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Energy & Environment

Will Being A ‘True Texan’ Help Legendary Oil Family Win State Approval For Power Deal?

It would be a new way to structure a utility company and could mean it wouldn’t have to pay federal income taxes. In this case, a quarter of a billion dollars’ worth of income taxes.


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UPDATE, March 24:

At the time this article was written, the Texas Public Utility Commission was about to meet again. This afternoon, the PUC approved the Oncor sale to the Hunt business group with the issue of income taxes to be handled in a separate rate case later this year.

The various commissions in Texas that regulate businesses are widely regarded as friendly to industry. But when members of the Hunt family of Dallas, a family with its roots in oil drilling, decided to get into another form of energy — electricity — they set off some sparks among the three members of the Texas Public Utility Commission.

"We're not in the business of enriching companies that aren't paying taxes," said Commission member Brandy Marquez.

Who's she talking about "enriching" and who's not paying taxes? It's complicated but here's how the Hunts are proposing to change the Texas electricity industry. They want to buy Oncor, that's the Dallas equivalent of Houston's CenterPoint Energy. They're utility companies that maintain all the wires and poles that bring electricity to your house.

But the deal the Hunts want the Texas Public Utility Commission to approve would change Oncor into a different kind of corporation. It would become a REIT, a Real Estate Investment Trust.

A REIT is a financing strategy that would mean the company could collect millions of dollars from customers to cover the company's income taxes. But because of the way the REIT is set up, it's tax exempt, so it'd never pay the taxes but instead pass the millions onto its investors, its shareholders. That would be good for the deal because it would attract investors.

"The proposed transaction provides a number of significant benefits," said the Hunt's lawyer, James Bushee. He went before the utility commission back in January and said the Hunts are not just in this for the money.

"This is not just a financial transaction. The Hunt family has deep roots in Texas and a commitment to Texas and the communities in which it does business," said Bushee.

In another meeting with the commission earlier this week, one of newest generations of Hunts, Hunter Hunt, said the deal could be good for utility customers.

"There are many different ways to provide customers with tangible benefits," said Hunt.

Exactly what those benefits would be would have to be determined down the road, Hunt said. And that's precisely the point critics of the deal have centered on: what is in it for the customers?

The state's advocate for electricity customers, Laurie Baker told commissioners: "While the proposed transaction provides significant benefits to shareholders of the REIT... the purchasers have not identified any quantifiable benefits for customers.”

The utility commission's own staff concluded the deal was a bad one for customers.

“Based on the evidence, the transaction will lead to unjust and unreasonable rates because Oncor will be collecting an income tax allowance for income taxes it does not pay," said Sam Chang, a lawyer for the commission.

So it seemed the arguments against the Hunt deal were piling up. But this is Texas and this case involves a legendary oil family. To that point came this testimony from a critic of the deal, a lawyer named Geoffrey Gay who advocates for electricity customers.

"Let me start by saying personally, I like Hunter Hunt," Gay told the commission in January. "But the fact that he's a good man and he has family ties to Texas and he's a true Texan does not justify what has been proposed in this case. "

Which brings us to today: the utility commission met again. Commissioners had been working on a compromise to let the Hunts have their REIT deal but with the understanding that some portion of any tax savings would have to be shared with customers in the form of lower rates. And when a vote was taken, that's what the commission approved: the commission gave the Hunts' buyout of Oncor its blessing and if the sale goes through, the Hunts will have to return to the PUC later his year and work out a deal to share the tax savings made possible by the REIT structure. Those savings are estimated to be as much as $250 million a year.

Depending on how things are settled, Houston's CenterPoint Energy says it may be interested in using a REIT structure as well.