NextEra Said to Renew Interest in Energy Future’s Oncor Electric

Power generator NextEra Energy Inc. has renewed its interest in buying Oncor Electric Delivery Co., as a rival takeover deal shows signs of unraveling, according to two people familiar with the talks.

NextEra made its position known after Oncor parent Energy Future Holdings Corp. replaced its bankruptcy reorganization plan on May 1, according to the people, who asked not to be named discussing private negotiations. Under the original plan, its most-profitable business would have been sold to a group led by Hunt Consolidated Inc.

While that possibility still exists under the new structure, the change freed Oncor up to be pursued by other bidders, Chief Executive Officer Robert Shapard said at a Texas regulatory hearing May 4. “We are to work with all parties interested in buying the company at this point,” Shapard said at the hearing.

An Energy Future lawyer mentioned a “third party indication of interest” in Oncor in a court hearing on an unrelated matter May 10. The lawyer did not elaborate.

Juno Beach, Florida-based NextEra’s interest in Oncor is likely driven by its growth potential, due to increased demand expectations in the Texas market, Julien Dumoulin-Smith, a UBS Group AG analyst in New York, wrote in a note to clients Thursday. Growth may also be driven by the need for more spending to address coal-fired power plant retirements, he wrote.

Frontrunner

NextEra was the frontrunner to buy Texas’ biggest electric-transmission operator last year, people with knowledge of the matter said at the time. Oncor was worth more than $10 billion, CEO Shapard said in April last year.

Energy Future eventually canceled the auction and agreed to sell the unit to Hunt and creditors as part of a bankruptcy proposal.

“Moving forward, we look forward to working with all interested parties as these proceedings continue,” Geoff Bailey, director of communications for Oncor, said in e-mailed statement responding to questions.

Representatives for Energy Future and NextEra declined to comment.

“Other parties may show an interest in owning Oncor, but we continue to believe that our plan is the best plan for Oncor and its customers,” Hunt spokeswoman Jeanne Phillips said in an e-mailed statement.

Complex Transaction

After the Public Utility Commission of Texas approved the sale to Hunt on March 24, the complex transaction began to show signs of breaking down, at first because of conditions set by regulators. Hunt plans to create a real estate investment trust to operate Oncor, leaving some investors balking at the idea of having to share future tax savings with ratepayers. Then, Energy Future filed a new reorganization plan.

The tax dispute was a key sticking point right up until the PUC vote. Some parties, including one of the commissioners, had said the income-tax savings the buyers would get should be shared with ratepayers. The buyers called the argument “illogical” in a filing with the PUC, and fought it during hearings. Some $210 million to $250 million a year is at stake, Geoffrey Gay, an attorney involved in the case who represents ratepayers, said in an interview in January.

Energy Future filed for bankruptcy reorganization in April 2014, with nearly $50 billion in debt, much of which was racked up by its record leveraged buyout seven years earlier by KKR & Co., TPG Capital and Goldman Sachs Group Inc.’s Capital Partners. That bet went bad when natural gas prices plunged.

Texas regulators are currently discussing whether to grant a request by the Hunt-led group for a rehearing to consider modifying the approval order to remove conditions the consortium’s investors are objecting to. Another PUC meeting is set for May 19.

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