a. Does Oncor currently maintain a working capital fund?

Transcription

1 Docket No OPC RFI Set No. 2 (Oncor) Question No Page 1 of I Req uest Regarding the "appropriate" working capital fund referred to on page 17, lines and page 18, lines 1-2 in the Direct Testimony of D. Greg Wilks: a. Does Oncor currently maintain a working capital fund? b. If so, please provide the current balance of the working capital fund along with the accounting month from which it was obtained. c. If so, what will happen to the current working capital fund? Response The following response was prepared by or under the direct supervision of David M. Davis, the sponsoring witness for this response. a. Oncor does not currently maintain a working capital fund. b. Not applicable. c. Not applicable

2 Request Docket No OPC RFI Set No. 2 (Oncor) Question No Page 1 of I Regarding the "adequate" contingency reserve fund referred to on page 17, lines and page 18, lines 1-2 in the Direct Testimony of D. Greg Wilks: a. Does Oncor currently maintain a contingency reserve fund? b. If so, please provide the current balance of the contingency reserve fund long with the accounting month from which it was obtained. c. If so, what will happen to the current contingency reserve fund? Response The following response was prepared by or under the direct supervision of David M. Davis, the sponsoring witness for this response. a. Oncor does not currently maintain a contingency reserve fund. b. Not applicable. c. Not applicable

3 Docket No OPUC RFI Set No. 2 OPUC 2-38: Response: How many customers does Sharyland currently serve? In the 2014 Earnings Monitoring Reports that Sharyland filed with the Commission, Sharyland reported 56,311 electric points of delivery. See Project No Prepared by or under the direction of and sponsored by: D. Greg Wilks

4 Docket No OPUC RFI Set No. 2 OPUC Response: Will the HUS management team, which includes a chief executive officer, chief financial officer, financial management functions, reporting functions, treasury functions, and support personnel be duplicative of these same positions on the OEDC side? If so, how will any of the duplicative costs associated with those positions and functions be eliminated in the company's future rate change requests? If not, why not? Some of these positions may be duplicative. To the extent they are duplicative, Oncor AssetCo and OEDC have provided a commitment that ratepayers will be held harmless from incremental costs due to the Transaction or the Transaction's structure. Please see Purchasers' response to Cities RFI 2-2(b). See also Direct Testimoy of Ralph G. Goodlet, Jr at pages 7-9 and Exhibit RGG-2. Prepared by or under the direction of and sponsored by: D. Greg Wilks

5 Docket No. 45'f 88 OPUC RFI Set No. 2 OPUC 2-45: Response: Will each, Oncor AssetCo and OEDC, have separate independently audited financial statements? Yes. Prepared by or under the direction of and sponsored by: D. Greg Wilks

6 STEERING COMMITTEE OF CITIDocket. 451 ES RFINoSet No$$ CITIES 1-1: Refer to page 17, lines of Mr. Baker's Direct Testimony. a. b. c. d. e. Response: Please provide a copy of Energy Future Holdings Corp.'s ("EFH") request for Private Letter Ruling ("PLR"), including the September 3, 2015 update and any subsequent updates. Please describe the PLR's present status and expected issuance date. Please describe if, and if so, how, Revenue Procedure , suspending PLRs for certain tax-free spinoffs, affects the request for PLR. Please confirm that receipt of a favourable PLR is a condition to the proposed transaction as described in the Application in this proceeding. Please explain what will happen to the transaction if EFH does not receive a favourable PLR. a. A copy of the EFH request for a PLR, including the September 3, 2015 update and any subsequent updates, are attached as Exhibit Cities 1-1(a) (HSPM). d. b. c. The PLR is currently pending while the IRS conducts its evaluation and thereto). analysis of the tax law issues presented therein (including the supplements The IRS is not obligated to issue the PLR within any defined timeframe and as such, the issuance date cannot be known with certainty. Revenue Procedure (the "Rev. Proc.") provides that the Internal Revenue Service ("IRS") will not, with some exceptions, issue advance rulings with regard to certain tax law issues typically associated with a taxfree spinoff when certain factual scenarios are present, including certain taxfree spin-offs involving a REIT conversion. The Rev. Proc., by its terms, is applicable only to ruling requests postmarked (or, if not mailed, received) on or after September 14, EFH submitted its private letter ruling ("PLR") request on June 10, 2014 and the supplement to that PLR describing the REIT structure on September 3, 2015 and thus the Purchasers believe that the Rev. Proc. is not applicable to the PLR. See the Direct Testimony of W. Kirk Baker at 24, lines Subject to certain exceptions for the receipt of legal opinions and/or binding pre-filing or closing agreements with the IRS in lieu of favorable IRS rulings, a favorable IRS ruling with regard to a specific subset of the rulings requested as part of

