Nextera Energy (NEE), Oncor File Merger Application with PUC of Texas

October 31, 2016 5:31 PM EDT

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NextEra Energy, Inc. (NYSE: NEE), together with Oncor Electric Delivery Company LLC ("Oncor"), today filed a joint application with the Public Utility Commission of Texas ("PUC") requesting the approval of two proposed merger transactions. The first transaction, which was announced on July 29, 2016, involves NextEra Energy's proposed acquisition of the approximately 80 percent interest in Oncor, which is indirectly held by Energy Future Holdings Corp. ("EFH"). The second transaction, which was announced earlier today, involves the proposed merger of a NextEra Energy affiliate with Texas Transmission Holdings Corporation ("TTHC"), including TTHC's approximately 20 percent indirect interest in Oncor. The proposed transactions have a combined enterprise value of approximately $18.7 billion, assuming a 100 percent ownership interest in Oncor by NextEra Energy.

"NextEra Energy's proposed combination with Oncor is a straightforward, traditional merger by a utility holding company that has one of the strongest balance sheets in the utility industry," said Jim Robo, chairman and chief executive officer of NextEra Energy. "Under our proposed combination, Oncor will be backed by a financially strong parent company with experience managing electric utility assets and a record of fiscal discipline, providing a strong foundation for the future as Oncor continues to provide its customers with safe, reliable electric service and the lowest transmission and distribution rates of any investor-owned utility in Texas. Our filing with the PUC is an important step in the process and outlines how our proposed combination will improve Oncor's financial strength, resulting in tangible benefits for its customers, and substantially eliminate the financial risks associated with Oncor's current ownership structure."

Today's filing follows the Sept. 19, 2016, approval by the United States Bankruptcy Court for the District of Delaware for EFH to enter into the previously announced definitive agreements related to NextEra Energy's proposed acquisition of EFH's approximately 80 percent interest in Oncor, as well as today's announcement of definitive agreements related to the proposed merger of a NextEra Energy affiliate with TTHC, including TTHC's approximately 20 percent indirect interest in Oncor, and NextEra Energy's agreement to acquire the remaining 0.22 percent interest in Oncor that is owned by Oncor Management Investment, LLC ("OMI").

A proven partner for Texas

Since 1999, NextEra Energy has had a significant and established presence in Texas, including Lone Star Transmission, LLC ("Lone Star"), a transmission service provider. NextEra Energy is a substantial contributor to the Texas economy, having invested $8 billion in transmission, power generation, gas pipelines and other operations in Texas. The company provides hundreds of good, well-paying jobs across the state and pays more than $100 million annually in payroll, property taxes and lease payments to landowners in Texas.

"We have prepared what we believe is a thoughtful, comprehensive application," said Robo. "NextEra Energy recognizes the vital role Oncor plays in providing safe, reliable and affordable transmission and distribution service to millions of customers in Texas. We respect that the Commission has an important statutory responsibility to determine whether our proposed combination is in the public interest and look forward to participating in a dialogue that balances the interests of all stakeholders."

Oncor will remain ring-fenced and operate under an updated Code of Conduct

NextEra Energy proposes a ring-fenced structure and updated Code of Conduct for Oncor.

  • NextEra Energy commits to maintain a separate board of directors at Oncor, which will be composed of 11 members, three of whom will be disinterested directors who are Texas residents with no material relationships with NextEra Energy, and four of whom will qualify as independent from NextEra Energy in accordance in all material respects with the rules and regulations of the New York Stock Exchange, Inc.
  • Upon close of the transaction, Oncor CEO Bob Shapard will assume the role of chairman of the board, and Allen Nye, currently senior vice president, general counsel and secretary, will become CEO of Oncor. Both will serve on the Oncor board.
  • NextEra Energy has proposed an updated Code of Conduct for Oncor, which contains provisions that provide additional protections for Oncor beyond those required by current law or PUC rule, to ensure separation and independence between Oncor and the business of NextEra Energy's competitive affiliates.
  • NextEra Energy, which does not own any electric generation facilities in Texas that interconnect with Oncor's electric delivery system, commits that it will not interconnect any NextEra Energy affiliate-owned generation with Oncor without prior PUC approval.
  • NextEra Energy has committed to financial and governance ring-fencing measures, which collectively maintain a ring-fence for Oncor and provide protections that exceed those of any other Texas investor-owned utility.

Oncor: Locally led and locally managed

The combination will provide workforce stability and protections for Oncor employees.

  • NextEra Energy commits to retaining local management, the Dallas headquarters and the Oncor name.
  • NextEra Energy commits to no material involuntary reductions to Oncor's workforce as a result of the transactions for at least two years after merger closing.
  • NextEra Energy also commits that, for two years after closing, current Oncor employees will be provided no less favorable salaries or wage rates and substantially comparable incentive compensation opportunities and employee benefits in the aggregate.
  • NextEra Energy intends to honor all existing union contracts and commitments.
  • Upon completion of the transactions, Oncor will become a principal business of NextEra Energy, together with Florida Power & Light Company ("FPL") and NextEra Energy Resources, LLC.

