UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

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FORM 10-Q





[√] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018



― OR ―



[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



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Commission File Number 333-100240



Oncor Electric Delivery Company LLC

(Exact Name of Registrant as Specified in its Charter)





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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   √       No          



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    √     No ____



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”,  “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ____    Accelerated filer ____    Non-Accelerated filer  √      (Do not check if a smaller reporting company)

Smaller reporting company___ Emerging growth company ___



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes___ No___



Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes___ No  √   



As of May 7, 2018,  80.25% of the outstanding membership interests in Oncor Electric Delivery Company LLC (Oncor) were directly held by Oncor Electric Delivery Holdings Company LLC and indirectly by Sempra Energy, and 19.75% of the outstanding membership interests were held by Texas Transmission Investment LLC.    None of the membership interests are publicly traded.







 

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TABLE OF CONTENTS





Oncor Electric Delivery Company LLC’s (Oncor) annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are made available to the public, free of charge, on the Oncor website at http://www.oncor.com as soon as reasonably practicable after they have been filed with or furnished to the Securities and Exchange Commission.  The information on Oncor’s website or available by hyperlink from the website shall not be deemed a part of, or incorporated by reference into, this quarterly report on Form 10-Q.  The representations and warranties contained in any agreement that we have filed as an exhibit to this quarterly report on Form 10-Q or that we have or may publicly file in the future may contain representations and warranties made by and to the parties thereto as of specific dates.  Such representations and warranties may be subject to exceptions and qualifications contained in separate disclosure schedules, may represent the parties’ risk allocation in the particular transaction, or may be qualified by materiality standards that differ from what may be viewed as material for securities law purposes.



This Form 10-Q and other Securities and Exchange Commission filings of Oncor and its subsidiary occasionally make references to Oncor (or “we,” “our,” “us” or “the company”) when describing actions, rights or obligations of its subsidiary.  These references reflect the fact that the subsidiary is consolidated with Oncor for financial reporting purposes.  However, these references should not be interpreted to imply that Oncor is actually undertaking the action or has the rights or obligations of its subsidiary or that the subsidiary company is undertaking an action or has the rights or obligations of its parent company or of any other affiliate.

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GLOSSARY





 

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PART I.  FINANCIAL INFORMATION



ITEM 1.FINANCIAL STATEMENTS



ONCOR ELECTRIC DELIVERY COMPANY LLC

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)

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(1) As adjusted for the retrospective adoption of ASU 2017-07, as discussed in Note 1.



See Notes to Financial Statements.





CONDENSED STATEMENTS OF  CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)





See Notes to Financial Statements.

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ONCOR ELECTRIC DELIVERY COMPANY LLC

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)























See Notes to Financial Statements.

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ONCOR ELECTRIC DELIVERY COMPANY LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



See Notes to Financial Statements.

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ONCOR ELECTRIC DELIVERY COMPANY LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1.    BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES



Description of Business



References in this report to “we,” “our,” “us” and “the company” are to Oncor.   See “Glossary” for definition of terms and abbreviations.



We are a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs that sell power in the north-central, eastern and western parts of Texas.  We are a direct, majority-owned subsidiary of Oncor Holdings, which is a direct, wholly-owned subsidiary of STIH, a direct wholly-owned subsidiary of STH. In connection with the Sempra Acquisition, on March 9, 2018, STH became an indirect wholly- owned subsidiary of Sempra.  Oncor Holdings owns 80.25% of our membership interests and Texas Transmission owns 19.75% of our membership interests.  We are managed as an integrated business; consequently, there are no separate reportable business segments.



Various “ring-fencing” measures that had been taken to enhance our credit quality and the separateness between the Oncor Ring-Fenced Entities and its majority owner (formerly the Texas Holdings Group and now Sempra) continue to remain in effect after the Sempra Acquisition.  These measures serve to mitigate our and Oncor Holdings’ credit exposure to Sempra and to reduce the risk that our assets and liabilities or those of Oncor Holdings would be substantively consolidated with the assets and liabilities of Sempra in connection with a bankruptcy of one or more Sempra entities.  Such measures include, among other things: our sale of a 19.75% equity interest to Texas Transmission in November 2008; maintenance of separate books and records for the Oncor Ring-Fenced Entities; our board of directors being comprised of a majority of independent directors; and prohibitions on the Oncor Ring-Fenced Entities providing credit support to, or receiving credit support from, any member of Sempra.  The assets and liabilities of the Oncor Ring-Fenced Entities are separate and distinct from those of Sempra. None of the assets of the Oncor Ring-Fenced Entities are available to satisfy the debt or contractual obligations of any member of Sempra.  We do not bear any liability for debt or contractual obligations of Sempra, and vice versa.  Accordingly, our operations are conducted, and our cash flows are managed, independently from Sempra.  For more information on ring-fencing measures,  see Note 2.



EFH Bankruptcy Proceedings



On the EFH Petition Date, the Debtors commenced proceedings under Chapter 11 of the U.S. Bankruptcy Code.  The Oncor Ring-Fenced Entities were not parties to the EFH Bankruptcy Proceedings.  See Note 2 for further information regarding the EFH Bankruptcy Proceedings and the change in control of our indirect majority owner in connection with such proceedings.



Basis of Presentation



These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related notes included in the 2017 Form 10-K.  In the opinion of Oncor management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations and financial position have been made.  All intercompany items and transactions have been eliminated in consolidation.    The results of operations for an interim period may not give a true indication of results for a full year due to seasonality.  All dollar amounts in the financial statements and tables in the notes are stated in millions of U.S. dollars unless otherwise indicated.



Use of Estimates



Preparation of our financial statements requires management to make estimates and assumptions about future events that affect the reporting of assets and liabilities at the balance sheet dates and the reported amounts of revenue and expense, including fair value measurements.  In the event estimates and/or assumptions prove to be different

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from actual amounts, adjustments are made in subsequent periods to reflect more current information.  No material adjustments were made to previous estimates or assumptions during the current period.



Changes in Accounting Standards  



Since May 2014, the Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers,  along with other supplemental guidance (together, Topic 606).  Topic 606 introduced new, increased requirements for disclosure of revenue in financial statements and guidance intended to eliminate inconsistencies in the recognition of revenue.   We adopted Topic 606 effective January 1, 2018 using the modified retrospective approach and elected the practical expedient available that allows an entity to recognize revenue in the amount to which the entity has the right to invoice related to performance completed to date.  Revenues are generally recognized when the underlying service has been provided in an amount prescribed by the related tariff.  The new guidance did not change this pattern of recognition and therefore the adoption did not have a material effect on our reported results of operations, financial position or cash flows.  Topic 606 also requires the separate presentation of “alternative revenue program” revenues on the income statement. We anticipate less than $20 million annually in alternative revenue program revenues related to our energy efficiency program and will disclose such activity in the notes to financial statements.  See Note 4 for additional disclosures about revenues from contracts with customers.



In February 2016, the FASB issued ASU 2016-02 which created FASB Topic 842, Leases (Topic 842).  Topic 842 amends previous GAAP to require the balance sheet recognition of substantially all lease assets and liabilities, including operating leases.  Operating lease liabilities will not be classified as debt for GAAP purposes under Topic 842 and will not be treated as debt for regulatory purposes.  Under current standards, all of Oncor’s existing leases meet the definition of an operating lease liability.  Under the new rules, the recognition of any finance leases (currently known as capital leases) on the balance sheet would be classified as debt for GAAP purposes and are expected to be defined as debt for our regulatory capital structure purposes (see Note 9 for details) similar to the current capital lease treatment.  We will be required to adopt Topic 842 by January 1, 2019.  Upon adoption, we expect to use certain practical expedients available under the transition guidance including a practical expedient to not assess whether existing land easements that were not previously accounted for as leases are or contain a lease under Topic 842, and a practical expedient not to restate comparative periods.  The initial adoption of Topic 842 will affect our balance sheet, as leased buildings and vehicles are currently recognized as operating lease liabilities. Subsequent to adoption, to the extent Oncor enters into finance leases, its credit facility covenants and capitalization ratios could be impacted.  We continue to evaluate our contracts for proper treatment under the new standards and evaluate the potential impact of Topic 842 on our financial statements.



In March 2017, the FASB issued ASU 2017-07,   Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, an amendment to Topic 715, Compensation – Retirement Benefits.  ASU 2017-07 requires the non-service cost components of net retirement benefit plan costs be presented as non-operating in the income statement.  In addition, only the service cost component of net retirement benefit plan cost is eligible for capitalization as part of inventory or property, plant and equipment.  We adopted ASU 2017-07 on January 1, 2018.  The presentation of costs is required to be applied on a retrospective basis while the capitalization eligibility requirement is applied on a prospective basis.  The guidance allows a practical expedient that permits use of previously disclosed service costs and non-service costs from the Pension and OPEB Plans note in the comparative periods as appropriate estimates when recasting the presentation of these costs in the income statements.  We have elected this practical expedient.  For cash flow purposes on a prospective basis, non-service costs will be reflected as a reduction to operating cash flows, offset by lower cash used in investing activities (lower capital expenditures).  The new guidance did not have a material effect on our results of operations, financial position or net change in total cash flows and we do not expect the guidance to have a material effect on our rate-making process.    For the three months ended March 31, 2018, $13 million of non-service costs were recorded to other income and (deductions). For the three months ended March 31, 2017 comparative period, the adoption of ASU 2017-07 resulted in a reclassification of $7 million from operation and maintenance expense to other income and (deductions), and a corresponding increase of $3 million in provision in lieu of income taxes and a decrease in non-operating provision in lieu of income taxes.



