers in the U.S., U.K. and Canada and had revenue of $17.4 billion last year.
Berkshire Hathaway heavily invested in Texas businesses, including Acme Brick, BNSF Railway and Nebraska Furniture Mart.
“By joining forces with Berkshire Hathaway Energy, we will gain access to additional operational and financial resources as we continue to position Oncor to support the evolving energy needs of our state,” said Bob Shapard, Oncor’s CEO. “Being part of Berkshire Hathaway Energy is a great outcome for Oncor. Oncor will remain a locally managed Texas company headquartered in Dallas, committed to the communities we serve, and our customers will continue to receive the safe and reliable service they have come to expect from our dedicated team of employees.”
If the deal is finalized, Shapard is expected to become the executive chairman of the board, and Allen Nye, the company’s vice president and general counsel, would take over as CEO.
This will be the third attempt to sell the utility and compensate Energy Future creditors. The first came from a group headed by Dallas’ Hunt family. It was followed by Florida-based NextEra Energy.
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Berkshire Hathaway was believed to be interested on Oncor last summer, but NextEra Energy won the bidding at the time. That company, however, was rejected by the PUC over consumer- and operation-related concerns.
Berkshire Hathaway seemingly has answered all – or virtually all – of the concerns previously mentioned by the PUC. In a Berkshire Hathaway filing, the company listed 44 regulatory commitments to the PUC. Those included:
-Keeping the fully independent Oncor board. Just two of the 12 board members would be appointed by Berkshire Hathaway Energy.
-Allowing the board to have complete control over dividends.
-Eliminating the debt of Oncor’s parent company.
-Returning 90 percent of interest rate saving to customers in rate cuts, until the next rate case – not the current one – is final.
-No involuntary job cuts or wage or benefit cuts for at least two years for its 3,700 employees.
“The bankruptcy court has to bless it, and it ultimately has to come to commission,” said Geoffrey Gay, who represents the Oncor cities steering committee. “If they follow the path of failures by Hunt and NextEra, they ought to be able to safely navigate through these obstacles.”
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Loyd, whose agency will review the deal, said in a statement that the proposal covers important bases for the PUC.
“These parties have developed a transaction that fortifies the successful ring-fence protections the Commission ordered in 2007,” he said. “Both BHE and Oncor are proposing additional assurances regarding Oncor’s independence, financial integrity and commitments to invest in infrastructure, cybersecurity and system reliability for the more than 10 million Texans served by Oncor.”
The immediate value of the deal wasn’t available. A letter from Oncor and Berkshire Hathaway said the cash deal was $9 billion with “an equity value of $11.25 billion.” The debt eliminated would add to that total.
The NextEra offer was $18.7 billion. It wasn’t immediately clear how Berkshire Hathaway’s offer compared to that.
NextEra has argued in its PUC filings that the agency doesn’t have the legal authority to block the sale of Oncor. The company balked at several of the PUC’s demands, including “ring fence” provision that mandate an independent board with complete authority to determine dividends. Agency officials were also critical of the deal for not providing enough benefits for Oncor customers.
The Hunt deal fell apart last year after the PUC approved provisions that the Hunts weren’t initially able to meet.
EFH was created in a $45 billion leveraged buyout in 2007. The Great Recession, energy efficiency and a crash in energy prices thanks to cheap natural gas all contributed to EFH’s downfall.
Electricity generator Luminant and TXU Energy, the state’s largest retail electricity provider, were spun off during bankruptcy proceedings. They are now owned by the newly created Vistra Energy.