Oncor Electric Delivery Co. LLC and Sempra Energy expect to jointly file a Change-in-Control application tomorrow with the Public Utility Commission of Texas. This filing represents a key step in the regulatory review process for Sempra Energy's agreement to acquire Energy Future Holdings Corp. (EFH), the indirect owner of approximately 80 percent of Oncor.
The application will include 47 regulatory commitments and a new financing structure, under which Sempra Energy proposes to now acquire 100 percent of EFH at the close of the transaction with no third-party equity investors or EFH debt.
"Since we announced our transaction in August, we have met with many stakeholders to gain their perspectives on how we can best meet the needs of Oncor customers and the state of Texas," said Debra L. Reed, chairman, president and CEO of Sempra Energy. "Our application responds to their feedback and details our financing plan and regulatory commitments, as well as our approach to resolving the long-running EFH bankruptcy proceeding. Our goal is to keep Oncor strong, independent and well-capitalized for the benefit of Texas customers. Our revised financing structure also will provide long-term value to our shareholders."
"This filing highlights Sempra Energy's support for Oncor customers and supports the Oncor mission: providing safe, reliable and affordable electric service to over 10 million Texans," said Bob Shapard, CEO of Oncor. "Sempra Energy's strong ring-fence protections demonstrate how they will be a good long-term partner for Texas. We also are pleased that, with this new financing structure, several of the key stakeholders have expressed interest in entering into constructive regulatory settlement discussions."
Revised Financing Structure
Sempra Energy expects to ultimately fund approximately 65 percent of the $9.45 billion purchase price with Sempra Energy equity and 35 percent with Sempra Energy debt. This simpler and more conservative financing approach will eliminate the EFH debt, as well as third-party equity, enabling Sempra Energy to purchase 100 percent of EFH at the close of the transaction, according to Jeffrey W. Martin, executive vice president and chief financial officer of Sempra Energy. Sempra Energy's original proposal was to initially acquire 60 percent of EFH, with the goal of acquiring 100 percent over a period of time.
"Our revised financing structure for the transaction is both clear and simple, eliminating third-party equity investors, as well as proposed debt at EFH," Martin said. "Sempra Energy will own 100 percent of EFH, which translates to approximately 80 percent of Oncor at the close of the transaction. This eliminates the need to take future additional steps to achieve full control of EFH. The revised structure also should provide Sempra Energy with a stronger balance sheet in the future to fund additional growth initiatives."
While accretion will vary based on the actual closing date of the transaction, and the timing and mix of equity and debt issued, Sempra Energy expects the acquisition of EFH under the new financing structure to result in an average annualized accretion in earnings per share of approximately 10 cents to 20 cents over the next four years.
Regulatory Commitments to Texas
The filing is expected to include strong ring-fence protections for Oncor and its customers that will put in place financial and operational safeguards, financially separating Oncor from Sempra Energy and its competitive affiliates. The joint Change-in-Control application identifies 47 regulatory commitments that are intended to preserve the independence of Oncor and help ensure that Oncor is protected for the customers it serves in Texas. These commitments also are intended to help ensure that Oncor is able to continue to perform in accordance with its financial plans for its customers and shareholders.
Some of the more notable regulatory commitments include:
- Preserving board independence for Oncor;
- Maintaining Oncor's current management team, workforce and Dallas-based headquarters;
- Not incurring any debt at EFH as part of the transaction or in the future;
- Keeping strong ring-fence provisions to maintain both legal and financial separation among Oncor, Sempra Energy and their affiliates;
- Ensuring that none of the transaction costs are borne by Oncor's customers; and
- Being supportive of Oncor's five-year, $7.5 billion capital investment plan.
Several of the key stakeholders that likely would participate in the regulatory approval process for the transaction have indicated that, subject to review of Oncor and Sempra Energy's PUCT filing, the companies have substantially addressed many of their key issues. These stakeholders have indicated they are open to constructive regulatory settlement discussions with Oncor and Sempra Energy.
On Aug. 21, Sempra Energy entered into an agreement to acquire EFH. On Sept. 6, the U.S. Bankruptcy Court for the District of Delaware approved EFH's entry into the merger agreement with Sempra Energy. The agreement remains subject to customary closing conditions, including further approvals by the Bankruptcy Court, the PUCT and the Federal Energy Regulatory Commission. For more information, go to www.Oncor-Sempra.com.