7 Docket No. 451 STEERING COMMITTEE OF CIT I ES RF Set No81$ the private letter ruling (" PLR") is a condition to all parties' obligations to close the proposed transaction. e. If EFH does not receive a favorable ruling from the IRS with regard to any one of the specific subset of rulings requested as part of the PLR request that are closing conditions ( or an agreed-upon reasonable substitute for such favorable ruling) then the parties will not be required to fulfill their obligations under the relevant agreements to close the proposed transaction. While the impact on the transaction of not receiving a favorable PLR cannot be stated with certainty, the parties may elect to withdraw from the proposed or the parties may elect to waive the particular unmet csing condition(s) and close the proposed transaction and/or attempt to restructure the transaction so as to mitigate the potential impact of not receiving a favorable PLR. Preparer: Sponsor: W. Kirk Baker W. Kirk Baker

8 Docket No. 451 STEERING COMMITTEE OF CIT IES RF Set No$$ CITIES 1-6: Response: Preparer: Sponsor: Please explain why the proposed Real Estate Investment Trust structure for OV1 as the indirect majority owner of Oncor Asset Co. is more beneficial to the upstream owners than some form of pass-through entity. Please provide a copy of all research and/or studies performed or relied upon by Applicants to make this assessment. As explained at pages of the Direct Testimony of W. Kirk Baker, the proposed Real Estate Investment Trust structure is designed to facilitate access to capital while positioning a privately owned company like Hunt, which has a long-term focus, to maintain operational control. Thus, the benefits of the structure are broader than just the impact on OVI. Concerning access to capital, REITs attract a strong and broad spectrum of investors. Among the reasons that REITs are attractive to investors is that they provide relatively high and stable dividend payments and a high degree of transparency (REITs as an industry customarily supplement their quarterly public filings with significant additional information which provides a greater view into the operations of the business versus other business entities). Additionally, because a REIT is a taxable C Corporation it features (i) common shares which have voting rights and thereby offer investors a degree of discipline over the entity, and (ii) more simplified tax reporting through an IRS Form 1099, compared to a partnership K-1 which passes all elements of taxable income through to investors and thereby causes increased reporting complexity and the need for an investor to file tax returns in every jurisdiction in which the company does business. Concerning control, the utility management function will reside at the operating company, OEDC. That structure allows a privately owned company with a longterm focus to control the utility operations while the asset company, Oncor AssetCo, has access to public capital. Because these benefits are conceptual, Purchasers have not performed research or studies to confirm these attributes and therefore there are no responsive documents. However, the proven performance of the Sharyland - InfraREIT structure confirms the effectiveness of the proposed structure. W. Kirk Baker W. Kirk Baker

9 Docket No STEERING COMMITTEE OF CITIES RFI Set No. 2 CITIES 2-1: Response: Refer to page 14, lines of Mr. Shapard's Direct Testimony. Please identify, describe, and provide the status of each contingency or pre-condition to closing the Transaction. Please update your response when the status changes for each such contingency or pre-condition. 1. Identification and description of conditions. The obligations of the parties to consummate the Merger and the other transactions contemplated thereby are subject to the satisfaction or mutual waiver of the following conditions precedent: (A) the Bankruptcy Court shall have entered (1) an order approving the Merger Agreement, the Backstop Agreement, the Equity Commitment Letter and a settlement agreement between the EFH Debtors and certain of their creditors, (2) an order confirming the Plan of Reorganization and (3) an order approving the disclosure statement for the Plan of Reorganization, in each case in form and substance acceptable to Ovation in its reasonable discretion, and each such order shall be in full force and effect and not subject to any stay; (B) (1) any material governmental consent and approval necessary to consummate the Merger or other transactions contemplated by the Merger Agreement (other than the Minority Interest Acquisition and related transactions), including approval of the Federal Energy Regulatory Commission, the Federal Communications Commission, the Public Utility Commission of Texas (the "PUCT") and the Nuclear Regulatory Commission, shall have been obtained and shall remain in full force and effect, and (2) the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") with respect to the Merger and the other transactions contemplated by the Merger Agreement (other than the Minority Interest Acquisition and related transactions) shall have expired or been terminated; provided that the Purchasers will not be required to consummate the Merger and other transactions contemplated by the Merger Agreement if, among other items, the PUCT approval or any other governmental approval has been obtained but contains conditions, commitments or requirements that, among other things, subject the operations of Oncor to any restriction, limitation, condition or obligation that differs materially and adversely from