In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02).  ASU 2018-02 allows a reclassification from accumulated other

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comprehensive income (AOCI) to membership interests for stranded tax effects resulting from the TCJA.  Under ASU 2018-02, an entity will be required to provide certain disclosures regarding stranded tax effects, including its accounting policy related to releasing the income tax effects from AOCI.  We currently estimate our stranded tax effects in AOCI to be approximately $22 million.  ASU 2018-02 can be applied either as of the beginning of the period of adoption or retrospectively as of the date of enactment of the TCJA and to each period in which the effect of the TCJA is recognized.  ASU 2018-02 is effective for our 2019 annual reporting period, including interim periods therein, with early adoption permitted. We have not yet selected the adoption method or the year in which we will adopt the standard.



2.   EFH BANKRUPTCY PROCEEDINGS          



On the EFH Petition Date, EFH Corp. and the substantial majority of its direct and indirect subsidiaries at the time, including EFIH, EFCH and TCEH, commenced proceedings under Chapter 11 of the U.S. Bankruptcy Code. The Oncor Ring-Fenced Entities were not parties to the EFH Bankruptcy Proceedings.  See Note 1 and below for further information regarding the EFH Bankruptcy Proceedings and the change in control of our indirect majority owner in connection with such proceedings.



The U.S. Bankruptcy Code automatically enjoined, or stayed, us from judicial or administrative proceedings or filing of other actions against our affiliates or their property to recover, collect or secure our claims arising prior to the EFH Petition Date. Following the EFH Petition Date, EFH Corp. received approval from the bankruptcy court to pay or otherwise honor certain prepetition obligations generally designed to stabilize its operations. Included in the approval were the obligations owed to us representing our prepetition electricity delivery fees.  



In May 2016, the Debtors filed a joint Plan of Reorganization (2016 Plan of Reorganization) pursuant to Chapter 11 of the U.S. Bankruptcy Code and a related disclosure statement with the bankruptcy court.  The 2016 Plan of Reorganization provided that the confirmation and effective date of the 2016 Plan of Reorganization with respect to the TCEH Debtors may occur separate from, and independent of, the confirmation and effective date of the 2016 Plan of Reorganization with respect to the EFH Debtors. In this regard, the bankruptcy court confirmed the 2016 Plan of Reorganization with respect to the TCEH Debtors in August 2016, and it became effective by its terms, and the Vistra Spin-Off occurred, effective October 3, 2016.



As a result of the Vistra Spin-Off, Vistra and its subsidiaries, including Luminant and TXU Energy, ceased to be related parties of ours as of October 3, 2016.  As a result of the Sempra Acquisition, the members of the Texas Holdings Group ceased to be related parties of ours as of March 9, 2018.  See Note 11 for details of Oncor’s related-party transactions with members of the Texas Holdings Group.



Change in Indirect Ownership of Oncor



During the course of the EFH Bankruptcy Proceedings, certain plans of reorganization were filed that contemplated the transfer of the ownership interests in Oncor that were indirectly held by EFH Corp. Below is a summary of certain matters relating to the change in indirect ownership of Oncor that were proposed in the EFH Bankruptcy Proceedings.



Prior Merger Agreements



The following merger agreements relating to a potential change in indirect ownership of Oncor were entered into in connection with the EFH Bankruptcy Proceedings. Each of these prior merger agreements has been terminated in accordance with its respective terms.









Sempra Merger Agreement and Closing 



On August 15, 2017, the EFH Debtors received an alternative proposal from Sempra that largely followed the structure of the BHE Plan. Following negotiations, on August 21, 2017, EFH Corp. and EFIH entered into an Agreement and Plan of Merger (Sempra Merger Agreement) with Sempra and one of its wholly-owned subsidiaries (collectively, the Sempra Parties).    The Sempra Acquisition closed on March 9, 2018. As a result of the Sempra Acquisition, EFH Corp. merged with an indirect subsidiary of Sempra, with EFH Corp. (renamed STH) continuing as the surviving company and an indirect, wholly-owned subsidiary of Sempra.  The Sempra Merger Agreement did not impose any conditions on the EFH Debtors regarding Texas Transmission’s minority interest in Oncor. Accordingly, the Sempra Merger Agreement provided for the acquisition by Sempra of the 80.03% of Oncor’s membership interests owned indirectly by EFH Corp. and EFIH (Sempra Acquisition).  In accordance with the

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Sempra Merger Agreement, Sempra paid cash consideration of approximately $9.45 billion to acquire the indirect 80.03% outstanding membership interest in Oncor.  In addition, in connection with the Sempra Acquisition, Oncor Holdings acquired 0.22% of the outstanding membership interests in Oncor from Investment LLC.   After the Sempra Acquisition, Texas Transmission continued to own 19.75% of Oncor’s outstanding membership interests.  The Sempra Merger Agreement was consummated on March 9, 2018 after obtaining the approval of the bankruptcy court in the EFH Bankruptcy Proceedings, the Federal Communications Commission and the PUCT.    



Pursuant to the terms of the Sempra Merger Agreement, Oncor and Sempra filed a joint application with the PUCT seeking certain regulatory approvals with respect to the transactions contemplated by the amended joint plan of reorganization filed on September 5, 2017 by the EFH Debtors (Sempra Plan) on October 5, 2017 in PUCT Docket No. 47675. On December 14, 2017, Oncor and Sempra entered into a stipulation with the Staff of the PUCT, the Office of Public Utility Counsel, the Steering Committee of Cities Served by Oncor and the Texas Industrial Energy Consumers reflecting the parties’ settlement of all issues in the PUCT proceeding regarding the joint application.  At its February 15, 2018 open meeting, the PUCT directed PUCT Staff to prepare an order based on the Sempra Settlement Stipulation for consideration by the PUCT at its open meeting on March 8, 2018. At the open meeting, the PUCT approved the final order.  For more information regarding the Sempra Settlement Stipulation and the proceedings in PUCT Docket No. 47675, see “PUCT Matters Related to EFH Bankruptcy Proceedings – Sempra PUCT Proceedings” below.



In connection with the closing of the Sempra Acquisition, Oncor’s Limited Liability Company Agreement was amended and restated in its entirety on March 9, 2018. The Limited Liability Company Agreement, among other things, provides for the management of Oncor by a board of directors consisting of 13 members, including seven “disinterested directors” (as defined in the Limited Liability Company Agreement), two directors designated indirectly by Sempra, two directors designated by Texas Transmission (subject to certain conditions) and two directors that are current or former officers of Oncor.



Management Equity Purchase       



On March 9, 2018, Oncor entered into an Interest Transfer Agreement (OMI Agreement) with Investment LLC, Oncor Holdings and Sempra. Pursuant to the 2008 Equity Interests Plan for Key Employees of Oncor Electric Delivery Company LLC and its affiliates, certain members of Oncor’s management, including Oncor’s executive officers and independent directors on Oncor’s board of directors, were granted the opportunity to purchase Class B equity interests (Class B Interests) in Investment LLC, an entity whose only assets consist of equity interests in Oncor. Investment LLC held 1,396,008 of the outstanding limited liability company interests in Oncor (the “OMI Interests”), which represented 0.22% of the outstanding membership interests in Oncor. For a description of the amounts of Class B Interests that were beneficially owned by members of Oncor’s board of directors and each of Oncor’s named executive officers, see “Security Ownership of Certain Beneficial Owners and Management and Related Equity Holder Matters – Security Ownership of Equity Interests of Oncor of Certain Beneficial Owners and Management.” in the 2017 Form 10-K. 



Pursuant to the OMI Agreement, in connection with the closing of the Sempra Acquisition, Investment LLC transferred to Oncor Holdings all of the OMI Interests in exchange for $26 million in cash, which represents approximately $18.60 for each OMI Interest. Following the transfer, the holders of the Class B Interests will be entitled to receive certain distributions related to certain allocable tax liabilities.



PUCT Matters Related to EFH Bankruptcy Proceedings



Hunt Investor Group PUCT Proceedings



In September 2015, Oncor and the Hunt Investor Group filed in PUCT Docket No. 45188 a joint application with the PUCT seeking certain regulatory approvals with respect to the transactions contemplated by a plan of reorganization in the EFH Bankruptcy Proceedings. In March 2016, the PUCT issued an order conditionally approving the joint application. In April 2016, the Hunt Investor Group and certain intervenors in PUCT Docket No. 45188 filed motions for rehearing and in May 2016, the PUCT denied such motions and the order became final. In May 2016, the plan of reorganization and the Hunt Merger Agreement that contemplated the transactions in PUCT Docket No. 45188 were terminated. The Hunt Investor Group filed a petition with the Travis County District Court

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in June 2016 seeking review of the order. We cannot predict the results of the review or the ultimate disposition of PUCT Docket No. 45188, particularly in light of the termination of the Hunt Merger Agreement.



