Oncor Electric Delivery 10Q 2022 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

― OR ―

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

____________________

Commission File Number 333-100240

Oncor Electric Delivery Company LLC

(Exact Name of Registrant as Specified in its Charter)


Delaware	75-2967830
(State of Organization)	(I.R.S. Employer Identification No.)

1616 Woodall Rodgers Fwy., Dallas, TX 75202	(214) 486-2000
(Address of Principal Executive Offices)	(Registrant’s Telephone Number)

____________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
None	None	None

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 every Interactive Data File required to be submitted 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 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 √

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. ___

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

As of August 4, 2022, 635,000,000 limited liability company membership interests of Oncor Electric Delivery Company LLC were outstanding, 80.25% of which were directly held by Oncor Electric Delivery Holdings Company LLC and 19.75% of which were held by Texas Transmission Investment LLC. NaN of the membership interests are publicly traded.

TABLE OF CONTENTS


	Page
GLOSSARY	3
PART I. FINANCIAL INFORMATION	6
Item 1. Financial Statements (Unaudited)	6
Condensed Statements of Consolidated Income — ‎Three and Six Months Ended June 30, 2022 and 2021	6
Condensed Statements of Consolidated Comprehensive Income — ‎Three and Six Months Ended June 30, 2022 and 2021	6
Condensed Statements of Consolidated Cash Flows — ‎Six Months Ended June 30, 2022 and 2021	7
Condensed Consolidated Balance Sheets — ‎June 30, 2022 and December 31, 2021	8
Notes to Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	47
Item 4. Controls and Procedures	49
PART II. OTHER INFORMATION	49
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3. Defaults Upon Senior Securities	50
Item 4. MINE SAFETY DISCLOSURES	50
Item 5. Other Information	50
Item 6. Exhibits	51
SIGNATURE	53

Oncor Electric Delivery Company LLC (Oncor) makes its filings with the Securities and Exchange Commission available to the public, free of charge, on Oncor’s 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 Quarterly Report on Form 10-Q and other Securities and Exchange Commission filings of Oncor occasionally make references to Oncor (or “we,” “our,” “us,” or “the company”) when describing actions, rights or obligations of Oncor and/or its subsidiaries. These references reflect the fact that the subsidiaries are 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 any subsidiary or that any subsidiary company is undertaking an action or has the rights or obligations of its parent company or of any other affiliate.

GLOSSARY


When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.

2021 Form 10-K	Oncor’s Annual Report on Form 10-K for the year ended December 31, 2021
AFUDC	Allowance for funds used during construction
AMS	Advanced metering system
ASU	Accounting Standards Update
COVID-19	Coronavirus Disease 2019, the disease caused by the novel strain of coronavirus reported to have surfaced in late 2019, which was declared a pandemic by the World Health Organization in March 2020
CP Notes	Unsecured commercial paper notes issued under the CP Program
CP Program	Oncor’s commercial paper program
Credit Facility	Revolving Credit Agreement, dated as of November 9, 2021, among Oncor, as borrower, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent and swingline lender, the fronting banks from time to time party thereto, and the other financial institutions party thereto, including Citibank N.A. and Wells Fargo Securities, LLC, as co-sustainability structuring agents
DCRF	Distribution cost recovery factor
Deed of Trust	Deed of Trust, Security Agreement and Fixture Filing, dated as of May 15, 2008, made by Oncor to and for the benefit of The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York Mellon, formerly The Bank of New York), as collateral agent, as amended
Disinterested Director	Refers to a member of our board of directors who is a “disinterested director” pursuant to our Limited Liability Company Agreement. Our Limited Liability Company Agreement requires that seven of the thirteen members of our board of directors be “disinterested directors” who (i) shall be independent directors in all material respects under the rules of the New York Stock Exchange in relation to Sempra or its subsidiaries and affiliated entities and any entity with a direct or indirect ownership interest in Oncor or Oncor Holdings, and (ii) shall have no material relationship with Sempra or its subsidiaries or affiliated entities or any entity with a direct or indirect ownership interest in Oncor or Oncor Holdings, currently or within the previous ten years
EECRF	Energy efficiency cost recovery factor
EPA	U.S. Environmental Protection Agency
ERCOT	Electric Reliability Council of Texas, Inc., the independent system operator and the regional coordinator of various electricity systems within Texas
ERISA	Employee Retirement Income Security Act of 1974, as amended
FERC	U.S. Federal Energy Regulatory Commission
Fitch	Fitch Ratings, Inc. (a credit rating agency)
GAAP	Generally accepted accounting principles of the U.S.
kWh	Kilowatt-hours

LIBOR	London Interbank Offered Rate, an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market
Limited Liability Company Agreement	The Third Amended and Restated Limited Liability Company Agreement of Oncor, dated as of March 9, 2018, by and between Oncor Holdings and Texas Transmission, as amended
LP&L	Lubbock Power & Light, a municipal electricity utility company owned by the City of Lubbock, Texas
Moody’s	Moody’s Investors Service, Inc. (a credit rating agency)
NERC	North American Electric Reliability Corporation
Note Purchase Agreement	Refers to the Note Purchase Agreement, dated May 6, 2019, pursuant to which Oncor issued its 3.86% Senior Notes, Series A, due December 3, 2025 and 3.86% Senior Notes, Series B, due January 14, 2026
Oncor	Oncor Electric Delivery Company LLC, a direct, majority-owned subsidiary of Oncor Holdings
Oncor Holdings	Oncor Electric Delivery Holdings Company LLC, the direct majority owner (80.25% equity interest) of Oncor. Oncor Holdings is wholly owned by STIH
Oncor Retirement Plan	Refers to a defined benefit pension plan sponsored by Oncor
Oncor Ring-Fenced Entities	Refers to Oncor Holdings and its direct and indirect subsidiaries, including Oncor and Oncor’s direct and indirect subsidiaries
OPEB	Other postretirement employee benefits
OPEB Plans	Refers to plans sponsored by Oncor that offer certain postretirement health care and life insurance benefits to eligible current and former Oncor employees, as well as certain eligible current and former employees of former affiliated companies, including Vistra, and their eligible dependents
PUCT	Public Utility Commission of Texas
PURA	Texas Public Utility Regulatory Act, as amended
REP	Retail electric provider
ROU	Right-of-use
S&P	S&P Global Ratings, a division of S&P Global Inc. (a credit rating agency)
Securities Act	Securities Act of 1933, as amended
Sempra	Sempra Energy, a California corporation, doing business as Sempra
Sempra Acquisition	Refers to the transactions pursuant to which Sempra indirectly acquired the approximately 80% of Oncor’s membership interests owned indirectly by Energy Future Holdings Corp. and Energy Future Intermediate Holdings Company LLC. The transactions closed March 9, 2018
Sempra Order	Refers to the final order issued by the PUCT in PUCT Docket No. 47675 approving the Sempra Acquisition
Sharyland	Refers to Sharyland Utilities, L.L.C.
SOFR	Refers to a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate)
STH	Refers to Sempra Texas Holdings Corp., a Texas corporation, which is wholly owned by Sempra and the direct parent of STIH