10 Docket No STEERING COMMITTEE OF CITIES RFI Set No. 2 those currently applicable to Oncor or would prevent Oncor from recovering in rates material expenditures recovered by Oncor in its rates consistent with its past practices; (C) (D) (E) (F) (G) the Private Letter Ruling shall have been obtained by EFH from the IRS and, subject to certain specific agreements set forth in the Merger Agreement, shall be reasonably satisfactory to EFH and Ovation; the Reorganized TCEH Spin-Off shall have occurred in accordance with the Plan of Reorganization and the Private Letter Ruling; certain termination events under the Plan Support Agreement (as defined below) shall not have occurred; neither the Equity Commitment Letter nor the Backstop Agreement shall have been validly terminated; and the Purchasers shall have sufficient funds from their equity and debt sources to consummate the transactions contemplated by the Merger Agreement and to provide for certain payments under the Plan of Reorganization. The obligations of the Purchasers to consummate the Merger and the other transactions contemplated by the Merger Agreement are also subject to certain other conditions: (A) (B) (C) each of Oncor and Oncor Holdings shall have performed in all material respects the obligations required to be performed by it under the Oncor Letter Agreement; from August 9, 2015 to the date of the closing of the Merger (the "First Closing"), no Company Material Adverse Effect (as defined in the Merger Agreement) shall have occurred and be continuing as of such closing date; neither EFH nor any of its subsidiaries shall have entered into a contract or written agreement (whether or not binding) with respect to any Alternative Proposal (as defined in the Merger Agreement) (or proposed or resolved to do so, which proposal or resolution has not been withdrawn or terminated) except as expressly permitted by the Merger Agreement;

11 Docket No STEERING COMMITTEE OF CITIES RFI Set No. 2 (D) (E) none of EFH or EFIH or the board of directors or any committee thereof shall have (1) withdrawn, qualified or modified, in a manner adverse to any Purchaser or Equity Commitment Party (as defined below), its approval or recommendation of the Merger Agreement or the Plan of Reorganization or the transactions contemplated thereby or (2) approved or recommended, or resolved to approve or recommend (including by filing any pleading or document with the Bankruptcy Court seeking Bankruptcy Court approval of), any Alternative Proposal; and certain transactions required to be taken in connection with the REIT Reorganization shall have occurred, other than those transactions which are specified to occur at the First Closing, but subject to the substantially contemporaneous completion of such transactions at such First Closing. The Merger Agreement may be terminated upon certain events, including, among other things, the following: (A) if the Plan Support Agreement is terminated, including if the closing has not occurred by April 30, 2016, subject to extension to May 31, 2016, and then June 30, 2016, pursuant to extension rights exercisable by the requisite members of the Investor Group if approval of the PUCT has not been obtained, in each case in exchange for a reduction of $50 million per month in certain amounts to be received by the unsecured creditors of TCEH in the bankruptcy; (B) by either party, if the First Closing shall not have occurred by May 9, 2016, subject to extension (1) by Ovation for up to 180 days for the purpose of pursuing any required regulatory approvals or (2) by EFH until August 31, 2016 for the purpose of pursuing the Private Letter Ruling; (C) (D) by EFH or EFIH if its board of directors or board of managers, respectively, determines in good faith after consultation with its outside financial advisors and outside legal counsel that proceeding with the transactions contemplated by the Merger Agreement would be inconsistent with its applicable fiduciary duties; or by the Purchasers if EFH or EFIH fails to meet various milestones related to the Debtors' bankruptcy cases or otherwise materially breaches the Merger Agreement

12 Docket No STEERING COMMITTEE OF CITIES RFI Set No. 2 ii. Status of Conditions. With respect to each of the conditions identified above other than the order approving the disclosure statement identified in I.A.3 above, the status is that the conditions are still pending. The order approving the disclosure statement was entered on September 22, Preparer: Sponsor: W. Kirk Baker W. Kirk Baker

