Texas PUC Will Soon Rule On Proposed Hunt Buyout Of Oncor
State regulators have to decide whether control of Texas power lines can change hands. At issue is whether an investment group led by Dallas businessman Ray Hunt gets to buy Oncor. The company connects power plants with the companies you pay for electricity.
A bankruptcy judge says Dallas-based Energy Future Holdings can sell Oncor to reduce major debt. But the Public Utility Commission also has to agree and some of the members aren’t sure the deal is in the public’s best interest.
Jeffrey Weiss writes about energy for The Dallas Morning News and he explains what Hunt has in mind.
[Update: The PUC discussed the matter Monday; a vote has been delayed until Thursday, the News reports. The PUC faces a Sunday deadline.]
Highlights of Weiss’s interview:
Hunt wants to convert Oncor into a REIT (Real Estate Investment Trust):
“It is a tax benefit, a tax loophole, if you will. What the Hunts are doing is perfectly legal, but it’s not exactly what was envisioned when it was originally designed. What a REIT does is it takes a single business – in this case, the ownership and running of the electric power wire grid – and turns it into two businesses. One business owns the real estate, in this case, if you consider power lines real estate, and the other leases it. The two businesses will do the same thing as one business would do.
"The advantage of that is the business that owns the real estate doesn’t have to pay federal income taxes if tit pays at least 90 percent of its profits to investors as dividends. Now that’s complicated, but what this could benefit is close to $250 million a year to the combined new REIT-Oncorish company. And the question is whether or not that company can actually use that money as dividends.”
What critics dislike about the Hunt REIT proposal -- and what the Hunts say:
What the people who object are saying is that they’re (Hunt) getting 250 million free dollars. Two of the three members of the PUC say they agree with some of the protestors who say that at least some of that needs to go back to the consumers. Now what the Hunts say is that they need this money so they can give large enough dividends to attract the kinds of investors needed to make the deal work.”
Will this buyout drive up consumer electric bills?
“That is almost certainly not going to happen. Here’s the bottom line to consumers: If the PUC says some of this $250 million has to go back, you’re probably going to pay less for electricity than you normally would. Now what the Hunt people say is if they get the $250 million, they’re not planning on asking for any increases, so you wouldn’t see any effect on your power bill.
"The PUC is saying, however, that if they get this deal, then your power bill should actually go down some based on the fact that it going to cost the Hunt group less to run this business."
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