(BRK.A), (BRK.B)
After looking all but out, Berkshire Hathaway Energy is back in the running for Oncor Electric Delivery Company, a regulated electric transmission and distribution service provider that serves 10 million customers across Texas.
Oncor has been in and out of auction ever since the April 2014 bankruptcy of its biggest shareholder, Energy Future Holdings. The company went under after being burdened with $40 billion in debt from a 2007 leveraged buyout.
A Texas-Sized Asset
Oncor is a quite a prize. The company has the largest distribution and transmission system in Texas; with approximately 119,000 miles of lines and more than 3 million meters across the state.
The End of a Long Waiting Game
After originally pushing back the auction of Oncor from November 2014 to March 2015, it looked like no auction would ever happen. Instead, the creditors in the holding companies Energy Future Intermediate Holdings and Energy Future Holdings were expected to take ownership of Oncor.
Then, in September 2015, U.S. Bankruptcy Judge Christopher Sontchi agreed to a plan by Hunt Consolidated that would have allowed the company to take ownership with Oncor’s current management remaining in place. When this deal fell apart over the terms set by the Public Utility Commission of Texas, Oncor came back into play.
Energy Transmission is Great ROE
Back in June 2014, Warren Buffett proclaimed he was ready to put at least $15 billion into energy generation and transmission assets, and Oncor, with a value of roughly $17.5 billion looked like a good fit.
Transmission lines have been high on Berkshire Hathaway Energy’s wish list of late because they are a great way to put Berkshire’s insurance float to work for a high return with very low risk.
In April 2014, BHE made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc. The acquisition got the company the transmission lines for Calgary, Alberta, and gives it an 8.75-percent after-tax return on equity, with consumers picking up 100-percent of the tab for any new transmission lines.
It’s money that like the electricity keeps flowing day and night.
The Key Bidders for Oncor
NextEra Energy Inc. has already made an offer to acquire Oncor and is reportedly the closest of any of the seven interested companies, which includes BHE and Edison International.
The acquisition of Oncor would be a perfect fit for Berkshire Hathaway Energy, which currently has $70 billion in assets, including one of the largest portfolios of renewable energy in the world.
© 2016 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.