In connection with PUCT Docket No. 45188, certain cities that have retained original jurisdiction over electric utility rates passed resolutions directing Oncor to file rate review proceedings.  Oncor made a rate filing with the PUCT and original jurisdiction cities to comply with their resolutions on March 17, 2017 in PUCT Docket No. 46957.  In July 2017, we and certain parties to our rate review agreed to a settlement of that rate review, and on August 2, 2017 a settlement agreement was filed that settled all issues in the docket.  On October 13, 2017, the PUCT issued an order approving the settlement agreement, and on November 27, 2017, the new rates took effect. 

NEE PUCT Proceedings



The NEE Merger Agreement contemplated that Oncor and NEE file a joint application with the PUCT seeking certain regulatory approvals with respect to the transactions contemplated by the NEE Merger Agreement. Oncor and NEE filed that joint application in PUCT Docket No. 46238 in October 2016. The PUCT denied the application on April 13, 2017.  The PUCT issued an order on rehearing on June 7, 2017 and denied NEE’s second motion for rehearing on June 29, 2017.  On July 13, 2017, NEE filed a petition with the Travis County District Court seeking review of the PUCT order.  We cannot predict the results of the review or the ultimate disposition of PUCT Docket No. 46238, particularly in light of the termination of the NEE Merger Agreement.



On July 28, 2017, TTHC and NEE filed in PUCT Docket No. 47453 a joint application with the PUCT seeking certain regulatory approvals with respect to NEE’s proposed acquisition of the 19.75% minority interest in Oncor that is indirectly held by TTHC.  The application requested that the PUCT issue an order disclaiming jurisdiction over the transaction or finding that the transaction is in the public interest and approved.  On September 14, 2017, Oncor filed a motion to intervene as a party, but not as an applicant, in PUCT Docket No. 47453.  On October 26, 2017, the PUCT voted to dismiss the application without prejudice on jurisdictional grounds and ordered that any future filing of the application must include the affected utility (in this case Oncor) as an applicant.  The PUCT further ordered that in any such filing Oncor is not required to seek approval of the application or any other specific relief. On October 31, 2017, TTHC notified the PUCT that it had terminated the TTI Merger Agreement with NEE. NEE filed a motion for rehearing on November 20, 2017, which was not granted. On January 9, 2018, NEE filed a petition with the Travis County District Court seeking review of the PUCT order of dismissal. We cannot predict the results of the review or the ultimate disposition of PUCT Docket No. 47453, particularly in light of TTHC’s termination of the TTI Merger Agreement.



Sempra PUCT Proceedings



Oncor and Sempra filed a joint application with the PUCT seeking certain regulatory approvals with respect to the transactions contemplated by the Sempra Plan on October 5, 2017 in PUCT Docket No. 47675. On December 14, 2017, Oncor and Sempra entered into a stipulation with the Staff of the PUCT, the Office of Public Utility Counsel, the Steering Committee of Cities Served by Oncor and the Texas Industrial Energy Consumers reflecting the parties’ settlement of all issues in the PUCT proceeding regarding the joint application. On January 5, 2018, Oncor, Sempra and the Staff of the PUCT made a joint filing with the PUCT requesting that the PUCT approve the acquisition, consistent with the governance, regulatory and operating commitments in a revised stipulation joined by two additional parties. On January 23, 2018, Oncor and Sempra filed an additional revision to the revised stipulation (Sempra Settlement Stipulation) and announced that two more parties had joined in the Sempra Settlement Stipulation. On February 2, 2018, Oncor and Sempra announced that all of the intervenors in PUCT Docket No. 47675 had signed on to the Sempra Settlement Stipulation. At its February 15, 2018 open meeting, the PUCT directed PUCT Staff to prepare an order based on the Sempra Settlement Stipulation for consideration by the PUCT at its open meeting on March 8, 2018. At the open meeting, the PUCT approved the final order.



The parties to the Sempra Settlement Stipulation agreed that Sempra’s acquisition of EFH Corp. was in the public interest and would bring substantial benefits.  The Sempra Settlement Stipulation requested that the PUCT approve the Sempra Acquisition. Previously, EFH Corp. and Oncor implemented various ring-fencing measures to enhance Oncor’s separateness from its owners and to mitigate the risk that Oncor would be negatively impacted in the event of a bankruptcy or other adverse financial developments affecting EFH Corp. or EFH Corp.’s subsidiaries or owners.  The prior ring-fencing measures were designed to create both legal and financial separation between the Oncor Ring-Fenced Entities, on the one hand, and EFH Corp. and its other affiliates and subsidiaries, on the other

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hand.  The joint application filed with the PUCT and the Sempra Settlement Stipulation outline certain ring-fencing measures, governance mechanisms and restrictions that apply after the Sempra Acquisition. As a result of these ring-fencing measures, Sempra will not control Oncor, and the ring-fencing measures limit Sempra’s ability to direct the management, policies and operations of Oncor, including the deployment or disposition of Oncor’s assets, declarations of dividends, strategic planning and other important corporate issues and actions. These limitations include limited representation on the board of directors of Oncor.



Pursuant to the order issued by PUCT with respect to its approval of the transaction contemplated by the Sempra Plan (PUCT Docket No. 47675) (the “Sempra Order”), following the consummation of the Sempra Acquisition, the board of directors of Oncor is required to consist of thirteen members and be constituted as follows:



In order for a current or former officer of Oncor to be eligible to serve as an Oncor Officer Director, such officer cannot have worked for Sempra or any of its affiliates (excluding Oncor Holdings and Oncor) or any other entity with a direct or indirect ownership interest in Oncor or Oncor Holdings in the ten year period prior to such officer being employed by Oncor.  Oncor Holdings, at the direction of STIH (a subsidiary of STH), which is a wholly-owned indirect subsidiary of, and controlled by, Sempra following the Sempra Acquisition), has the right to nominate and/or seek the removal of the Oncor Officer Directors, with such nomination or removal subject to approval by a majority of the Oncor board of directors.



In addition, the Sempra Order provides that Oncor’s board cannot be overruled by the board of Sempra or any of its subsidiaries on dividend policy, the issuance of dividends or other distributions (except for contractual tax payments), debt issuance, capital expenditures, operation and maintenance expenditures, management and service fees, and appointment or removal of board members, provided that certain actions may also require the additional approval of the Oncor Holdings board of directors. The Sempra Order also provides that any changes to the size, composition, structure or rights of the board must first be approved by the PUCT. In addition, if Sempra acquires Texas Transmission’s interest in Oncor, the two board positions on Oncor’s board of directors that Texas Transmission is entitled to appoint shall be eliminated and the size of Oncor’s board of directors will be reduced by two.



Additional regulatory commitments, governance mechanisms and restrictions provided in the Sempra Order include, among others:







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Sempra contributed $117 million in cash commensurate with its ownership interest to Oncor on April 23, 2018.  See Note 9 for further information regarding member contributions. 























EFH Bankruptcy Proceedings Settlement Agreement



In connection with the EFH Bankruptcy Proceedings, the EFH Debtors and various creditor parties entered into a settlement agreement (the Settlement Agreement) in August 2015 (as amended in September 2015) to compromise and settle, among other things (a) intercompany claims among the EFH Debtors, (b) claims and causes of actions against holders of first lien claims against TCEH and the agents under TCEH’s senior secured facilities, (c) claims and causes of action against holders of interests in EFH Corp. and certain related entities and (d) claims and causes of action against each of the EFH Debtors’ current and former directors, the Sponsor Group, managers and officers and other related entities. The Settlement Agreement contemplates a release of such claims upon approval of the Settlement Agreement by the bankruptcy court, which approval was obtained in December 2015.  The Settlement Agreement settles substantially all inter-debtor claims through the effective date of the Settlement Agreement. These settled claims include potentially contentious inter-debtor claims, including various potential avoidance actions and claims arising under numerous debt agreements, tax sharing agreements, and contested property transfers. The release provisions of the Settlement Agreement took effect immediately upon the entry of the bankruptcy court order approving the Settlement Agreement. In this regard, substantially all of the potential affiliate claims, derivative claims and other types of disputes among affiliates (including claims against Oncor) have been resolved by bankruptcy court order. Accordingly, we believe the Settlement Agreement resolves all affiliate claims against Oncor and its assets existing as of the effective date of the Settlement Agreement.



3.    REGULATORY MATTERS



Change in Control Reviews



See “PUCT Matters Related to EFH Bankruptcy Proceedings” in Note 2.



4.   REVENUES



General



Our revenue is billed monthly under tariffs approved by the PUCT and the majority of revenues are related to providing electric delivery service to consumers.  Tariff rates are designed to recover the cost of providing electric delivery service to customers including a reasonable rate of return on invested capital.   As the units delivered can be directly measured, our revenues are recognized when the underlying service has been provided in an amount prescribed by the related tariff. We recognize revenue in the amount that we have the right to invoice.   Substantially all of our revenues are from contracts with customers (Topic 606 revenues) except for alternative revenue program revenues discussed below.



