As we discussed in our January 22, 2016 post, Oncor (Texas’ largest electric utility) is the subject of an acquisition effort by Hunt Consolidated Inc. in a proceeding before the Public Utilities Commission of Texas. One unique aspect of the proposed acquisition is the use of a real estate investment trust (REIT) to finance the transaction.

Texas regulators have begun consideration of the application and are raising questions about the utility’s collection of hundreds of millions of dollars from ratepayers that, under standard ratemaking treatment, would normally be committed to pay federal taxes, but would not be paid using the REIT model. Texas Commissioner Brandy Marty Marques indicated concern with the proposed financing structure expressing interest in a plan which would allow for ratepayers and shareholders to share the benefits of the unique financing structure.

When reached for comment, Hunt Consolidated Inc. spokesperson Jeanne Phillips stated, “We support the thorough and continuing process of the PUCT to consider our application for the acquisition of Oncor. As we have stated in the pleadings, the utilization of a REIT does not eliminate the imposition of federal income tax. It simply shifts the burden of taxation to the REIT shareholders”.

The Commission is scheduled to conclude its deliberations at the end of March.