STIH	Refers to Sempra Texas Intermediate Holding Company LLC, a Delaware limited liability company, which is a wholly owned indirect subsidiary of Sempra and the sole member of Oncor Holdings
TCEQ	Texas Commission on Environmental Quality
TCJA	U.S. Tax Cuts and Jobs Act of 2017
TCOS	Transmission cost of service
TCRF	Transmission cost recovery factor
Texas margin tax	A privilege tax imposed on taxable entities chartered/organized or doing business in the State of Texas that, for accounting purposes, is reported as an income tax
Texas RE	Refers to Texas Reliability Entity, Inc., an independent organization that develops reliability standards for the ERCOT region and monitors and enforces compliance with NERC standards and ERCOT protocols
Texas Transmission	Refers to Texas Transmission Investment LLC, a limited liability company that owns a 19.75% equity interest in Oncor. Texas Transmission is an entity indirectly owned by OMERS Administration Corporation (acting through its infrastructure investment entity, OMERS Infrastructure Management Inc.) and GIC Private Limited
U.S.	United States of America
Vistra	Refers to Vistra Corp., and/or its subsidiaries, depending on context
Vistra Retirement Plan	Refers to a defined benefit pension plan sponsored by an affiliate of Vistra

‎

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

ONCOR ELECTRIC DELIVERY COMPANY LLC

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(millions of dollars)
Operating revenues (Note 3)	$	1,293	$	1,147	$	2,542	$	2,286
Operating expenses:
Wholesale transmission service		290		260		571		509
Operation and maintenance		255		232		504		467
Depreciation and amortization		223		209		445		414
Provision in lieu of income taxes (Note 9)		50		36		92		72
Taxes other than amounts related to income taxes		140		135		285		275
Total operating expenses		958		872		1,897		1,737
Operating income		335		275		645		549
Other deductions and (income) – net (Note 10)		(1)		7		10		14
Nonoperating benefit in lieu of income taxes		(1)		(3)		(4)		(6)
Interest expense and related charges (Note 10)		108		102		216		204
Net income	$	229	$	169	$	423	$	337

See Notes to Financial Statements.

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(millions of dollars)
Net income	$	229	$	169	$	423	$	337
Other comprehensive income:
Net effects of cash flow hedges (net of tax)		-		-		1		1
Defined benefit pension plans (net of tax)		1		3		2		4
Total other comprehensive income		1		3		3		5
Comprehensive income	$	230	$	172	$	426	$	342

See Notes to Financial Statements.
‎

ONCOR ELECTRIC DELIVERY COMPANY LLC

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2022		2021
	(millions of dollars)
Cash flows – operating activities:
Net income	$	423	$	337
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization, including regulatory amortization		486		454
Provision in lieu of deferred income taxes – net		20		37
Other – net		(11)		1
Changes in operating assets and liabilities:
Regulatory accounts related to reconcilable tariffs (Note 2)		12		(61)
Other operating assets and liabilities		(285)		(245)
Cash provided by operating activities		645		523
Cash flows – financing activities:
Issuances of long-term debt (Note 5)		2,100		770
Repayment of long-term debt (Note 5)		(1,050)		-
Net change in short-term borrowings (Note 4)		(215)		(63)
Capital contributions from members (Note 7)		212		125
Distributions to members (Note 7)		(212)		(192)
Debt discount and financing costs – net		(13)		(2)
Cash provided by financing activities		822		638
Cash flows – investing activities:
Capital expenditures		(1,416)		(1,224)
Expenditures for third party in joint project		-		(65)
Reimbursement from third party in joint project		-		91
Other – net		38		17
Cash used in investing activities		(1,378)		(1,181)
Net change in cash, cash equivalents and restricted cash		89		(20)
Cash, cash equivalents and restricted cash – beginning balance		54		27
Cash, cash equivalents and restricted cash – ending balance	$	143	$	7

See Notes to Financial Statements.

‎

ONCOR ELECTRIC DELIVERY COMPANY LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	At June 30,		At December 31,
	2022		2021
	(millions of dollars)
ASSETS
Current assets:
Cash and cash equivalents	$	66	$	11
Restricted cash, current (Note 1)		17		13
Trade accounts receivable – net (Note 10)		907		738
Amounts receivable from members related to income taxes (Note 9)		3		6
Materials and supplies inventories – at average cost		191		171
Prepayments and other current assets		111		101
Total current assets		1,295		1,040
Restricted cash, noncurrent (Note 1)		60		30
Investments and other property (Note 10)		140		155
Property, plant and equipment – net (Note 10)		23,868		22,954
Goodwill (Note 1)		4,740		4,740
Regulatory assets (Note 2)		1,598		1,547
Operating lease ROU and other assets (Note 6)		160		167
Total assets	$	31,861	$	30,633

LIABILITIES AND MEMBERSHIP INTERESTS
Current liabilities:
Short-term borrowings (Note 4)	$	-	$	215
Long-term debt due currently (Note 5)		1,132		882
Trade accounts payable		417		441
Amounts payable to members related to income taxes (Note 9)		15		24
Accrued taxes other than amounts related to income taxes		183		286
Accrued interest		92		89
Operating lease and other current liabilities (Note 6)		278		283
Total current liabilities		2,117		2,220
Long-term debt, less amounts due currently (Note 5)		9,940		9,150
Liability in lieu of deferred income taxes (Note 9)		2,123		2,065
Regulatory liabilities (Note 2)		2,897		2,876
Employee benefit plan obligations (Note 8)		1,490		1,503
Operating lease and other obligations (Notes 6 and 10)		280		231
Total liabilities		18,847		18,045
Commitments and contingencies (Note 6)
Membership interests (Note 7):
Capital account – number of units outstanding 2022 and 2021 – 635,000,000		13,142		12,719
Accumulated other comprehensive loss		(128)		(131)
Total membership interests		13,014		12,588
Total liabilities and membership interests	$	31,861	$	30,633

See Notes to Financial Statements.

‎

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 and/or its subsidiaries as apparent in the context. See “Glossary” for the definition of terms and abbreviations.

We are a regulated electricity transmission and distribution company that provides the essential service of delivering electricity safely, reliably and economically to end-use consumers through our electrical systems, as well as providing transmission grid connections to merchant generation facilities and interconnections to other transmission grids in Texas. Our transmission and distribution rates are regulated by the PUCT and certain cities, and in certain limited instances, by the FERC. We are not a seller of electricity, nor do we purchase electricity for resale. We are a direct, majority-owned subsidiary of Oncor Holdings, which is indirectly and wholly owned by 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 is only 1 reportable segment.