Reconcilable Tariffs



The PUCT has designated certain tariffs (primarily TCRF, EECRF and previously AMS surcharges) as reconcilable, which means the differences between amounts billed under these tariffs and the related incurred costs are deferred as either regulatory assets or regulatory liabilities.  Accordingly, at prescribed intervals, future tariffs are adjusted to either repay regulatory liabilities or collect regulatory assets. 



Alternative Revenue Program 



The PUCT has implemented an incentive program allowing us to earn performance bonuses by exceeding PUCT energy efficiency program targets. This incentive program is considered an “alternative revenue program” and the related bonus revenues are outside of the scope of Topic 606.  Annual performance bonuses are recognized as revenue when approved by the PUCT, typically in the third or fourth quarter each year. 



As a result of the 2017 rate review order effective November 26, 2017, the AMS surcharges ceased and AMS related expenses and return became recoverable through distribution base rates. 

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Disaggregation of Revenues 



The following table reflects electric delivery revenues disaggregated by tariff for the three months ended March 31, 2018:



Customers



Our distribution customers consist of approximately 85 REPs and certain electric cooperatives in our certificated service area.  The consumers of the electricity we deliver are free to choose their electricity supplier from REPs who compete for their business.  REP subsidiaries of our two largest counterparties represented 24% and 20% of our total operating revenues for the three months ended March 31, 2018.  No other customer represented more than 10% of our total operating revenues. Our transmission base revenues are collected from load serving entities benefitting from our transmission system. Our transmission customers consist of municipalities, electric cooperatives and other distribution companies.



Variability



Our revenues and cash flows are subject to seasonality, timing of customer billings, weather conditions and other electricity usage drivers, with revenues being highest in the summer. Payment is due 35 days after invoicing. Under a PUCT rule relating to the Certification of Retail Electric Providers, write-offs of uncollectible amounts owed by nonaffiliated REPs are recoverable as a regulatory asset. 



Pass-through expenses



Expenses which are allowed to be passed-through to customers (primarily, third party wholesale transmission service and energy efficiency program costs) are generally recognized as revenue at the time the costs are incurred.  Franchise taxes are assessed by local governmental bodies, based on kWh delivered and are not a “pass-through” item.  The rates we charge customers are intended to recover the franchise taxes, but we are not acting as an agent to collect the taxes from customers; therefore, franchise taxes are reported as a principal component of “taxes other than amounts related to income taxes” instead of a reduction to  “revenues” in the income statement.    



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5.    REGULATORY ASSETS AND LIABILITIES 



Recognition of regulatory assets and liabilities and the periods which they are to be recovered or refunded through rate regulation are determined by the PUCT.    Components of our regulatory assets and liabilities as of March 31, 2018 and December 31, 2017 are provided in the table below.  Amounts not earning a return through rate regulation are noted.

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6.    SHORT-TERM BORROWINGS



Revolving Credit Facility



At March 31, 2018, we had a $2.0 billion unsecured revolving credit facility (Credit Facility) to be used for working capital and general corporate purposes, issuances of letters of credit and support for commercial paper issuances.  We may request increases in our borrowing capacity in increments of not less than $100 million, not to exceed $400 million in the aggregate provided certain conditions are met, including lender approvals. The Credit Facility has a five-year term expiring in November 2022 and gives us the option of requesting up to two one-year extensions, with such extensions subject to certain conditions and lender approvals.  Borrowings are classified as short-term on the balance sheet.



At March 31, 2018, we had outstanding borrowings under the Credit Facility totaling $1.075 billion with an interest rate of 2.79% per annum and outstanding letters of credit totaling $9 million.  At December 31, 2017, we had outstanding borrowings under the Credit Facility totaling $950 million with an interest rate of 2.62% and outstanding letters of credit totaling $9 million.



Borrowings under the Credit Facility bear interest at per annum rates equal to, at our option, (i) LIBOR plus a spread ranging from 0.875% to 1.50% depending on credit ratings assigned to our senior secured non-credit enhanced long-term debt or (ii) an alternate base rate (the highest of (1) the prime rate of JPMorgan Chase, (2) the federal funds effective rate plus 0.50%, and (3) adjusted LIBOR plus 1.00%) plus a spread ranging from 0.00% to 0.50% depending on credit ratings assigned to our senior secured non-credit enhanced long-term debt.  At March 31, 2018, outstanding borrowings bore interest at LIBOR plus 1.00%.  Amounts borrowed under the Credit Facility, once repaid, can be borrowed again from time to time.



An unused commitment fee is payable quarterly in arrears and upon termination or commitment reduction at a rate equal to 0.075% to 0.225% (such spread depending on certain credit ratings assigned to our senior secured debt) of the daily unused commitments under the Credit Facility.  Letter of credit fees on the stated amount of letters of credit issued under the Credit Facility are payable to the lenders quarterly in arrears and upon termination at a rate per annum equal to the spread over adjusted LIBOR.  Customary fronting and administrative fees are also payable to letter of credit fronting banks.  At March 31, 2018, letters of credit bore interest at 1.200%, and a commitment fee (at a rate of 0.100% per annum) was payable on the unfunded commitments under the Credit Facility, each based on our current credit ratings.



Under the terms of the Credit Facility, the commitments of the lenders to make loans to us are several and not joint.  Accordingly, if any lender fails to make loans to us, our available liquidity could be reduced by an amount up to the aggregate amount of such lender’s commitments under the facility.



Subject to the limitations described below, borrowing capacity available under the Credit Facility at March 31, 2018 was $916 million and at December 31, 2017 was $1.041 billion. 



The Credit Facility contains customary covenants for facilities of this type, restricting, subject to certain exceptions, us and our subsidiaries from, among other things: incurring certain additional liens (not including liens relating to obligations secured pursuant to our Deed of Trust, which are permitted); entering into mergers and consolidations; sales of substantial assets and acquisitions and investments in subsidiaries.  In addition, the Credit Facility requires that we maintain a consolidated senior debt-to-capitalization ratio of no greater than 0.65 to 1.00 and observe certain customary reporting requirements and other affirmative covenants.  For purposes of the ratio, debt is calculated as indebtedness defined in the Credit Facility (principally, the sum of long-term debt, any capital leases, short-term debt and debt due currently in accordance with GAAP).  Capitalization is calculated as membership interests determined in accordance with GAAP plus indebtedness described above.  At March 31, 2018, we were in compliance with this and all other covenants.



Commercial Paper Program



On March 26, 2018 we established a commercial paper program (CP Program), under which we may issue unsecured commercial paper notes (Notes) on a private placement basis up to a maximum aggregate amount

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outstanding at any time of $2.0 billion. We also entered into commercial paper dealer agreements (Dealer Agreements) with commercial paper dealers (Dealers).  The Dealer Agreements are substantially identical in all material respects except as to the parties thereto.  A national bank acts as the issuing and paying agent under the CP Program pursuant to the terms of an issuing and paying agent agreement.



Under the CP Program, we may issue Notes from time to time, and the proceeds of the Notes will be used for working capital and general corporate purposes.  



The CP Program obtains liquidity support from our Credit Facility discussed above.  If at any time funds are not available on favorable terms under the CP Program, we may utilize the Credit Facility for funding.  At March 31, 2018, we had no outstanding Notes issued under the CP Program.  



The Dealer Agreements provide the terms under which the Dealers will either purchase from us or arrange for the sale by us of Notes pursuant to an exemption from federal and state securities laws.  The Dealer Agreements contain customary representations, warranties, covenants and indemnification provisions.  The maturities of the Notes will vary, but may not exceed 364 days from the date of issue.  The face or principal amount of Notes outstanding under the CP Program at any time may not exceed $2.0 billion.  The Notes will be sold at a discount from par or, alternatively, will be sold at par and bear interest at rates that will vary based on market conditions at the time of the issuance of the Notes.  The rate of interest on any Note will depend on whether the Note will bear interest on a fixed rate or a floating rate basis.



From time to time, one or more of the Dealers and certain of their respective affiliates have provided, and may in the future provide, commercial banking, investment banking and other financial advisory services to us and our affiliates for which the Dealers have received or will receive customary fees and expenses.  In addition, certain of the Dealers or their affiliates are lenders under the Credit Facility.



The Notes have not been and will not be registered under the Securities Act of 1933 (the “Securities Act”), or any state securities laws, and may not be offered and sold except in compliance with an applicable exemption from the registration requirements of the Securities Act and any applicable state securities laws.    





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7.    LONG-TERM DEBT



Our senior notes are secured by a  first priority lien on certain transmission and distribution assets equally and ratably with all of Oncor’s other secured indebtedness.  See “Deed of Trust” below for additional information.  At March 31, 2018 and December 31, 2017, our long-term debt consisted of the following:



Deed of Trust



Our secured indebtedness is secured equally and ratably by a first priority lien on property we acquired or constructed for the transmission and distribution of electricity.  The property is mortgaged under the Deed of Trust.  The Deed of Trust permits us to secure indebtedness (excluding borrowings under the CP Program, the Credit Facility and the term loan credit agreement) with the lien of the Deed of Trust up to the aggregate of (i) the amount of available bond credits, and (ii) 85% of the lower of the fair value or cost of certain property additions that could be certified to the Deed of Trust collateral agent.  At March 31, 2018, the amount of available bond credits was $3.038 billion and the amount of future debt we could secure with property additions, subject to those property additions being certified to the Deed of Trust collateral agent, was $2.540 billion.



