NextEra Loses One Outsider Fight, Picks an $18 Billion One

  • Florida company will need Texas approval of Oncor purchase
  • NextEra bid for Hawaii utility rejected this month by state

Just two weeks ago, Florida-based NextEra Energy Inc. lost its fight to buy Hawaii’s biggest power supplier for $2.6 billion. The state rejected the deal over fears that an outsider wouldn’t have its best interests in mind.

It didn’t keep NextEra down for long. On Friday, the utility owner proposed an even larger, $18 billion takeover of Energy Future Holdings Corp.’s Oncor Electric Delivery Co. LLC utility. This time, it’ll have to deal with Texas.

“Clearly, they are not in the advantaged position” that local utilities would be in, said Bloomberg Intelligence analyst Jaimin Patel, “because those companies already have a strong relationship with the regulators.”

NextEra is proposing to swoop in and take over the biggest transmission operator in a state where regulators have already proven they can drive a tough bargain. An investor group led by Hunt Consolidated tried and failed to buy Oncor, despite Hunt being based right there in Dallas. At stake is a transaction that’s key to Energy Future’s emergence from one of the biggest bankruptcies of all time, involving the restructuring of about $50 billion in debt.

The fact that NextEra’s an outsider is “certainly an issue that will be addressed,” said Geoffrey Gay, an attorney who represents ratepayers before Texas’s utility commission and plans to be involved in the merger review. “I’ve heard the commissioners speak to that point previously.”

‘Texas Roots’

For its part, NextEra committed on Friday to no involuntary staff cuts at Oncor for two years. The company’s chief executive officer, Jim Robo, told investors in a call that it was committed to maintaining Oncor’s “Texas roots” and would keep local management, the Dallas headquarters and the name.

“Texas is a place we know well,” Robo said during the call, perhaps referring to transmission lines and wind farms the company already owns in the state. “For Oncor’s customers, the transaction will bring capability, scale and experience.”

If recent mergers are any indication, NextEra’s still facing an uphill battle. Exelon Corp. spent almost two years persuading Washington’s utility regulators that its $6.8 billion takeover of Pepco Holdings Inc. was in the District’s best interests. It took a Macquarie Group Ltd-led group a year and a half to gain approval from Louisiana to buy Cleco Corp. for $3.4 billion.

Jobs may be a sticking point for regulators reviewing the NextEra proposal. Under Texas’s Public Utility Regulatory Act, the commission must consider whether the transaction will result in the transfer of state residents’ jobs to workers who live outside Texas.

The scrutiny is coming just as utilities, facing weak demand, plunging power prices and rising capital costs, are looking to consolidate. Utility deals have totaled $75.4 billion this year, the most since 2011, data compiled by Bloomberg show.

Fewer Challenges

NextEra could at least face fewer challenges in Texas than it did in Hawaii because the company has stronger ties to the Lone Star State, said Stacy Nemeroff, an analyst for Bloomberg Intelligence. The company estimated it has already invested more than $8 billion in transmission, power generation, gas pipelines and other assets in Texas.

The state Public Utility Commission will have six months after NextEra files a merger application to decide, agency spokesman Terry Hadley said by phone.

In what may foreshadow a battle during the state’s review, Hunt said in a statement Friday that it would “remain involved” in the Oncor sale process. Spokeswoman Jeanne Phillips added: The “advantages of maintaining ownership of Oncor by Texans for Texans are clear.”

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