Energy Future Judge Seeks Changes to Oncor Bidding Rules

Energy Future Holdings Corp. must give dissenting creditors a bigger role in the sale of its Oncor electricity-transmission unit to win final court approval of an auction of the company’s most prized asset.

U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware, today imposed a series of changes on the Oncor auction, saying the original proposal grew out of “flawed and insufficient corporate governance.”

The judge’s decision will give lower-ranking creditors of Energy Future’s two main units more influence over any Oncor sale. During a four-day court hearing last month, various groups of those creditors fought to change the rules governing the auction.

Sontchi said he wouldn’t take a position on one of the most contentious issues: whether a sale should be structured to avoid certain federal taxes.

He criticized the Dallas-based power company for trying to tightly control the auction process, saying it was wrong for Energy Future to insist that it could make changes to the sales rules without court approval. That much control was unacceptable in bankruptcy, he said.

“We are not reinventing the wheel here,” he said.

Independent Directors

Sontchi also required Energy Future to submit the proposed auction rules to the boards that control the company’s subsidiaries for a vote by independent directors.

Energy Future spokesman Allan Koenig declined to comment on the ruling.

Energy Future filed for bankruptcy with a $42 billion reorganization plan in April. The proposal immediately ran into opposition from lower-ranking creditors.

Sontchi sided with those creditors in July when he expressed skepticism about the original plan, which called for Oncor to be transferred to a favored group of creditors without an auction. After Sontchi’s comments, Energy Future started negotiating with the dissident creditors and later agreed to a two-stage auction.

In the first round, an initial, or stalking-horse, bidder would be picked. Later rivals would have a chance to top that offer.

Buffett Interest

Energy Future has said about 10 parties signed confidentiality agreements to see relevant documents. NextEra Energy Inc., CenterPoint Energy Inc., Warren Buffett’s Berkshire Hathaway Inc. and Hunt Consolidated Inc. are among them, said people familiar with the bidding who asked not to be named as the process is private.

One of Energy Future’s subsidiaries holds an 80 percent stake in Oncor, which is run as a separate company that is the biggest provider of power transmission services in Texas.

Energy Future’s 10.25 percent unsecured bonds that mature next year rose almost 3.6 percent to 10.75 cents on the dollar after Sontchi’s ruling, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The case is Energy Future Holdings Corp., 14-bk-10979, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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