Fair Value of Long-Term Debt



At March 31, 2018 and December 31, 2017, the estimated fair value of our long-term debt (including current maturities) totaled $6.940 billion and $7.153 billion, respectively, and the carrying amount totaled $6.118 billion and $6.117 billion, respectively.  The fair value is estimated using observable market data, representing Level 2 valuations under accounting standards related to the determination of fair value.



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8.    COMMITMENTS AND CONTINGENCIES



EFH Bankruptcy Proceedings



On the EFH Petition Date,  the Debtors commenced the EFH Bankruptcy Proceedings.    The Oncor Ring-Fenced Entities were not parties to the EFH Bankruptcy Proceedings.  See Note 2 for further information regarding the resolution of the EFH Bankruptcy Proceedings and the change in control of our indirect majority owner in connection with such proceedings and Note 11 for our related-party transactions involving members of the Texas Holdings Group.



Legal/Regulatory Proceedings



We are involved in various legal and administrative proceedings in the normal course of business, the ultimate resolution of which, in the opinion of management, should not have a material effect upon our financial position, results of operations or cash flows.  See Note 3 in this report and Note 8 to Financial Statements in our 2017 Form 10-K for additional information regarding our legal and regulatory proceedings.    



9.    MEMBERSHIP INTERESTS



Cash Distributions





Distributions are limited by our required regulatory capital structure to be at or below the assumed debt-to-equity ratio established periodically by the PUCT for ratemaking purposes, which is 57.5% debt to 42.5% equity effective November 27, 2017.   The PUCT has the authority to determine what types of debt and equity are included in a utility’s debt-to-equity ratio.  For purposes of this ratio, debt is calculated as long-term debt including capital leases plus unamortized gains on reacquired debt less unamortized issuance expenses, premiums and losses on reacquired debt.  Equity is calculated as membership interests determined in accordance with GAAP, excluding the effects of the acquisition accounting resulting from Docket No, 34077 (which included recording the initial goodwill and fair value adjustments and subsequent related impairments and amortization).    At March 31, 2018, our regulatory capitalization ratio was 58.9% debt to 41.1% equity, effectively restricting our ability to make cash distributions to our members as of that date. 



Cash Contributions





In April 2018, our members contributed $144 million,  which was used to pay down a portion of our term loan credit agreement. 







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Membership Interests



The following table presents the changes to membership interests during the three months ended March 31, 2018 and 2017: 



Accumulated Other Comprehensive Income (Loss)



The following table presents the changes to accumulated other comprehensive income (loss) for the three months ended March 31, 2018 and 2017:











10.    PENSION AND OPEB PLANS



Pension Plans



We sponsor the Oncor Retirement Plan and also have liabilities under the Vistra Retirement Plan, both of which are qualified pension plans under Section 401(a) of the Internal Revenue Code of 1986, as amended, and are subject to the provisions of ERISA.  Employees do not contribute to either plan.  We also have a supplemental pension plan for certain employees whose retirement benefits cannot be fully earned under the qualified retirement

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plans.  See Note 10 to Financial Statements in our 2017 Form 10-K for additional information regarding pension plans.



OPEB Plans



We currently sponsor the Oncor OPEB Plan and the Oncor Shared OPEB Plan.  The Oncor OPEB Plan covers our eligible current and future retirees, excluding certain eligible retirees of EFH Corp./Vistra whose employment service was assigned to both Oncor (or a predecessor regulated utility business) and a non-regulated business of EFH Corp./Vistra which are now part of a separate plan discussed below. 



Effective January 1, 2018, we established the Oncor Shared OPEB Plan to cover “split participants” whose employment included service that has been assigned to both Oncor (or a predecessor regulated utility business) and  non-regulated businesses of EFH Corp./Vistra.   Vistra is solely responsible for its portion of the liability for retiree benefits related to those retirees.    As we are not responsible for Vistra’s portion of the Oncor Shared OPEB Plan’s unfunded liability, that amount is not reported on our balance sheet.  The establishment of the Oncor Shared OPEB Plan is not expected to have an impact on our financial statements.  See Note 10 to Financial Statements in our 2017 Form 10-K for additional information. 



Pension and OPEB Costs



Our net costs related to pension plans and the Oncor OPEB Plans for the three months ended March 31, 2018 and 2017 were comprised of the following:



The discount rates reflected in net pension and OPEB costs in 2018 are 3.53%,  3.72% and 3.73% for the Oncor Retirement Plan, the Vistra Retirement Plan and the Oncor OPEB Plans, respectively.  The expected return on pension and OPEB plan assets reflected in the 2018 cost amounts are 5.13%,  4.78% and 6.20% for the Oncor Retirement Plan, the Vistra Retirement Plan and the Oncor OPEB Plans, respectively.



Pension and OPEB Plans Cash Contributions



We made cash contributions to the pension plans and Oncor OPEB Plans of $21 million and $14 million, respectively, during the three months ended March 31, 2018.   We expect to make additional cash contributions to

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the pension plans and Oncor OPEB Plans of $61 million and $21 million, respectively, during the remainder of 2018.   Our aggregate pension plans and Oncor OPEB Plans funding is expected to total approximately $556 million and $178 million, respectively, in the 2018 to 2022 period based on the latest actuarial projections.



11.   RELATED-PARTY TRANSACTIONS



The following represent our significant related-party transactions at March 31, 2018.  As a result of the Sempra Acquisition, Sempra became a related party and the Sponsor Group ceased to be a related party as of March 9, 2018. See Note 2 for information regarding the Sempra Acquisition. 





Amounts payable to (receivable from) members related to income taxes under the tax sharing agreement and reported on our balance sheet consisted of the following:



Cash payments made to (received from) members related to income taxes consisted of the following:



No tax related payments were made to (received from) Sempra during these periods.



See Note 9 for information regarding distributions to members.



12.     SUPPLEMENTARY FINANCIAL INFORMATION



Other Income and (Deductions)

____________



Interest Expense and Related Charges



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Trade Accounts and Other Receivables



Trade accounts and other receivables reported on our balance sheet consisted of the following:



At March 31, 2018, REP subsidiaries of our two largest counterparties represented approximately 14% and 12% of the trade accounts receivable balance and at December 31, 2017, represented approximately 12% and 10% of the trade accounts receivable balance.



Under a PUCT rule relating to the Certification of Retail Electric Providers, write-offs of uncollectible amounts owed by nonaffiliated REPs are deferred as a regulatory asset.    



Investments and Other Property



Investments and other property reported on our balance sheet consisted of the following:



Property, Plant and Equipment



Property, plant and equipment reported on our balance sheet consisted of the following:



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Intangible Assets



Intangible assets (other than goodwill) reported on our balance sheet as part of property, plant and equipment consisted of the following:



Aggregate amortization expense for intangible assets totaled $12 million and $15 million for the three months ended March 31, 2018 and 2017, respectively.  The estimated aggregate amortization expense for each of the next five fiscal years is as follows:



At both March 31, 2018 and December 31, 2017, goodwill totaling $4.1 billion was reported on our balance sheet.  None of this goodwill is being deducted for tax purposes.



Employee Benefit Obligations and Other



Employee benefit obligations and other reported on our balance sheet consisted of the following:



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Supplemental Cash Flow Information        

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 



The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2018 and 2017 should be read in conjunction with the condensed financial statements and the notes to those statements herein as well as the consolidated financial statements and the notes to those statements and “Risk Factors” contained in our 2017 Form 10-K.



All dollar amounts in the tables in the following discussion and analysis are stated in millions of U.S. dollars unless otherwise indicated.



BUSINESS



We are a regulated electricity transmission and distribution company principally engaged in providing delivery services to REPs that sell power in the north-central, eastern and western parts of Texas.   We are a direct, majority-owned subsidiary of Oncor Holdings, which is a direct, wholly-owned subsidiary of STIH, a direct wholly-owned subsidiary of STH. In connection with the Sempra Acquisition, on March 9, 2018, STH became an indirect wholly- owned subsidiary of Sempra.  Oncor Holdings owns 80.25% of our outstanding membership interests and Texas Transmission owns 19.75% of our outstanding membership interests.  We are managed as an integrated business; consequently, there are no separate reportable business segments.



Sempra has committed to certain ring-fencing measures effective with the closing of the Sempra Acquisition. For more information on the Sempra Acquisition and the related PUCT proceedings, see Note 2 to Financial Statements.



Significant Activities and Events   



EFH Bankruptcy Proceedings — See Note 2 to Financial Statements for information on the proceedings.