Ring-Fencing Measures

Since 2007, various ring-fencing measures have been taken to enhance our credit quality and the separateness between the Oncor Ring-Fenced Entities and entities with ownership interests in Oncor or Oncor Holdings. These ring-fencing measures serve to mitigate the Oncor Ring-Fenced Entities’ credit exposure to owners of Oncor and Oncor Holdings, and to reduce the risk that the assets and liabilities of the Oncor Ring-Fenced Entities would be substantively consolidated with the assets and liabilities of any direct or indirect owners of Oncor and Oncor Holdings in connection with a bankruptcy of any such entities. These measures include the November 2008 sale of 19.75% of Oncor’s equity interests to Texas Transmission.

In March 2018, Sempra indirectly acquired Oncor Holdings after obtaining various approvals, including PUCT approval through the Sempra Order, which 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.

None of the assets of the Oncor Ring-Fenced Entities are available to satisfy the debt or obligations of any Sempra entity or any other direct or indirect owner of Oncor or Oncor Holdings. The assets and liabilities of the Oncor Ring-Fenced Entities are separate and distinct from those of any Sempra entities and any other direct or indirect owner of Oncor or Oncor Holdings. We do not bear any liability for debt or contractual obligations of Sempra and its affiliates or any other direct or indirect owner of Oncor or Oncor Holdings, and vice versa. Accordingly, our operations are conducted, and our cash flows are managed, independently from Sempra and its affiliates and any other direct or indirect owner of Oncor or Oncor Holdings.

Oncor is a limited liability company governed by a board of directors, not its members. The Sempra Order and our Limited Liability Company Agreement require that the board of directors of Oncor consist of 13 members, constituted as follows:

7 Disinterested Directors, who (i) shall be independent directors in all material respects under the rules of the New York Stock Exchange in relation to Sempra or its subsidiaries and affiliated entities and any entity with a direct or indirect ownership interest in Oncor or Oncor Holdings, and (ii) shall have no material relationship with Sempra or its subsidiaries or affiliated entities or any entity with a direct or indirect ownership interest in Oncor or Oncor Holdings, currently or within the previous ten years;

2 members designated by Sempra (through Oncor Holdings);



2 members designated by Texas Transmission; and

2 current or former officers of Oncor (each, an Oncor Officer Director), currently Robert S. Shapard and E. Allen Nye, Jr., who are our Chairman of our board of directors and Chief Executive, respectively.

Until March 9, 2028, in order for a current or former officer of Oncor to be eligible to serve as an Oncor Officer Director, the 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 the date on which the officer first became employed by Oncor. Oncor Holdings, at the direction of STIH, has the right to nominate and/or seek the removal of the Oncor Officer Directors, subject to approval by a majority of the Oncor board of directors.

In addition, the Sempra Order provides that Oncor’s board of directors cannot be overruled by the board of directors 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 members of the board of directors, 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 of directors must first be approved by the PUCT. In addition, if Sempra acquires Texas Transmission’s interest in Oncor, the 2 board of director positions on Oncor’s board of directors that Texas Transmission is entitled to appoint will be eliminated and the size of Oncor’s board of directors will be reduced by 2.

Additional regulatory commitments, governance mechanisms and restrictions provided in the Sempra Order and our Limited Liability Company Agreement to ring-fence Oncor from its owners include, among others:

A majority of the Disinterested Directors of Oncor and the directors designated by Texas Transmission that are present and voting (of which at least one must be present and voting) must approve any annual or multi-year budget if the aggregate amount of capital expenditures or operating and maintenance expenditures in such budget is more than a 10% increase or decrease from the corresponding amounts of such expenditures in the budget for the preceding fiscal year or multi-year period, as applicable;

Oncor may not pay any dividends or make any other distributions (except for contractual tax payments) if a majority of its Disinterested Directors or either of the 2 directors appointed by Texas Transmission determines that it is in the best interests of Oncor to retain such amounts to meet expected future requirements;

At all times, Oncor will remain in compliance with the debt-to-equity ratio established by the PUCT from time to time for ratemaking purposes, and Oncor will not pay dividends or other distributions (except for contractual tax payments), if that payment would cause its debt-to-equity ratio to exceed the debt-to-equity ratio approved by the PUCT;

If the credit rating on Oncor’s senior secured debt by any of the three major rating agencies falls below BBB (or the equivalent), Oncor will suspend dividends and other distributions (except for contractual tax payments), unless otherwise allowed by the PUCT;

Without the prior approval of the PUCT, neither Sempra nor any of its affiliates (excluding Oncor) will incur, guaranty or pledge assets in respect of any indebtedness that is dependent on the revenues of Oncor in more than a proportionate degree than the other revenues of Sempra or on the membership interests of Oncor, and there will be no debt at STH or STIH at any time following Sempra’s acquisition of Oncor Holdings;

Neither Oncor nor Oncor Holdings will lend money to, borrow money from or share credit facilities with Sempra or any of its affiliates (other than Oncor subsidiaries), or any entity with a direct or indirect ownership interest in Oncor or Oncor Holdings;

There must be maintained certain “separateness measures” that reinforce the legal and financial separation of Oncor from its owners, including a requirement that dealings between Oncor, Oncor Holdings and their subsidiaries with Sempra, any of Sempra’s other affiliates or any entity with a direct or indirect ownership interest in Oncor or Oncor Holdings, must be on an arm’s-length basis, limitations on affiliate transactions, separate recordkeeping requirements and a prohibition on Sempra or its affiliates or any entity with a direct or indirect ownership interest in Oncor or Oncor Holdings pledging Oncor assets or membership interests for any entity other than Oncor; and

Sempra will continue to hold indirectly at least 51% of the ownership interests in Oncor and Oncor Holdings for at least five years following the Sempra Acquisition, unless otherwise specifically authorized by the PUCT.

Basis of Presentation

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in our 2021 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. We have evaluated all subsequent events through the date the financial statements were issued. All appropriate 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.

Our consolidated financial statements have been prepared in accordance with GAAP governing rate-regulated operations. 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 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.

Interest Rate Derivatives and Hedge Accounting

We are exposed to interest rates primarily as a result of our current and expected use of financing. We may, from time to time, utilize interest rate derivative instruments typically designated as cash flow hedges, to lock in interest rates in anticipation of future financings. We may designate an interest rate derivative instrument as a cash flow hedge if it effectively converts anticipated cash flows associated with interest payments to a fixed dollar amount. In accounting for cash flow hedges, derivative assets and liabilities are recorded on the balance sheet at fair value with an offset to other comprehensive income. Amounts remain in accumulated other comprehensive income and are reclassified into net income as the interest expense on the related debt affects net income.

Impairment of Long-Lived Assets and Goodwill

We evaluate long-lived assets (including intangible assets with finite lives) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

We also evaluate goodwill for impairment annually on October 1 and whenever events or changes in circumstances indicate that an impairment may exist. The determination of the existence of these and other indications of impairment involves judgments that are subjective in nature and may require the use of estimates in forecasting future results and cash flows.

