To little surprise, the Public Utility Commission (PUC) of Texas recently rejected the acquisition bid NextEra Energy made for Oncor, a company that transmits power to about 3.4 million Texans. The PUC indicated well ahead of time that it would reject the deal. NextEra knew what concessions it would need to make to have the deal approved. But NextEra stood firm.
The failure to negotiate made little sense at the time. After all, NextEra, the Juno Beach-based parent of Florida Power & Light, expected to make billions of dollars. In order to get the deal approved, it could have offered concessions of a few hundred million dollars to Texas consumers and kept in place a safeguard that protected Oncor when its current owner went bankrupt. NextEra still would have made a hefty profit. Even with the upside to reaching an agreement, NextEra declined to negotiate.
Once the PUC, which is charged with making sure the acquisition doesn’t harm consumers, formally rejected the deal, one might have reasonably thought the story was over, but it isn’t. NextEra decided it isn’t walking away. Nor is the company changing its offer. It has instead gone back to the PUC and asked for a rehearing.
NextEra claims the PUC made several errors and did not have the authority to block the deal. That’s unlikely to change the PUC’s judgement. Commissioners indicated on Thursday that they were “unpersuaded,” though delayed a vote on the matter until June. If again rebuffed, the next step could be for NextEra to go to court, potentially tying up the PUC in years of litigation.
But NextEra’s real strategy is gradually coming to light: drag this out as long as possible. A merger agreement favorable to NextEra sets no termination date. And if Oncor’s parent, the bankrupt Energy Future Holdings, backs out, it must pay a $275 million termination fee. As long as the deal hasn’t been terminated, Energy Future can’t look for another buyer. This creates a quandary. Energy Future could: 1) pay the termination fee and spend another year finding another buyer as legal costs mount; 2) accept severe concessions to NextEra, or 3) do nothing, in which case legal costs and interest ultimately consume all of the company’s remaining assets. Already, the legal and accounting fees to restructure the bankrupt Energy Future have exceeded $1.3 billion.
All told, NextEra appears to find itself in a favorable position. That could change after an Energy Future creditor filed suit on May 11 to be able to look for another Oncor buyer.
SHAWN MCCOY, WASHINGTON, D.C.
Editor’s note: Shawn McCoy is publisher of InsideSources.com. Previously, he served as Iowa communications director for the Romney campaign.