Sempra Acquisition — In connection with the EFH Corp. Bankruptcy Proceedings, EFH Corp. and EFIH entered into an agreement with Sempra pursuant to which Sempra would acquire the 80.03% of Oncor’s outstanding equity held indirectly by EFH Corp. and EFIH. In addition, in connection with the Sempra Acquisition, Oncor Holdings acquired 0.22% of the outstanding membership interests in Oncor from Investment LLC. The Sempra Acquisition was subject to customary closing conditions, including the approval of the bankruptcy court in the EFH Bankruptcy Proceedings and the PUCT.  All parties in the PUCT proceeding requesting PUCT approval of the Sempra Acquisition entered into a settlement agreement, and Oncor, Sempra and the Staff of the PUCT made a joint filing with the PUCT requesting that the PUCT approve the acquisition consistent with the governance, regulatory and operating commitments set forth in the settlement agreement.  The bankruptcy court confirmed the Sempra Plan on February 26, 2018.  The PUCT approved the final order on March 8, 2018.  The Sempra Acquisition closed on March 9, 2018.  See Notes 2 and 3 to the Financial Statements for more information.



For information regarding related matters with the PUCT, see discussion below under “Regulation and Rates – Matters with the PUCT.”









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RESULTS OF OPERATIONS      



Operating Data

________________

Financial Results — Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017   



Total operating revenues increased $55 million, or 6%, to $990 million in 2018.  Revenue is billed under tariffs approved by the PUCT.  As a result of the PUCT’s order in Docket No. 46957, we began deferring as a regulatory liability the amount collected through the approved tariffs representing the decrease in the corporate federal income tax rate resulting from the TCJA.  In the first quarter, we deferred $18 million of distribution base rates and $12 million of transmission base rates.



Revenues that contribute to earnings include the following components and increased $33 million during the three month periods ended March 31. The change reflected:





The PUCT allows utilities to file, under certain circumstances, once per year and up to four rate adjustments between comprehensive base rate proceedings to recover distribution investments and certain other related costs on an interim basis (DCRF filing). We filed our first DCRF on April 5, 2018 requesting a $19 million increase in annual distribution revenues.  Subject to review and approval of the PUCT, the distribution tariffs would become effective September 1, 2018.





TCOS Filings Table

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* The new rate was approved effective March 27, 2018 and includes a $52 million revenue reduction to reflect the TCJA reduction in the corporate federal income tax rate to 21%.





Revenues collected for pass-through expenses include the following components. While changes in these tariffs affect revenues and the timing of cash flows, they do not impact operating income and do not contribute to earnings. These revenues increased $22 million during the three month periods ended March 31 and the change reflected: 





TCRF Filings Table







EECRF Filings Table

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(a) Monthly charges are for a residential customer using an assumed 1,200 kWh.  

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Wholesale transmission service expense increased $14 million, or  6%, to $245 million in 2018 due to higher fees paid to third-party transmission entities.



Operation and maintenance expense increased  $31 million, or 16%, to $219 million in 2018.  Operation and maintenance expense increased primarily due to the 2017 rate review order approving an increased level of recovery for employee benefit plans, the self-insurance reserve and rate case expenses of $28 million and higher labor related costs of $7 million, partially offset by $6 million of employee benefit plan non-service costs reclassified to Other income and deductions in accordance with ASU 2017-07.   Amortization of regulatory assets reported in operation and maintenance expense totaled $21 million and $12 million for the three-month periods ended March 31, 2018 and 2017, respectively.



Depreciation and amortization decreased $29 million to $166 million in 2018.  The decrease is due to an estimated $38 million decrease in depreciation of property, plant, and equipment primarily as a result of the 2017 rate review, partially offset by an estimated $9 million increase attributable to ongoing investments in property, plant and equipment.



Provision in lieu of income taxes totaled $26 million (including a $7 million benefit related to nonoperating income) in 2018 compared to $40 million (including a $5 million benefit related to nonoperating income) in 2017. 



The U.S. federal statutory income tax rate was lowered by the TCJA to 21% in 2018 from 35% in 2017.  The effective income tax rate of 22.6% and 35.4% for the years 2018 and 2017, respectively,  on pretax income differs from these rates primarily due to the effect of the Texas margin tax which, in 2017, was largely offset by non-taxable gains on employee benefit plans.



As a result of the PUCT’s order in Docket No. 46957, we agreed to defer as a regulatory liability the amount collected through the approved tariffs representing the decrease in statutory tax rates. The “Federal income taxes − over-collected due to TCJA rate change” regulatory liability has a balance of $30 million at March 31, 2018.



Taxes other than income taxes increased $13 million, or 12%, to $125 million in 2018.  The change is primarily due to a $7 million increase in local franchise taxes and a $5 million increase in property taxes. The increase in local franchise fees is the result of the 2017 rate review order granting recovery of certain municipal franchise fees consistent with the Texas Supreme Court mandate regarding our 2008 rate review and is offset in revenues.  Amortization of regulatory assets reported in taxes other than income taxes totaled $7 million and zero for the three months ended March 31, 2018 and 2017, respectively. 



Other income and (deductions) - net was unfavorable by $21 million in 2018 compared to 2017.  The variances are primarily due to $16 million of costs associated with the Sempra Acquisition and an increase of $6 million in employee benefit plan non-service costs.  See Note 12 to Financial Statements for more details.



Interest expense and related charges was $88 million and $85 million for 2018 and 2017, respectively.  The current period includes a $6 million increase due to higher average borrowings, partially offset by a $3 million decrease attributable to lower average interest rates.



Net income was $16 million higher than the prior period driven by higher revenues contributing to earnings, partially offset by non-reconcilable expenses.  Revenues contributing to earnings included increases due to higher consumption, primarily driven by weather and increases due to growth in points of delivery including the Sharyland Asset Exchange, partially offset by higher operation and maintenance expense and costs associated with the Sempra Acquisition, which are not recoverable.  





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FINANCIAL CONDITION



LIQUIDITY AND CAPITAL RESOURCES



Cash Flows — Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017



Cash provided by operating activities totaled $335 million and $401 million in 2018 and 2017, respectively. The $66 million decrease is primarily the result of a lower net tax refund from members under the tax sharing agreement of $131 million,  increased employee benefit plan funding of $26 million, increased materials and supply purchases of $16 million and an $11 million increase in taxes other than income tax payments,  partially offset by a  $64 million increase in transmission and distribution receipts and a $50 million increase in accounts payable levels.   The large prior year tax refund is primarily related to estimated tax payments made in a prior period before the enactment of bonus depreciation on a retroactive basis.



Cash provided by financing activities totaled $125 million and $5 million for 2018 and 2017, respectively.  The $120 million change includes a decrease in distributions to our members of $86 million and an increase in short-term borrowings of $34 million.   Our regulatory capitalization ratio effectively restricted our ability to make cash distributions to our members in the current period.  See Note 9 to Financial Statements for additional information regarding distributions to our members.



Cash used in investing activities, which consists primarily of capital expenditures, totaled $445 million and $421 million in 2018 and 2017, respectively.  Both the 2018 and 2017 activity primarily reflects increases in capital expenditures for transmission and distribution facilities to serve new customers and infrastructure capital maintenance spending.



Depreciation and amortization expense reported in the statements of consolidated cash flows was $30 million and $12 million more than the amounts reported in the statements of consolidated income in the three months ended March 31, 2018 and 2017, respectively.  The differences result from certain regulatory asset amortization reported in operation and maintenance expense and taxes other than income taxes.



Long-Term Debt Activity



Repayments of long-term debt in April and May 2018 totaled $144 million, representing prepayments to our term loan credit agreement.



Available Liquidity/Credit Facility/Commercial Paper Program  



Credit Facility — Our primary source of liquidity, aside from operating cash flows, has been our ability to borrow under our revolving credit facility.  At March 31, 2018, we had a $2.0 billion unsecured revolving credit facility that we entered into on November 17, 2017 (Credit Facility) with a five-year term expiring in November 2022.  We have the option of requesting up to two one-year extensions and an option to request an increase in our borrowing capacity of $400 million, in increments of not less than $100 million, provided certain conditions are met, including lender approvals.



Subject to the limitations described below, available borrowing capacity under the Credit Facility totaled $916 million and $1.041 billion at March 31, 2018 and December 31, 2017, respectively.  At May 7, 2018, available borrowing capacity under the Credit Facility totaled $1.991 billion.



The Credit Facility contains a senior debt-to-capitalization ratio covenant that effectively limits our ability to incur indebtedness in the future.  At March 31, 2018, we were in compliance with the covenant.  See “Credit Rating Provisions, Covenants and Cross Default Provisions” below for additional information on this covenant and the calculation of this ratio.    At both March 31, 2018 and May 7, 2018, the available borrowing capacity of the Credit Facility could be fully drawn.    



Under the terms of the Credit Facility, the commitments of the lenders to make loans to us are several and not joint.  Accordingly, if any lender fails to make loans to us, our available liquidity could be reduced by an amount up

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to the aggregate amount of such lender’s commitments under the facility.  See Note 6 to Financial Statements for additional information regarding the Credit Facility.