Cash, Cash Equivalents and Restricted Cash

For purposes of reporting cash and cash equivalents, highly liquid investments with original maturities of three months or less at the date of purchase are considered to be cash equivalents.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Condensed Consolidated Balance Sheets to the sum of such amounts reported on the Condensed Statements of Consolidated Cash Flows:


	At June 30,		At December 31,
	2022		2021
Cash, cash equivalents and restricted cash
Cash and cash equivalents	$	66	$	11
Restricted cash, current (a)		17		13
Restricted cash, noncurrent (a)		60		30
Total cash, cash equivalents and restricted cash on the Condensed Statements of Consolidated Cash Flows	$	143	$	54

____________

(a)Restricted cash represents amounts deposited with Oncor by our customers that are subject to return in accordance with PUCT rules, ERCOT requirements or our tariffs relating to generation interconnection and construction and/or extension of electric delivery system facilities. We maintain these amounts in a separate escrow account.

Contingencies

Our financial results may be affected by judgments and estimates related to contingencies. For loss contingencies, we accrue the loss if an event has occurred on or before the balance sheet date, and:

information available through the date we file our financial statements indicates it is probable that a loss has been incurred, given the likelihood of uncertain future events; and

the amount of the loss can be reasonably estimated.

We do not accrue contingencies that might result in gains. We continuously assess contingencies for litigation claims, environmental remediation and other events. See Note 6 for a discussion of contingencies.

Effects of Reference Rate Reform on Financial Reporting

Our Credit Facility uses LIBOR as a benchmark for establishing interest rates but incorporates a transition mechanism for the phase-out of LIBOR. In the event we modify our Credit Facility related to the phase-out of LIBOR, we will evaluate the optional expedients and exceptions under ASU No. 2020-04. The standard allows entities to account for contract modifications as an event that does not require reassessment or remeasurement (i.e., as a continuation of the existing contract). ASU No. 2020-04 became effective on March 12, 2020 and will remain effective until December 31, 2022.
‎

2. REGULATORY MATTERS

Regulatory Assets and Liabilities

Recognition of regulatory assets and liabilities and the periods over which they are to be recovered or refunded through rate regulation reflect the decisions of the PUCT. Components of our regulatory assets and liabilities and their remaining recovery periods as of June 30, 2022 are provided in the table below. Amounts not currently earning a return through rate regulation are noted.


	Remaining Rate Recovery/Amortization Period
	At June 30, 2022	At June 30, 2022		At December 31, 2021
Regulatory assets:
Employee retirement liability (a)(b)(c)	To be determined	$	316	$	328
Employee retirement costs being amortized	6 years		174		193
Employee retirement costs incurred since the last rate review period (b)	To be determined		95		99
Self-insurance reserve (primarily storm recovery costs) being amortized	6 years		202		223
Self-insurance reserve incurred since the last rate review period (primarily storm related) (b)	To be determined		481		373
Debt reacquisition costs	Lives of related debt		17		19
Under-recovered AMS costs	6 years		117		128
Energy efficiency performance bonus (a)	1 year or less		15		31
Wholesale distribution substation service	To be determined		84		75
Unrecovered expenses related to COVID-19	To be determined		36		35
Recoverable deferred income taxes - net	Various		20		16
Uncollectible payments from REPs (b)	To be determined		8		9
Other regulatory assets	Various		33		18
Total regulatory assets			1,598		1,547

Regulatory liabilities:
Estimated net removal costs	Lives of related assets		1,392		1,348
Excess deferred taxes	Primarily over lives of related assets		1,408		1,442
Over-recovered wholesale transmission service expense (a)	1 year or less		-		7
Unamortized gain on reacquisition of debt	Lives of related debt		26		26
Employee retirement costs over-recovered since last rate review period (b)	To be determined		50		39
Other regulatory liabilities	Various		21		14
Total regulatory liabilities			2,897		2,876
Net regulatory assets (liabilities)		$	(1,299)	$	(1,329)

____________

(a)Not earning a return in the regulatory rate-setting process.

(b)Recovery/refund is specifically authorized by statute or by the PUCT, subject to reasonableness review.

(c)Represents unfunded liabilities recorded in accordance with pension and OPEB accounting standards.

2022 Base Rate Review (PUCT Docket No. 53601)

On May 13, 2022, we filed a request for a base rate review with the PUCT and the 209 cities in our service territory that have retained original jurisdiction over rates. The rate review test year is based on calendar year 2021 results with certain adjustments. The rate review includes a request for an annual revenue requirement increase over

current adjusted rates of 4.5% and, if approved as requested, would result in an aggregate annual revenue requirement increase of approximately $251 million. The rate review also requests a revised regulatory capital structure ratio of 55% debt to 45% equity and an authorized return on equity of 10.30%. Our current authorized regulatory capital structure ratio is 57.5% debt to 42.5% equity and our current authorized return on equity is 9.8%. In June, a procedural schedule was agreed to by the parties to the proceeding, which would result in a hearing on the merits being held from September 26, 2022 to October 5, 2022, if a settlement is not reached among the parties. We also agreed to extend the requested effective date of the rate increase such that the jurisdictional deadline for the PUCT to act on our rate review request has been extended to December 29, 2022.

PUCT Project No. 50664, Issues Related to the State of Disaster for the Coronavirus Disease 2019

In March 2020, the PUCT issued an order in PUCT Project No. 50664, Issues Related to the State of Disaster for the Coronavirus Disease 2019, authorizing transmission and distribution utilities to use a regulatory asset accounting mechanism and a subsequent process to seek future recovery of expenses resulting from the effects of the COVID-19 pandemic. Since then, we have been recording incremental costs incurred by Oncor resulting from the effects of the COVID-19 pandemic, including costs relating to the implementation of our pandemic readiness plan, as a regulatory asset. At June 30, 2022, the balance of this regulatory asset was $36 million.

3. 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 volumes 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 except for alternative revenue program revenues discussed below.

Reconcilable Tariffs

The PUCT has designated certain tariffs (primarily TCRF and EECRF) 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 energy efficiency program performance bonuses by exceeding PUCT-approved energy efficiency program targets. This incentive program and the related performance bonus revenues are considered an “alternative revenue program” under GAAP. Annual performance bonuses are recognized as revenue when approved by the PUCT, typically in the third or fourth quarter each year.