13 Oncor- Docket No CITIES RFI Set No. 2 Question No Page 1 of 1 R eauest Refer to page 16, lines 1-2 of Mr. Shapard's Direct Testimony wherein he states, "it would still nevertheless be a benefit to Oncor, its employees, and customers to put the EFH bankruptcy behind us." a. Please identify and describe each and every benefit to Oncor's customers. b. Please quantify each and every benefit to Oncor's customers. Provide a separate quantification for each and every benefit to Oncor's revenue requirement, if any. Response The following response was prepared by or under the direct supervision of Robert S. Shapard, the sponsoring witness for this response. Beginning on page 15, line 24 and continuing until page 16, line 2, Mr. Shapard states that one benefit of the Transaction is that, if approved and consummated, it will allow the EFH Debtors to emerge from bankruptcy, with Oncor being separated from its competitive affiliates. During the pendency of the EFH bankruptcy, Oncor has continued to invest in its system and provide safe and reliable service notwithstanding the financial distress of its indirect parent and competitive affiliates. Notwithstanding this fact, the EFH bankruptcy has caused Oncor and its management to spend substantial amounts of time and other resources dealing with bankruptcy related issues. The EFH bankruptcy and the uncertainty caused by it also has been a burden on many Oncor employees, who understandably are concerned about their jobs and benefits. Given this reality, it would be a positive development for Oncor to move forward without the distraction of the bankruptcy and with new ownership committed to preserving jobs and benefits and investing in the transmission and distribution system. This benefit would extend to Oncor, its employees, and by extension its customers. This type of benefit cannot be quantified. Additionally, the Purchasers have committed to hold ratepayers harmless from any adverse rate impacts and, therefore, Mr. Shapard does not expect any adverse impacts to Oncor's revenue requirement solely because of the Transaction. 109

14 Docket No STEERING COMMITTEE OF CITIES RFI Set No. 7 CITIES 7-8: Response Refer to page 4, lines of Mr. Wilks's Supplemental Direct Testimony, wherein he describes the fixed and variable components of the "rental payments." a. Please confirm that fixed capital-related costs (e.g., return on rate base, depreciation expense, and ad valorem taxes), do not vary based on weather or seasonality or other "fluctuating conditions." If the Applicants believe that such fixed costs do vary in this manner, then please describe how each of these fluctuating conditions cause the fixed capital-related costs - to vary and quantify the variability for each such identified condition, b. Please identify and describe any legal or tax code requirements to disaggregate the lease payment into separate fixed and variable components, including any such requirements for OVI to qualify as a real estate investment trust ("REIT"). Please provide copies of relevant source documents in support of your response. a. Confirmed. b. There is no requirement for a lease payment to be segregated into both fixed and variable components. A lease may have a fixed rent component only. If a variable component is also utilized, it must be consistent with the following: Must be based on gross receipts/sales; Must be fixed at the time the lease is entered into; and Must not be renegotiated during the terms of the lease in a manner that has the effect of basing rent on net income or profits. Rents cannot include any amount received or accrued which is based on the income or profits of the tenant. See IRC Sec. 856 and the related Treasury Regulations. Preparer: Sponsor: D. Greg Wilks D. Greg Wilks

15 Req uest Docket No TIEC RFI Set No. 3 (Oncor) Question No Page 1 of 1 Please provide Oncor's current Accumulated Deferred Income Tax ("ADIT") balances. Response The following response was prepared by or under the direct supervision of David M. Davis, the sponsoring witness for this response. Please see Attachment 1 for the balances of ADIT at September 30, ATTACHMENT: ATTACHMENT 1 - Document titled "Oncor Electric Delivery Company LLC - Accumulated Deferred Income Taxes - As of September 30, 2015", 1 page.

16 Oncor Electric Delivery Company LLC Accumulated Deferred Income Taxes As of September 30, 2015 DOCKET ATTACH MENT I TO 77 FC. /-'! S&L 0.3 ng)p, QUESTION NO. 3- Dl Excess Rev Req Level Accum DFIT Accum DFIT Accum DFIT Accum DFIT ADFIT-EPIS ADFIT-CWIP Unrecog. Exp - Pension/OPEB Def Tax Liab - Non Curr Unrecognized Exp - Gross Up ADFIT - Other Accum DSIT Total 2,102,908 8,326, ,586,950 8,994, ,301,894 (10,826,087) (133,021) (283,375,764) (2,597,990,979) (152,586,950) (382,660,273) (1,770,431) (2,510,030,222) 112