Commercial Paper Program —  As we discuss in Note 6 to Financial Statements, on March 26, 2018 we established a commercial paper program (CP Program), under which we may issue unsecured commercial paper notes (Notes) on a private placement basis up to a maximum aggregate amount outstanding at any time of $2.0 billion.  A national bank acts as the issuing and paying agent under the CP Program pursuant to the terms of an issuing and paying agent agreement.  Under the CP Program, we intend to issue Notes from time to time, and the proceeds of the Notes will be used for short-term financing of our business operations.  At March 31, 2018, we did not have any Notes outstanding under the CP Program.  At May 4, 2018, we had $1.225 billion of Notes outstanding under the CP Program.



The CP Program obtains liquidity support from our Credit Facility discussed above.  If at any time funds are not available on favorable terms under the CP Program, we may utilize the Credit Facility for funding.     See Note 6 to Financial Statements for additional information regarding the CP Program.



Cash and Cash Equivalents — Cash and cash equivalents totaled $36 million and $21 million at March 31, 2018 and December 31, 2017, respectively.  Available liquidity (cash and available Credit Facility capacity) at March 31, 2018 totaled $952 million, reflecting a decrease of $110 million from December 31, 2017 primarily due to increased capital spending.    



Regulatory Capital Structure — We have committed to the PUCT to maintain a regulatory capital structure at or below the assumed debt-to-equity ratio established periodically by the PUCT for ratemaking purposes, which is 57.5% debt to 42.5% equity as of March 31, 2018.  Our current regulatory assumed debt-to-equity ratio went into effect on November 27, 2017 as part of the PUCT order issued in the rate review we filed in PUCT Docket No. 46957.  The PUCT order requires us to record a regulatory liability until the new authorized regulatory capital structure is met to reflect our actual capitalization prior to achieving the authorized capital structure.  Once the authorized capital structure is attained, the regulatory liability will be returned to customers through the capital structure refund mechanism approved in the PUCT docket.  We implemented the regulatory liability as of November 27, 2017.  Our regulatory capitalization ratio was 58.9% debt to 41.1% equity at March 31, 2018. Subsequently, we attained our authorized debt-to-equity ratio.  Therefore, we ceased accruing amounts to the capital structure refund regulatory liability as of May 2018 and will return the balance to customers as instructed by the PUCT. See Note 9 to Financial Statements for discussion of the regulatory capitalization ratio.  Our ability to incur additional long-term debt will be limited by our regulatory capital structure and we are able to issue future long-term debt only to the extent that we will be in compliance therewith.



Liquidity Needs, Including Capital Expenditures — Our board of directors, which annually approves capital expenditure estimates for the following year, has approved capital expenditures totaling $1.8 billion in 2018.  Management currently expects to recommend to our board of directors capital expenditures of approximately $1.7 billion in each of the years 2019 through 2022.  These capital expenditures are expected to be used for investment in transmission and distribution infrastructure.



We expect cash flows from operations, combined with availability under the commercial paper program and revolving credit facility, to provide sufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least the next twelve months.  Should additional liquidity or capital requirements arise, we may need to access capital markets, generate equity capital or preserve equity through reductions or suspension of distributions to members.  In addition, we may also consider new debt issuances, repurchases, exchange offers and other transactions in order to refinance or manage our long-term debt.  The inability to raise capital on favorable terms or failure of counterparties to perform under credit or other financial agreements, particularly during any uncertainty in the financial markets, could impact our ability to sustain and grow the business and would likely increase capital costs that may not be recoverable through rates.



See “REGULATION AND RATES – Application to Decrease Rates Based on the TCJA of 2017 PUCT Docket No. 48325” below for a discussion of potential impacts to cash flows from this proceeding.



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Distributions — No  cash distributions have been declared or paid to our members in 2018.   See Note 9 to Financial Statements for a  discussion of distribution restrictions.  





Contributions — In April 2018, our members contributed $144 million, which was used to pay down a portion of our term loan credit agreement.  



Pension and OPEB Plan Funding — Our funding for the pension plans and Oncor OPEB Plans in the calendar year 2018 is expected to total $82 million and $35 million, respectively.  In the three months ended March 31, 2018, we made cash contributions to the pension plans and the Oncor OPEB Plans of $21 million and $14 million, respectively.



Credit Rating Provisions, Covenants and Cross Default Provision 



Impact on Liquidity of Credit Ratings — The rating agencies assign credit ratings to certain of our debt securities.  Our access to capital markets and cost of debt could be directly affected by our credit ratings.  Any adverse action with respect to our credit ratings could generally cause borrowing costs to increase and the potential pool of investors and funding sources to decrease.  In the event any adverse action with respect to our credit ratings takes place and causes borrowing costs to increase, we may not be able to recover such increased costs if they exceed our PUCT-approved cost of debt determined in our most recent rate review or subsequent rate reviews.



Most of our large suppliers and counterparties require an expected level of creditworthiness in order for them to enter into transactions with us.  If our credit ratings decline, the costs to operate our business could increase because counterparties could require the posting of collateral in the form of cash-related instruments, or counterparties could decline to do business with us.



Presented below are the credit ratings assigned for our debt securities at May 7, 2018.  On March 12, 2018, as a result of the completion of the Sempra Acquisition, the rating agencies took ratings actions on Oncor resulting in upgraded ratings and changed outlooks.   S&P upgraded our rating to A+ from A and changed our outlook to stable from positive.  Moody’s upgraded our rating to A2 from A3 and changed our outlook to stable from positive.  Fitch upgraded our rating to A from BBB+ and changed our outlook to stable from rating watch positive.  On March 12, 2018, Fitch upgraded our commercial paper rating to F2 from F3.  On March 16, 2018, S&P assigned an A-1 short-term rating to our commercial paper program.  On March 20, 2018, Moody’s assigned a Prime-2 short-term rating to our commercial paper program.  See Note 2 to Financial Statements for information regarding the Sempra Acquisition.



As described in Note 6 to Financial Statements, we established the CP Program in March 2018.    The CP Program obtains liquidity support from our Credit Facility.    As described in Note 7 to Financial Statements, our long-term debt (other than the $275 million unsecured term loan credit agreement) is currently secured pursuant to the Deed of Trust by a first priority lien on certain of our transmission and distribution assets and is considered senior secured debt.    



A rating reflects only the view of a rating agency, and is not a recommendation to buy, sell or hold securities.  Ratings can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances warrant such a change.



Material Credit Rating Covenants — The Credit Facility contains terms pursuant to which the interest rates charged under the agreement may be adjusted depending on credit ratings.  Borrowings under the Credit Facility bear interest at per annum rates equal to, at our option, (i) adjusted LIBOR plus a spread ranging from 0.875% to 1.50% depending on credit ratings assigned to our senior secured non-credit enhanced long-term debt or (ii) an alternate base rate (the highest of (1) the prime rate of JPMorgan Chase, (2) the federal funds effective rate plus

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0.50%, and (3) adjusted LIBOR plus 1.00%) plus a spread ranging from 0.00% to 0.50% depending on credit ratings assigned to our senior secured non-credit enhanced long-term debt.  Based on the ratings assigned to our senior secured debt securities at May 7, 2018, our borrowings are generally LIBOR-based and will bear interest at LIBOR plus 1.00%.  A decline in credit ratings would increase the cost of borrowings under the Credit Facility and likely increase the cost of any debt issuances and additional credit facilities.    The CP Program requires prompt notice to the dealer of any notice of intended or potential down grade of our credit ratings.



Material Financial Covenants —  Our revolving credit facility and term loan credit agreement each contain a financial covenant that requires maintenance of a consolidated senior debt-to-capitalization ratio of no greater than 0.65 to 1.00.  For purposes of this ratio, debt is calculated as indebtedness defined in the revolving credit facility and term loan credit agreement (principally, the sum of long-term debt, any capital leases, short-term debt and debt due currently in accordance with GAAP).  Capitalization is calculated as membership interests determined in accordance with GAAP plus indebtedness described above.  At March 31, 2018, we were in compliance with this covenant and all other covenants under the Credit Facility and the term loan credit agreement.   



Material Cross Default Provisions — Certain financing arrangements contain provisions that may result in an event of default if there was a failure under other financing arrangements to meet payment terms or to observe other covenants that could result in an acceleration of payments due.  Such provisions are referred to as “cross default” provisions.



Under the Credit Facility, a default by us or any subsidiary in respect of indebtedness in a principal amount in excess of $100 million or any judgments for the payment of money in excess of $100 million that are not discharged within 60 days may cause the maturity of outstanding balances (zero dollars in short-term borrowings and $9 million in letters of credit at May 7, 2018) under that facility to be accelerated.  Under our term loan agreement, a default by us or any subsidiary in respect of indebtedness in a principal amount in excess of $100 million or any judgments for the payment of money in excess of $50 million for the term loan credit agreement that are not discharged within 60 days may cause the maturity of outstanding balances ($131 million at May 7, 2018) under that agreement to be accelerated. 



Under the Deed of Trust, an event of default under our indentures would permit the holders of our senior secured notes to exercise their remedies under the Deed of Trust.



Guarantees — At March 31, 2018, we did not have any material guarantees.



OFF-BALANCE SHEET ARRANGEMENTS



At March 31, 2018, we did not have any material off-balance sheet arrangements with special purpose entities or variable interest entities.



COMMITMENTS AND CONTINGENCIES



See Note 8 to Financial Statements for discussion of commitments and contingencies.