Disaggregation of Revenues

The following table reflects electric delivery revenues disaggregated by tariff:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating revenues
Revenues contributing to earnings:
Distribution base revenues	$	600	$	517	$	1,178	$	1,058
Transmission base revenues (TCOS revenues):
Billed to third-party wholesale customers		237		222		470		429
Billed to REPs serving Oncor distribution customers, through TCRF		132		120		262		234
Total transmission base revenues		369		342		732		663
Other miscellaneous revenues		22		19		40		36
Total revenues contributing to earnings		991		878		1,950		1,757

Revenues collected for pass-through expenses:
TCRF – third-party wholesale transmission service		290		260		571		509
EECRF		12		9		21		20
Total revenues collected for pass-through expenses		302		269		592		529

Total operating revenues	$	1,293	$	1,147	$	2,542	$	2,286

Customers

Our distribution business customers consist of REPs (approximately 100 at June 30, 2022) 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. Our transmission base revenues are collected from load serving entities benefiting from our transmission system. Our transmission business customers consist of other distribution companies, municipalities and electric cooperatives. REP subsidiaries of our 2 largest customers collectively represented 23% and 21% of our total operating revenues for the three months ended June 30, 2022 and 24% and 23% of our total operating revenues for the six months ended June 30, 2022. No other customer represented more than 10% of our total operating revenues for the three and six months ended June 30, 2022.

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 of customer billings 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 REPs are recoverable as a regulatory asset.

Pass-through Expenses

Revenue equal to expenses that are allowed to be passed-through to customers (primarily third-party wholesale transmission service and energy efficiency program costs) are recognized at the time the expense is recognized. 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.

4. SHORT-TERM BORROWINGS

The following table reflects our outstanding short-term borrowings and available unused credit under the Credit Facility and CP Program at June 30, 2022 and December 31, 2021:


	At June 30,		At December 31,
	2022		2021
Total credit facility borrowing capacity	$	2,000	$	2,000
Credit facility outstanding borrowings		-		-
Commercial paper outstanding (a)		-		(215)
Letters of credit outstanding (b)		-		(8)
Available unused credit	$	2,000	$	1,777

____________

(a)The weighted average interest rate on commercial paper was 0.30% at December 31, 2021.

(b)The interest rate on outstanding letters of credit was 1.20% at December 31, 2021, based on our credit ratings.

Credit Facility

In November 2021, we entered into a $2.0 billion unsecured revolving Credit Facility that includes sustainability-linked pricing metrics related to specific environmental and employee health and safety sustainability objectives. The Credit Facility may be used for working capital and other general corporate purposes, issuances of letters of credit and to support our CP Program. The Credit Facility has a maturity date of November 9, 2026. We also have the option of requesting up to 2 1-year extensions and an option to request an increase in our borrowing capacity of up to $400 million in $100 million minimum increments, provided certain conditions set forth in the Credit Facility are met, including lender approvals.

CP Program

We maintain the CP Program under which we may issue unsecured CP Notes on a private placement basis up to a maximum aggregate face or principal amount outstanding at any time of $2.0 billion. The proceeds of CP Notes issued under the CP Program are used for working capital and other general corporate purposes. The CP Program obtains liquidity support from our Credit Facility discussed above. We may utilize either the CP Program or the Credit Facility, at our option, to meet our funding needs.

‎

5. LONG-TERM DEBT

Our long-term debt includes fixed rate secured and variable rate unsecured debt. Our secured debt is secured equally and ratably by a first priority lien on certain transmission and distribution assets. See “Deed of Trust” below for additional information. At June 30, 2022 and December 31, 2021, our long-term debt consisted of the following:


	At June 30,		At December 31,
	2022		2021
Fixed Rate Secured:
4.10% Senior Notes due June 1, 2022	$	-	$	400
7.00% Debentures due September 1, 2022		482		482
2.75% Senior Notes due June 1, 2024		500		500
2.95% Senior Notes due April 1, 2025		350		350
0.55% Senior Notes due October 1, 2025		450		450
3.86% Senior Notes Series A, due December 3, 2025		174		174
3.86% Senior Notes Series B, due January 14, 2026		38		38
3.70% Senior Notes due November 15, 2028		650		650
5.75% Senior Notes due March 15, 2029		318		318
2.75% Senior Notes due May 15, 2030		700		700
7.00% Senior Notes due May 1, 2032		494		494
4.15% Senior Notes due June 1, 2032		400		-
7.25% Senior Notes due January 15, 2033		323		323
7.50% Senior Notes due September 1, 2038		300		300
5.25% Senior Notes due September 30, 2040		475		475
4.55% Senior Notes due December 1, 2041		400		400
5.30% Senior Notes due June 1, 2042		348		348
3.75% Senior Notes due April 1, 2045		550		550
3.80% Senior Notes due September 30, 2047		325		325
4.10% Senior Notes due November 15, 2048		450		450
3.80% Senior Notes due June 1, 2049		500		500
3.10% Senior Notes due September 15, 2049		700		700
3.70% Senior Notes due May 15, 2050		400		400
2.70% Senior Notes due November 15, 2051		500		500
4.60% Senior Notes due June 1, 2052		400		-
5.35% Senior Notes due October 1, 2052		300		300
Fixed rate secured long-term debt		10,527		10,127
Variable Rate Unsecured:
Term loan credit agreement maturing April 29, 2023		650		-
Variable rate unsecured long-term debt		650		-
Total long-term debt		11,177		10,127
Unamortized discount and debt issuance costs		(105)		(95)
Less amount due currently		(1,132)		(882)
Long-term debt, less amounts due currently	$	9,940	$	9,150

‎

Long-Term Debt-Related Activity in the Six Months Ended June 30, 2022

January 2022 Term Loan Credit Agreement

On January 28, 2022, we entered into an unsecured term loan credit agreement with a commitment equal to an aggregate principal amount of $1.30 billion (January 2022 Term Loan Credit Agreement). The January 2022 Term Loan Credit Agreement matures on April 29, 2023. We borrowed $400 million on January 28, 2022, $600 million on February 28, 2022 (February 2022 borrowing), $185 million on March 28, 2022, and $115 million on April 28, 2022 (April 2022 borrowing) under the January 2022 Term Loan Credit Agreement. Following the April 2022 borrowing, 0 additional amounts remain available for borrowing under the January 2022 Term Loan Credit Agreement. The proceeds from each borrowing were used for general corporate purposes, including to repay outstanding CP Notes and, in the case of the February 2022 borrowing, to redeem in full the $400 million aggregate principal amount outstanding of our 4.10% senior secured notes due June 1, 2022 (2022 Notes), plus accrued and unpaid interest on the 2022 Notes. On May 20, 2022, we repaid $650 million of the principal amount outstanding under the January 2022 Term Loan Credit Agreement. See “2032 Notes and 2052 Notes Issuances” below for more information. As a result of the repayment, the aggregate principal amount outstanding under the January 2022 Term Loan Credit Agreement at June 30, 2022 totaled $650 million.

Loans under the January 2022 Term Loan Credit Agreement bear interest, at our option, at either (i) an adjusted term SOFR (calculated based on one-month term SOFR as of a specified date, plus an adjustment of 0.10% (SOFR Adjustment)) plus a spread of 0.575%, (ii) an adjusted daily simple SOFR (calculated based on daily simple SOFR as of a specified date, plus the SOFR Adjustment) plus a spread of 0.575%, or (iii) for any day, at a rate equal to the greatest of: (1) the prime rate publicly announced by the administrative agent on such date, (2) the federal funds effective rate on such date plus 0.50%, and (3) daily simple SOFR on such date, plus 1.0%.

