On October 25, 2017, Commissioner Keith Anderson of the Texas Public Utility Commission (PUCT) released a memo regarding the draft Preliminary Order in which he expresses concerns over the application submitted by Sempra Energy to purchase Oncor Electric Delivery (the state’s largest utility) for $9.45 billion.  The memo, which results from Commissioner Anderson’s continued concern regarding the financing of the deal, requested that the Commission add to their preliminary order in order to require Sempra to clarify several issues during the hearing on the merits.

In the memo, Commissioner Anderson states that he believes the PUCT must consider the structure of the transaction itself, as well as the resulting financial effects on the financial strength of both Sempra and Oncor.  He believes that the current application provides little detail to assist in that analysis.

Commissioner Anderson further goes on to say the Application lacks detailed information relating to the financing of the transaction and Sempra’s ability to manage liabilities associated with its debt and “far-flung operations.”  In the memo, Commissioner Anderson notes that Sempra’s net debt has risen from less than $5 billion in 2007 to approximately $18 billion in 2017 and that Sempra’s proposal would add an additional $3.18 billion to its debt.  He also points out that Sempra’s cash from operations has increased only slightly from 2007 and that Sempra has not realized a proportional increase in cash flow from its projects.

The memo also comments that Sempra’s current credit ratings, while still investment grade, is in the bottom tier –meaning that the company is vulnerable to changing economic conditions.  Finally, the memo points out that Sempra has both foreign and domestic projects that present additional risks to the company – specifically, that Sempra has partnered to build a $10 billion liquid natural gas export facility in Louisiana that has suffered from multiple delays.

The memo expresses concern that Sempra’s past actions show that the company has a higher level of risk-tolerance than one normally associates with a regulated utility.

This memo was discussed at the October 26, 2017 PUCT open meeting whereby, Commissioner Anderson requested (with the other commissioners’ approval) that the draft preliminary order be modified consistent with the memo, in order to gain more information related to Sempra’s debt, the transaction financing, Oncor’s governance structure, the effect of Sempra’s other projects on the credit rating, and Sempra’s corporate relationship with Oncor.  The preliminary order with these modifications was approved during the meeting and issued later that day.