CHANGES IN ACCOUNTING STANDARDS



See Note 1 to Financial Statements for discussion of changes in accounting standards. 



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REGULATION AND RATES



Matters with the PUCT  



PUCT Matters Related to EFH Bankruptcy Proceedings – For more information regarding the EFH Bankruptcy Proceedings and the matters discussed below, see Note 2 to Financial Statements.



Sempra PUCT Proceedings



The parties to the Sempra Settlement Stipulation agreed that Sempra’s acquisition of EFH Corp. was in the public interest and will bring substantial benefits.  The Sempra Settlement Stipulation requested that the PUCT approve the Sempra Acquisition. Previously, EFH Corp. and Oncor implemented various ring-fencing measures to enhance Oncor’s separateness from its owners and to mitigate the risk that Oncor would be negatively impacted in the event of a bankruptcy or other adverse financial developments affecting EFH Corp. or EFH Corp.’s subsidiaries or owners.  The prior ring-fencing measures were designed to create both legal and financial separation between the Oncor Ring-Fenced Entities, on the one hand, and EFH Corp. and its other affiliates and subsidiaries, on the other hand.  The Sempra Order outlines certain ring-fencing measures, governance mechanisms and restrictions that  apply after the Sempra Acquisition. As a result of these ring-fencing measures, Sempra does not control Oncor, and the ring-fencing measures limit Sempra’s ability to direct the management, policies and operations of Oncor, including the deployment or disposition of Oncor’s assets, declarations of dividends, strategic planning and other important corporate issues and actions. These limitations include limited representation on the board of directors of Oncor.



DCRF Docket No. 48231 – On April 5, 2018, Oncor filed with the PUCT, as well as cities with original jurisdiction over Oncor’s rates, an application titled as follows:  Application of Oncor Electric Delivery Company LLC for Approval of a Distribution Cost Recovery Factor Pursuant to 16 Tex. Admin. Code §25.243.  A DCRF will allow Oncor to recover, primarily through its Tariff for Retail Delivery Service, certain costs related to its 2017 distribution investments, as compared to the December 31, 2016 test year amounts in its Docket No. 46957 rate case.  Oncor’s distribution rate base eligible for inclusion in its DCRF application as of December 31, 2017 increased by approximately $333 million as compared to the distribution rate base approved as of December 31, 2016 in its Docket No. 46957 rate case.  The overall DCRF revenue requirement increase is $37 million, but after accounting for load growth of $18 million under the DCRF formula, Oncor’s net DCRF increase is approximately $19 million on an annual basis.  If approved as filed, a monthly amount of approximately 30 cents would be charged to an Oncor residential customer using 1,300 kWh.  In accordance with the DCRF rule, DCRF rates ultimately approved in Oncor’s DCRF application would go into effect on September 1, 2018.



Application to Decrease Rates Based on the TCJA of 2017 PUCT Docket  No. 48325 – On May 1, 2018, Oncor made a filing related to the impacts of the TCJA, including the reduced corporate tax rate (from 35% to 21%), for retail customers and amortization of excess deferred federal income taxes.  Oncor will revise its tariffs to effect these changes and reduce rates to end-use customers going forward.  In addition, for retail customers, Oncor will propose a refund of the tax amounts collected and deferred since January 1, 2018, through the date the changed tariffs are effective.  For wholesale customers, Oncor will propose a refund of the tax amounts collected and deferred since January 1, 2018 through March 26, 2018 (Oncor’s new wholesale rate in Docket No. 47988 reflects the new TCJA rates and went into effect March 27, 2018).



The pass-through of the impacts of the TCJA to ratepayers is not expected to impact net earnings.  Amortization of excess deferred taxes will result in cash outflows in the form of refunds to ratepayers in the future. In the filing, we proposed a total net decrease in the revenue requirement used to set transmission and distribution rates of approximately $181 million as compared to the revenue requirement approved in Oncor’s most recent rate case, Docket No. 46957.  The $181 million reduction includes an annual rate reduction of $144 million related to the reduction in current taxes and annual rate reduction of $38 million related to excess deferred taxes over the lives of related assets.  The final timing of the cash flows will be determined in the Docket.

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Summary



We cannot predict future regulatory or legislative actions or any changes in economic and securities market conditions.  Such actions or changes could significantly alter our financial position, results of operations or cash flows.



ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest Rate Risk



Market risk is the risk that we may experience a loss in value as a result of changes in market conditions such as interest rates that may be experienced in the ordinary course of business.  We may transact in financial instruments to hedge interest rate risk related to our debt, but there are currently no such hedges in place.  All of our long-term debt at March 31, 2018 and December 31, 2017 carried fixed interest rates except for the term loan credit agreement.  Our term loan credit agreement contains terms pursuant to which the interest rate charged can vary, at our option, depending on the selected interest period (see Note 7 to Financial Statements in our 2017 Form 10-K for term loan credit agreement interest rate information).



The Credit Facility contains terms pursuant to which the interest rates charged under the agreement may be adjusted depending on credit ratings.  The CP Program borrowings may bear interest on a fixed rate or floating rate basis and will vary based on market conditions at the time of borrowings. For information on our interest rates charged under the CP Program and Credit Facility, see Note 6 to Financial Statements.



Except as discussed below, the information required hereunder is not significantly different from the information set forth in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2017 Form 10-K and is therefore not presented herein.



Credit Risk



Credit risk relates to the risk of loss associated with nonperformance by counterparties.  Our customers consist primarily of REPs.  As a prerequisite for obtaining and maintaining certification, a REP must meet the financial resource standards established by the PUCT.  Meeting these standards does not guarantee that a REP will be able to perform its obligations.  REP certificates granted by the PUCT are subject to suspension and revocation for significant violation of PURA and PUCT rules.  Significant violations include failure to timely remit payments for invoiced charges to a transmission and distribution utility pursuant to the terms of tariffs approved by the PUCT.  We believe PUCT rules that allow for the recovery of uncollectible amounts due from nonaffiliated REPs through rates significantly reduce our credit risk.



Our exposure to credit risk associated with trade accounts receivable totaled $590 million at March 31, 2018.  The receivable balance is before the allowance for uncollectible accounts, which totaled $3 million at March 31, 2018.  The exposure includes trade accounts receivable from REPs totaling $449 million, which are almost entirely noninvestment grade.  At March 31, 2018, REP subsidiaries of our two largest counterparties represented approximately 14% and 12% of the trade receivable balance, respectively.  No other parties represented 10% or more of the total trade accounts receivable balance.  We view our exposure to these customers to be within an acceptable level of risk tolerance considering PUCT rules and regulations; however, this concentration increases the risk that a default could have a material effect on cash flows.





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FORWARD-LOOKING STATEMENTS



This report and other presentations made by us contain “forward-looking statements.”  All statements, other than statements of historical facts, that are included in this report, or made in presentations, in response to questions or otherwise, that address activities, events or developments that we expect or anticipate to occur in the future, including such matters as projections, capital allocation, future capital expenditures, business strategy, competitive strengths, goals, future acquisitions or dispositions, development or operation of facilities, market and industry developments and the growth of our business and operations (often, but not always, through the use of words or phrases such as “intends,” “plans,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “should,” “projection,” “target,” “goal,” “objective” and “outlook”), are forward-looking statements.  Although we believe that in making any such forward-looking statement our expectations are based on reasonable assumptions, any such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the discussion of risk factors under “Item 1A.  Risk Factors” and “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2017 Form 10-K, “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this report and the following important factors, among others, that could cause actual results to differ materially from those projected in such forward-looking statements:



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Any forward-looking statement speaks only at the date on which it is made, and, except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time, and it is not possible for us to predict all of them; nor can we assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.  As such, you should not unduly rely on such forward-looking statements.



ITEM 4.   CONTROLS AND PROCEDURES



An evaluation was performed under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures in effect at the end of the current period included in this quarterly report.  Based on the evaluation performed, our management, including the principal executive officer and principal financial officer, concluded that the disclosure controls and procedures were effective.  During the most recent fiscal quarter covered by this report, no changes in internal controls over financial reporting have occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II.  OTHER INFORMATION



ITEM 1.   LEGAL PROCEEDINGS



Reference is made to the discussion in Notes 4 and 8 to Financial Statements regarding legal and regulatory proceedings.





ITEM 1A.   RISK FACTORS



There are numerous factors that affect our business and results of operations, many of which are beyond our control.  In addition to the other information set forth in this report, including “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations,” you should carefully consider the factors discussed in “Part I, Item 1A.  Risk Factors” in our 2017 Form 10-K, which could materially affect our business, financial condition or future results.  The risks described in such reports are not the only risks we face.





ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



None.





ITEM 3.   DEFAULTS UPON SENIOR SECURITIES



None.





ITEM 4.   MINE SAFETY DISCLOSURES



Not applicable.





ITEM 5.   OTHER INFORMATION



None.

 

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ITEM 6.   EXHIBITS









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*   Incorporated herein by reference.

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SIGNATURE





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.







ONCOR ELECTRIC DELIVERY COMPANY LLC

























Date:  May 7, 2018

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