Investment In Oncor Holdings

3 Months Ended

Mar. 31, 2016

Investment In Oncor Holdings [Abstract]

INVESTMENT IN ONCOR HOLDINGS

EFIH has a wholly owned subsidiary, Oncor Holdings, which holds an approximate 80% equity interest in Oncor. Oncor Holdings is considered a variable interest entity (VIE). A VIE is an entity with which EFIH has a relationship or arrangement that indicates some level of control over the entity or results in economic risks to EFIH. Accounting standards require consolidation of a VIE if EFIH has (a) the power to direct the significant activities of the VIE and (b) the right or obligation to absorb profit and loss from the VIE (i.e., EFIH is the primary beneficiary of the VIE). In determining the appropriateness of consolidation of a VIE, EFIH evaluates its purpose, governance structure, decision making processes and risks that are passed on to its interest holders. EFIH also examines the nature of any related party relationships among the interest holders of the VIE and the nature of any special rights granted to the interest holders of the VIE.

EFIH does not consolidate Oncor Holdings and instead accounts for it as an equity method investment because the structural and operational ring-fencing measures discussed in Note 1 prevent EFIH from having power to direct the significant activities of Oncor Holdings or Oncor. In accordance with accounting standards, EFIH accounts for its investment in Oncor Holdings under the equity method, as opposed to the cost method, based on its level of influence over its activities.

The carrying value of EFIH's variable interest in Oncor Holdings totaled approximately $6.081 billion and $6.059 billion at March 31, 2016 and December 31, 2015, respectively, and is reported as investment in Oncor Holdings in EFIH's condensed consolidated balance sheets. EFIH's maximum exposure to loss from this investment does not exceed its carrying value.

See Note 12 for discussion of Oncor Holdings' and Oncor's transactions with EFH Corp. and its other subsidiaries.

Distributions from Oncor Holdings and Related Considerations — Oncor Holdings' distributions of earnings to EFIH totaled $40 million and $74 million for the three months ended March 31, 2016 and 2015, respectively. Distributions may not be paid except to the extent Oncor maintains a required regulatory capital structure as discussed below. At March 31, 2016, $54 million was eligible to be distributed to Oncor's members after taking into account the regulatory capital structure limit. The boards of directors of each of Oncor and Oncor Holdings can withhold distributions to the extent the applicable board determines in good faith that it is necessary to retain such amounts to meet expected future requirements of Oncor and/or Oncor Holdings.

Oncor's distributions are limited by its regulatory capital structure, which is required to be at or below the assumed debt-to-equity ratio established periodically by the PUCT for ratemaking purposes, which is currently set at 60% debt to 40% equity. At March 31, 2016, Oncor's regulatory capitalization ratio was 59.7% debt to 40.3% equity. For purposes of this ratio, debt is calculated as long-term debt plus unamortized gains on reacquired debt less unamortized issuance expenses, premiums and losses on reacquired debt. The debt calculation excludes bonds issued by Oncor Electric Delivery Transition Bond Company LLC, which were issued in 2003 and 2004 to recover specific generation-related regulatory assets and other qualified costs. Equity is calculated as membership interests determined in accordance with US GAAP, excluding the effects of accounting for the Merger (which included recording the initial goodwill and fair value adjustments and the subsequent related impairments and amortization).

EFH Corp., Oncor Holdings, Oncor and Oncor's minority investor are parties to a Federal and State Income Tax Allocation Agreement. Additional income tax amounts receivable or payable may arise in the normal course under that agreement.

Oncor Holdings Financial Statements — Condensed statements of consolidated income of Oncor Holdings and its subsidiaries for the three months ended March 31, 2016 and 2015 are presented below:



	Three Months Ended March 31,
	2016			2015
Operating revenues	$	943		$	946
Operation and maintenance expenses	(401		)	(380		)
Depreciation and amortization	(211		)	(217		)
Taxes other than income taxes	(113		)	(111		)
Other income and (deductions) — net	(5		)	(1		)
Interest expense and related charges	(84		)	(81		)
Income before income taxes	129			156
Income tax expense	(51		)	(61		)
Net income	78			95
Net income attributable to noncontrolling interests	(16		)	(20		)
Net income attributable to Oncor Holdings	$	62		$	75

Assets and liabilities of Oncor Holdings at March 31, 2016 and December 31, 2015 are presented below:



	March 31, 2016		December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	21	$	26
Restricted cash	60		38
Trade accounts receivable — net	382		388
Trade accounts and other receivables from affiliates	101		118
Income taxes receivable from EFH Corp.	102		107
Inventories	100		82
Prepayments and other current assets	100		88
Total current assets	866		847
Other investments	94		97
Property, plant and equipment — net	13,234		13,024
Goodwill	4,064		4,064
Regulatory assets — net	1,163		1,194
Other noncurrent assets	41		31
Total assets	$	19,462	$	19,257
LIABILITIES
Current liabilities:
Short-term borrowings	$	1,054	$	840
Long-term debt due currently	41		41
Trade accounts payable — nonaffiliates	197		150
Income taxes payable to EFH Corp.	24		20
Accrued taxes other than income	67		181
Accrued interest	67		82
Other current liabilities	141		144
Total current liabilities	1,591		1,458
Accumulated deferred income taxes	2,010		1,985
Long-term debt, less amounts due currently	5,648		5,646
Other noncurrent liabilities and deferred credits	2,310		2,306
Total liabilities	$	11,559	$	11,395

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