Of debt and ring-fencing: EFH in Default

Souder

This just in: The Dallas Morning News reports that the debt rating for Oncor’s parent company, Energy Future Holdings, has been downgraded by all three debt rating agencies. Reporter Elizabeth Souder notes in a blog post that EFH has offered to exchange old notes maturing in 2017 for new notes maturing in 2020 — but that the company is paying debt holders less than 80 cents on the dollar.

“In response to these exchange offers, two agencies, Moody's and Standard and Poor's, downgraded the Company to default because EFH didn't pay the entire loans back,” explained Souder. “Both agencies said the default ratings are temporary. Another agency, Fitch Ratings, cut its rating to CCC from B-.”

You can find a link to her blog post here.

In response to the downgrades, Oncor issued a press release “reiterating its separateness” from EFH’s shaky debt situation. EFH is the majority owner of Oncor, which is the regulated transmission and distribution company that serves the Dallas-Fort Worth area. It appears the press release was intended to dispel fears that EFH’s deteriorating financial situation could threaten Oncor and its ratepayers.

Under the terms of Energy Future Holdings’ 2007 buyout of TXU, there were legally binding “ring-fencing” agreements put in place that are intended to separate and protect Oncor’s ratepayers from the risk created by EFH’s massive debt. As a consequence, EFH’s debt cannot be transferred to Oncor, nor can Oncor have any obligation to support that debt, according to the press release. It also notes that Oncor and its assets are legally separate from EFH, and that EFH’s debt holders cannot initiate any bankruptcy, reorganization, insolvency, liquidation or any like proceeding against Oncor.

The situation merits close attention. Citing the massive amount of debt involved, consumer groups previously have questioned whether EFH’s buyout of the state’s largest electric company was in the public interest. Questions also have been raised about whether “holes” in the ring fence have led to higher-than-necessary rates for Oncor’s ratepayers.

You can check out a copy of the Oncor press release here.

SWEPCO seeks big rate increase

Tens of thousands of consumers living in north and east Texas would end up paying 20 percent more for electricity under a proposed rate hike by AEP Southwestern Electric Power Company.

The company (which is more commonly known as SWEPCO) filed its request before the Texas Public Utility Commission on August 28. PUC approval would mean that even customers using as little as 1,000 kilowatt-hours per month would see electric bills go up by $16 beginning in the spring.

The hike would generate an extra $82 million per year for SWEPCO — including an extra $31.6 million for ongoing power plant construction — according to the filing. Also included is an additional $43.31 million for the company to serve its retail customers and an additional $6.9 million resulting from the termination of two merger related credits.

Oncor Electric, the north Texas transmission and distribution utility, also recently pushed to substantially hike its customers’ rates. But after municipalities and others mounted a defense at the PUC, regulators cut the requested hike by more than half.

SWEPCO serves about 180,000 customers in the eastern and northern regions of the state. It also serves Louisiana and Arkansas.

-- R.A. Dyer

The Oncor Rate Case: Shifting a $90 million tax burden onto Texas residents

Oncor customers could see their rates go up by about $130 million annually, according to an analysis of several preliminary decisions rendered by the Texas Public Utility Commission in the utility’s pending rate case.

The analysis also shows that as a consequence of just one PUC decision, the burden of paying about $90 million in corporate taxes would get shifted onto Oncor’s captive ratepayers. That single decision represents nearly two-thirds of the annual rate increase, according to the analysis.

“By shifting this tax burden onto Oncor’s customers, the PUC will be increasing the cost of electricity for millions of Texas residents,” said Geoffrey Gay, general counsel of the Steering Committee of Cities Served by Oncor that developed the analysis. He said evidence developed in the case shows that Oncor customers should be getting a rate cut, not a rate hike.

The Steering Committee of Cities Served by Oncor is a coalition of about 100 municipalities and political subdivisions that represents consumer interests before the PUC. The Steering Committee analyzed the potential effects of rate case decisions rendered by the PUC during a meeting on July 30th.

The regulated monopoly wants permission to hike rates by about $253.4 million annually. By contrast most other parties in the case — including the PUC’s own staff — have concluded that the company already collects too much and should instead lower rates. The Steering Committee estimates Oncor’s overearnings at about $175.4 million annually.

Oncor has about 7 million customers in Texas. It is the state’s largest transmission and distribution utility. Because it provides transmission services, all of its customers — regardless of their retail electric provider — would have to pay the higher rates.

The PUC’s three commissioners could render an official decision in the rate case later this month.

-- R.A. Dyer

Oncor's White Elephant

“Bagging a white elephant” -- that’s how the Dallas Morning News characterized moves by Oncor to purchase nearly 900,000 automated meters now considered to be obsolete because they fail to meet state guidelines.

In his June 5th front page article, reporter Steve McGonigle chronicled how Oncor wants its customers to pay $93 million for the meters – even though most of the company’s customers never received them. He also notes that experts advising the Texas Public Utility Commission have found that much of the company's expenditures in this regard were imprudent.

“These costs should be borne by Oncor, not by ratepayers,” PUC staff attorney Patrick Peters III asserted in a document obtained by the Morning News.

Oncor’s request for more money for obsolete meters comes on top of the $2.21 monthly surcharge the company recently began collecting for hundreds of thousands of separate advanced meters. These new meters became necessary when it became clear that the first generation meters did not meet state guidelines.

The newspaper also quoted local resident Joel Morgan, a disabled auto parts salesman from Rockwall, who said in a letter to the Public Utility Commission that he and his wife have no interest in paying for automated meters – obsolete or not.

“Please keep us in mind when these BIG BOYS with the DEEP POCKETS come to you asking for permission to stick it to us again and again and again,” he wrote