2022 Notes Redemption

On March 1, 2022, we redeemed in full the $400 million aggregate principal amount outstanding of our 2022 Notes, which were to mature on June 1, 2022. The redemption price was equal to 100% of the principal amount of the 2022 Notes, plus accrued interest to, but not including, the redemption date of March 1, 2022. Following the redemption of the 2022 Notes, none of the 2022 Notes remain outstanding.

2032 Notes and 2052 Notes Issuances

We intend to allocate/disburse the proceeds from the sale of the 2032 Notes (net of the discounts and fees to the initial purchasers and the estimated pro rata expenses related to the offering of the 2032 Notes) of approximately $395 million, or an amount equal to the net proceeds from the sale of the 2032 Notes, to finance and/or refinance, in whole or in part, investments in or expenditures on one or more new and/or existing eligible green projects in accordance with our sustainable financing framework. Eligible green projects include transmission and distribution projects connecting renewable energy sources to the ERCOT grid, customer energy efficiency programs, and deployment of automated metering infrastructure and smart grid technology. Prior to the allocation/disbursement of the full amount of the net proceeds from the sale of the 2032 Notes, we temporarily applied the entire amount of such net proceeds to repay a portion of the principal amount outstanding under the January 2022 Term Loan Credit Agreement. We used the proceeds from the sale of the 2052 Notes (net of the discounts and fees to the initial purchasers and the estimated pro rata expenses related to the offering of the 2052 Notes) of approximately $392 million for general corporate purposes, including to repay $255 million of the principal amount outstanding under the January 2022 Term Loan Credit Agreement.

The 2032 Notes and 2052 Notes were issued pursuant to the provisions of an Indenture, dated as of August 1, 2002, between Oncor and The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York Mellon, formerly The Bank of New York), as trustee, as amended and supplemented.

The 2032 Notes bear interest at a rate of 4.15% per annum and mature on June 1, 2032. The 2052 Notes bear interest at a rate of 4.60% per annum and mature on June 1, 2052. Interest on the 2032 Notes and the 2052 Notes is payable in cash semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2022. Prior to March 1, 2032, in the case of the 2032 Notes and December 1, 2051 in the case of the 2052 Notes, we may redeem such notes at any time, in whole or in part, at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a “make-whole” premium. On and after March 1, 2032 in the case of the 2032 Notes and December 1, 2051 in the case of the 2052 Notes, we may redeem the notes at any time, in whole or in part, at a redemption price equal to 100% of the principal amount of such notes, plus accrued and unpaid interest.

The 2032 Notes and 2052 Notes were issued in a private placement and were not registered under the Securities Act. In connection with the completion of the sale of the 2032 Notes and 2052 Notes, we entered into a Registration Rights Agreement with the representatives of the initial purchasers of such notes (the Registration Rights Agreement). Under the Registration Rights Agreement, we agreed, subject to certain exceptions, to file a registration statement with the SEC with respect to a registered offer to exchange the 2032 Notes and the 2052 Notes for publicly registered notes (the Exchange Offer Registration Statement), or under certain circumstances, a shelf registration statement (the Shelf Registration Statement). We have agreed to use commercially reasonable efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or prior to June 1, 2023 and to consummate the exchange offer on or prior to July 15, 2023. Oncor agreed to use commercially reasonable efforts to cause any Shelf Registration Statement to become or be declared effective within the later of 180 days after such Shelf Registration Statement filing obligation arises and June 1, 2023. If we do not comply with certain of our obligations under the Registration Rights Agreement, the affected notes will bear additional interest on the principal amount of such affected notes at a rate of 0.50% per annum over the interest rate otherwise provided for under such notes for the period during which the registration default continues, but not later than the second anniversary of the issue date of such notes.

Long-Term Debt-Related Activity Subsequent to June 30, 2022

July 2022 Term Loan Credit Agreement

On July 6, 2022, we entered into an unsecured term loan credit agreement with a commitment equal to an aggregate principal amount of $650 million (July 2022 Term Loan Credit Agreement) with a maturity date that is 366 days after the date on which the funding availability period ends. The July 2022 Term Loan Credit Agreement provides that we may borrow up to the full amount available under the July 2022 Term Loan Credit Agreement in up to 3 borrowings, which may be made, at our option, at any time on or before August 31, 2022. We intend to use the proceeds from any borrowings under the July 2022 Term Loan Credit Agreement for general corporate purposes. At the time of this quarterly report on Form 10-Q, no borrowings have been made under the July 2022 Term Loan Credit Agreement.

Loans under the July 2022 Term Loan Credit Agreement bear interest, at our option, at either (i) an adjusted term SOFR (calculated based on one-month term SOFR as of a specified date, plus the SOFR Adjustment) plus a spread of 0.60%, (ii) an adjusted daily simple SOFR (calculated based on daily simple SOFR as of a specified date, plus the SOFR Adjustment) plus a spread of 0.60%, or (iii) for any day, at a rate equal to the greatest of: (1) the prime rate publicly announced by the administrative agent on such date, (2) the federal funds effective rate on such date plus 0.50%, and (3) daily simple SOFR on such date, plus 1.0%.

Deed of Trust

Our secured debt is secured equally and ratably by a first priority lien on all property acquired or constructed by Oncor for use in its electricity transmission and distribution business, subject to certain exceptions. The property is mortgaged under the Deed of Trust. The Deed of Trust permits us to secure indebtedness 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 June 30, 2022, the amount of available bond credits was $2.111 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 $4.692 billion.

Borrowings under the CP Program, the Credit Facility and the term loans are not secured.

Fair Value of Long-Term Debt

At June 30, 2022 and December 31, 2021, the estimated fair value of our long-term debt (including current maturities) totaled $10.856 billion and $11.758 billion, respectively, and the carrying amount totaled $11.072 billion and $10.032 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.

6. COMMITMENTS AND CONTINGENCIES

Legal/Regulatory Proceedings

In May 2022, we filed a base rate review with the PUCT and the cities in our service territory that have retained original jurisdiction over rates. See Note 2 above for additional information regarding that rate review. We are also involved in other 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 2 above and Note 7 to Financial Statements in our 2021 Form 10-K for additional information regarding our regulatory and legal proceedings, respectively.

Leases

As lessee, our leased assets primarily consist of our vehicle fleet and real estate leased for company offices and service centers. Our leases are accounted for as operating leases for GAAP purposes. At June 30, 2022, we had $5 million in GAAP operating leases that are treated as capital leases solely for rate-making purposes. We generally recognize operating lease costs on a straight-line basis over the lease term in operating expenses. We are not a lessor to any material lease contracts. See Note 7 to Financial Statements in our 2021 Form 10-K for additional information on leases.

