Real Estate Investment Trust as a Vehicle for Utility Funding
A recent Wall Street Journal article (January 15) highlights the use of a real estate investment trust (REIT) for financing the acquisition of Oncor Electric Delivery Company (Oncor) upon its exit from bankruptcy. In a proposed $17 billion transaction, Hunt Consolidated Inc. seeks to acquire Oncor by converting Oncor into a real estate investment trust.
The transaction has been opposed by, among others, AARP, Inc. and the staff of the Public Utilities Commission of Texas (PUCT) as transferring wealth from ratepayers to shareholders and being an inappropriately risky method of utility financing. Concern exists that the use of REITs in utility financing is a “dangerous financial engineering fad” that will endanger the financial health of the providers of essential utility services. It remains to be seen whether this “fad” is a viable alternative for conventional utility financing.
The hearings on the proposed transaction began last week before the PUCT with a decision expected from the Commission by the end of March.