Benefits to Oncor and its customers

The combination will improve Oncor's financial strength and result in tangible benefits for its customers.

  • Oncor will become part of a family of companies that shares Oncor's commitment to making the smart, long-term investments necessary to maintain and support safe, affordable, reliable service.
  • All debt that resides directly above Oncor will be extinguished, reducing it to zero.
  • NextEra Energy has committed that it and its subsidiaries, other than Oncor, will not incur, guarantee or pledge assets in respect of any new debt that is solely or almost entirely dependent on the revenues of Oncor without first seeking approval from the PUC.
  • NextEra Energy's balance sheet and credit rating are among the strongest in the industry. This financial strength will enable Oncor to continue to invest in smart, innovative technologies and execute on its existing five-year capital plan, which includes substantial and necessary planned capital improvement projects across the state.
  • Oncor's financial strength and credit ratings will be improved post-closing, resulting in more favorable borrowing costs to fund necessary capital investments, with an estimated $360 million to $600 million in savings for Oncor customers over time. Based solely on the news of the EFH merger announcement, Moody's Investors Service upgraded Oncor's senior secured credit rating from Baa1 to A3 and placed the rating on review for further upgrade. In addition, following the EFH merger announcement, Standard & Poor's Financial Services revised Oncor's outlook to positive from developing, and Fitch Ratings placed Oncor on Rating Watch Positive.
  • The proposed transactions will eliminate the financial risks to Oncor created by the 2007 EFH acquisition and facilitate the resolution of the EFH bankruptcy.
  • NextEra Energy will employ a traditional utility organizational structure, which will support a straightforward, traditional merger of Oncor by a utility holding company.
  • NextEra Energy will request approval to consolidate Lone Star into Oncor following the close of the proposed transactions. The consolidation, if approved, would result in operating and reporting efficiencies and other reduced costs that will benefit Oncor and its customers, as well as other Electric Reliability Council of Texas ("ERCOT") transmission customers.

"We are incredibly impressed by Oncor, its management team, its employees and what they have been able to accomplish during the past several years in the areas of reliability, affordability, safety and customer service," said Robo. "This combination will provide Oncor with a financially strong, utility-focused owner that shares Oncor's commitment to affordable, reliable service and has demonstrated the ability to serve Texas in an efficient and cost-effective manner. Our partnership with Oncor will only further our long-term and already-significant commitment to the state of Texas."

The proposed combination will bring together two of the most experienced and well-respected utility leaders in North America to the mutual benefit of their customers. Serving more than 10 million people, NextEra Energy's subsidiary, FPL, provides its customers with electric bills that are the lowest in Florida and about 30 percent below the national average. FPL's record complements Oncor's, whose rates for electric delivery service are consistently the lowest among investor-owned utilities in Texas. FPL offers award-winning customer service, reliability that is the best in the state of Florida and among the best in the nation, and is the most operationally efficient among all large utilities in America. FPL received the top ranking for residential customer satisfaction among large electric providers in the southern U.S., according to the J.D. Power 2016 Electric Utility Residential Customer Satisfaction StudySM. In addition, NextEra Energy has been recognized as the top electric and gas utility in Fortune's "Most Admired Companies" ranking 9 out of the last 10 years.

Serving more than 10 million Texans in 402 cities and 91 counties, Oncor is Texas' largest transmission and distribution utility, provides the lowest transmission and distribution rates and is one of the most reliable of any investor-owned utility in Texas. Oncor, which delivers power to its customers through 121,000 miles of transmission and distribution lines, has invested billions of dollars in its infrastructure, supporting a safer, smarter, more reliable electric grid.

Like Oncor, NextEra Energy has built its existing utility network on a solid foundation of safety, technology, reliability, innovation, operational excellence, quality service and experienced people. NextEra Energy, like Oncor, also has a reputation as a company that cares about and is involved in the local communities that it serves. NextEra Energy's strengths are in many areas complementary to the existing strengths and capabilities of Oncor, and the two companies look forward to sharing expertise and best practices, and a successful and constructive relationship.

Merger approval process

The proposed combination is subject to bankruptcy court confirmation of EFH's plan of reorganization, approval by the PUC and the Federal Energy Regulatory Commission ("FERC"), the expiration or termination of the waiting period under the Hart-Scott-Rodino Act ("HSR") and other customary conditions and approvals. NextEra Energy plans to file by Nov. 1 information in compliance with HSR and a joint application with Oncor seeking approval from FERC. The completion of the other transactions also is subject to conditions specified in the definitive agreements for those transactions.

NextEra Energy expects the transactions to be completed in the first half of 2017.

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