Sales and Use Tax Audits

We are subject to sales and use tax audits in the normal course of business. Currently, the Texas State Comptroller’s office is conducting sales and use tax audits for audit periods 2010 through June 2013, July 2013 through 2017, and 2018 through 2021. No audit reports have been issued for these audits. While the outcome is uncertain, based on our analysis, we do not expect the ultimate resolution of these audits will have a material adverse effect on our financial position, results of operations, or cash flows.

7. MEMBERSHIP INTERESTS

Contributions

We received $106 million in cash capital contributions from our members on July 26, 2022. In the six months ended June 30, 2022, we received the following cash capital contributions from our members:


Receipt Date	Amount
February 17, 2022	$	106
April 26, 2022	$	106

Distributions

The Sempra Order and our Limited Liability Company Agreement set forth various restrictions on distributions to our members. Among those restrictions is the commitment that we will make no distributions (other than contractual tax payments) to our members that would cause us to exceed the PUCT’s authorized debt-to-equity ratio. Our current authorized regulatory capital structure is 57.5% debt to 42.5% equity. The distribution restrictions also include the ability of a majority of our Disinterested Directors, or either of the two member directors designated

by Texas Transmission, to limit distributions to the extent each determines it is necessary to meet expected future requirements of Oncor (including continuing compliance with the PUCT debt-to-equity ratio commitment). At June 30, 2022, our regulatory capitalization was 54.4% debt to 45.6% equity and as a result we had $1.115 billion available to distribute to our members.

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 any finance 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 accumulated other comprehensive loss and the effects of acquisition accounting from a 2007 transaction.

On July 27, 2022, our board of directors declared a cash distribution of $106 million, which was paid to our members on July 28, 2022. In the six months ended June 30, 2022, our board of directors declared, and we paid, the following cash distributions to our members:


Declaration Date	Payment Date		Amount
February 18, 2022	February 18, 2022	$	106
April 27, 2022	April 28, 2022	$	106

Membership Interests

The following tables present the changes to membership interests during the three and six months ended June 30, 2022 and 2021, net of tax:


	Capital Accounts		Accumulated Other Comprehensive Income (Loss)		Total Membership Interests
Balance at March 31, 2022	$	12,913	$	(129)	$	12,784
Net income		229		-		229
Capital contributions		106		-		106
Distributions		(106)		-		(106)
Defined benefit pension plans		-		1		1
Balance at June 30, 2022	$	13,142	$	(128)	$	13,014


Balance at March 31, 2021	$	12,218	$	(149)	$	12,069
Net income		169		-		169
Capital contributions		62		-		62
Distributions		(96)		-		(96)
Defined benefit pension plans		-		3		3
Balance at June 30, 2021	$	12,353	$	(146)	$	12,207


	Capital Accounts		Accumulated Other Comprehensive Income (Loss)		Total Membership Interests
Balance at December 31, 2021	$	12,719	$	(131)	$	12,588
Net income		423		-		423
Capital contributions		212		-		212
Distributions		(212)		-		(212)
Net effects of cash flow hedges		-		1		1
Defined benefit pension plans		-		2		2
Balance at June 30, 2022	$	13,142	$	(128)	$	13,014


Balance at December 31, 2020	$	12,083	$	(151)	$	11,932
Net income		337		-		337
Capital contributions		125		-		125
Distributions		(192)		-		(192)
Net effects of cash flow hedges		-		1		1
Defined benefit pension plans		-		4		4
Balance at June 30, 2021	$	12,353	$	(146)	$	12,207

Accumulated Other Comprehensive Income (Loss) (AOCI)

The following table presents the changes to AOCI for the six months ended June 30, 2022 and 2021, net of tax:


	Cash Flow Hedges – Interest Rate Swaps		Defined Benefit Pension and OPEB Plans		Total Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2021	$	(36)	$	(95)	$	(131)
Defined benefit pension plans		-		2		2
Cash flow hedge amounts reclassified from AOCI and reported in interest expense and related charges (net of tax expense of $0)		1		-		1
Balance at June 30, 2022	$	(35)	$	(93)	$	(128)

Balance at December 31, 2020	$	(39)	$	(112)	$	(151)
Defined benefit pension plans		-		4		4
Cash flow hedge amounts reclassified from AOCI and reported in interest expense and related charges (net of tax expense of $0)		1		-		1
Balance at June 30, 2021	$	(38)	$	(108)	$	(146)

8. PENSION AND OPEB PLANS

Pension Plans

We sponsor the Oncor Retirement Plan and also have liabilities related to 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

retirement plan for certain employees whose retirement benefits cannot be fully earned under the qualified retirement plans. See Note 9 to Financial Statements in our 2021 Form 10-K for additional information regarding pension plans.

OPEB Plans

We currently sponsor 2 OPEB plans. One plan covers our eligible current and future retirees whose services are 100% attributed to the regulated business. The second plan covers retirees and eligible current and future retirees whose employment services were assigned to both Oncor (or a predecessor regulated utility business) and the non-regulated business of certain formerly affiliated companies, including Vistra. Vistra is solely responsible for its portion of the liability for retiree benefits related to those retirees. See Note 9 to Financial Statements in our 2021 Form 10-K for additional information.

Pension and OPEB Costs

Our net costs related to pension plans and the OPEB Plans for the three and six months ended June 30, 2022 and 2021, were comprised of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Components of net allocated pension costs:
Service cost	$	8	$	8	$	16	$	17
Interest cost (a)		23		21		45		42
Expected return on assets (a)		(27)		(25)		(53)		(50)
Amortization of net loss (a)		8		13		16		26
Net pension costs		12		17		24		35
Net adjustments (b)		(1)		(6)		(2)		(12)
Net pension costs recognized as operation and maintenance expense or other deductions	$	11	$	11	$	22	$	23

Components of net OPEB costs:
Service cost	$	1	$	1	$	2	$	2
Interest cost (a)		6		7		12		13
Expected return on assets (a)		(2)		(2)		(4)		(3)
Amortization of prior service cost		-		(4)		-		(8)
Amortization of net loss (a)		-		5		-		9
Net OPEB costs		5		7		10		13
Net adjustments (b)		3		1		5		2
Net OPEB costs recognized as operation and maintenance expense or other deductions	$	8	$	8	$	15	$	15

____________

(a)The components of net costs other than service cost component are recorded in “Other deductions and (income) – net” in Condensed Statements of Consolidated Income.

(b)Net adjustments include amounts principally deferred as property, regulatory asset or regulatory liability.

The discount rates reflected in net pension and OPEB costs in 2022 are 2.91%, 2.94% and 2.47% for the Oncor Retirement Plan, the Vistra Retirement Plan and the OPEB Plans, respectively. The expected return on pension and OPEB plan assets reflected in the 2022 cost amounts are 4.87%, 4.66% and 5.61% for the Oncor Retirement Plan, the Vistra Retirement Plan and the OPEB Plans, respectively.

Pension Plans and OPEB Plans Cash Contributions

We made cash contributions to the pension plans and OPEB Plans of $2 million and $18 million, respectively, during the six months ended June 30, 2022. We expect to make additional cash contributions to the pension plans and OPEB Plans of $3 million and $17 million, respectively, during the remainder of 2022. Our pension plans and OPEB Plans funding is expected to total approximately $273 million and $141 million, respectively, in the five-year period from 2022 to 2026 based on the latest actuarial projections.

9. RELATED-PARTY TRANSACTIONS

The following represent our significant related-party transactions.

We are not a member of another entity’s consolidated tax group, but our owners’ federal income tax returns include their portion of our results. Under the terms of a tax sharing agreement among us, Oncor Holdings, Texas Transmission and STH, we are generally obligated to make payments to our owners, pro rata in accordance with their respective membership interests, in an aggregate amount that is substantially equal to the amount of federal income taxes that we would have been required to pay if we were filing our own corporate income tax return. STH will file a combined Texas margin tax return that includes our results and our share of Texas margin tax payments, which are accounted for as income taxes and calculated as if we were filing our own return. See discussion in Note 1 to Financial Statements in our 2021 Form 10-K under “Provision in Lieu of Income Taxes.” Under the “in lieu of” tax concept, all in lieu of tax assets and tax liabilities represent amounts that will eventually be settled with our members. In the event such amounts are not paid under the tax sharing agreement, it is probable that these regulatory amounts will continue to be included in Oncor’s rate setting processes.

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


	At June 30, 2022						At December 31, 2021
	STH		Texas Transmission		Total		STH		Texas Transmission		Total
Federal income taxes payable (receivable)	$	(2)	$	(1)	$	(3)	$	(5)	$	(1)	$	(6)
Texas margin tax payable		15		-		15		24		-		24
Net payable (receivable)	$	13	$	(1)	$	12	$	19	$	(1)	$	18

Cash payments made to members related to income taxes for the six months ended June 30, 2022 and 2021 consisted of the following:


	Six Months Ended June 30, 2022						Six Months Ended June 30, 2021
	STH		Texas Transmission		Total		STH		Texas Transmission		Total
Federal income taxes	$	41	$	10	$	51	$	26	$	6	$	32
Texas margin tax		22		-		22		21		-		21
Total payments	$	63	$	10	$	73	$	47	$	6	$	53

See Note 7 for information regarding cash capital contributions from and distributions to members.

Sempra owns an indirect 50 percent interest in the parent of Sharyland. Sharyland provided wholesale transmission service to us in the amount of $4 million in each of the three months ended June 30, 2022 and 2021, respectively, and $7 million in each of the six months ended June 30, 2022 and 2021, respectively, at rates set pursuant to PUCT-approved tariffs. Pursuant to an operation agreement between us and Sharyland that was entered into in connection with a PUCT order, we provide Sharyland with

substation monitoring and switching services. These services totaled less than $1 million in each of the six months ended June 30, 2022 and 2021.

10. SUPPLEMENTARY FINANCIAL INFORMATION

Other Deductions and (Income)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Professional fees	$	1	$	3	$	3	$	5
Recoverable pension and OPEB – non-service costs		14		14		27		27
Gain on sale of non-utility property		(11)		-		(11)		-
AFUDC – equity income		(8)		(7)		(14)		(13)
Interest and investment loss (income) - net		2		(4)		4		(7)
Other		1		1		1		2
Total other deductions and (income) – net	$	(1)	$	7	$	10	$	14

Interest Expense and Related Charges


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Interest	$	109	$	103	$	218	$	205
Amortization of debt issuance costs and discounts		3		3		5		6
Less AFUDC – capitalized interest portion		(4)		(4)		(7)		(7)
Total interest expense and related charges	$	108	$	102	$	216	$	204

Trade Accounts and Other Receivables

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


	At June 30,		At December 31,
	2022		2021
Gross trade accounts and other receivables	$	919	$	750
Allowance for uncollectible accounts		(12)		(12)
Trade accounts receivable – net	$	907	$	738

At June 30, 2022, REP subsidiaries of our 2 largest customers represented 25% and 23% of the trade accounts receivable balance. At December 31, 2021, REP subsidiaries of our 2 largest customers represented 22% and 21% 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 REPs are deferred as a regulatory asset.

Investments and Other Property

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


	At June 30,		At December 31,
	2022		2021
Assets related to employee benefit plans	$	126	$	133
Non-utility property – land		12		20
Other		2		2
Total investments and other property	$	140	$	155

Property, Plant and Equipment

Property, plant and equipment – net reported on our balance sheets consisted of the following:


	Composite Depreciation Rate/	At June 30,		At December 31,
	Average Life at June 30, 2022	2022		2021
Assets in service:
Distribution	2.5% / 39.5 years	$	16,544	$	15,994
Transmission	2.9% / 34.5 years		13,328		13,075
Other assets	5.9% / 16.9 years		1,939		1,960
Total			31,811		31,029
Less accumulated depreciation			8,851		8,659
Net of accumulated depreciation			22,960		22,370
Construction work in progress			882		557
Held for future use			26		27
Property, plant and equipment – net		$	23,868	$	22,954

Intangible Assets

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


	At June 30, 2022						At December 31, 2021
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
Identifiable intangible assets subject to amortization:
Land easements	$	646	$	120	$	526	$	641	$	117	$	524
Capitalized software		1,042		431		611		1,066		451		615
Total	$	1,688	$	551	$	1,137	$	1,707	$	568	$	1,139

‎

Aggregate amortization expenses for intangible assets totaled $19 million and $18 million for the three months ended June 30, 2022 and 2021, respectively, and $38 million and $35 million for the six months ended June 30, 2022 and 2021, respectively. The estimated annual amortization expense for the five-year period from 2022 to 2026 is as follows:


Year	Amortization Expense
2022	$	77
2023	$	76
2024	$	75
2025	$	75
2026	$	75

Operating Lease and Other Obligations

Operating lease and other obligations reported on our balance sheets consisted of the following:


	At June 30,		At December 31,
	2022		2021
Operating lease liabilities	$	132	$	133
Investment tax credits		3		4
Customer deposits – noncurrent		60		30
Other		85		64
Total operating lease and other obligations	$	280	$	231

Supplemental Cash Flow Information


	Six Months Ended June 30,
	2022		2021
Cash payments (receipts) related to:
Interest	$	213	$	204
Less capitalized interest		(7)		(7)
Interest payments (net of amounts capitalized)	$	206	$	197

Amount in lieu of income taxes (Note 9):
Federal	$	51	$	32
State		22		21
Total payments in lieu of income taxes	$	73	$	53

Noncash investing activities:
Construction expenditures financed through accounts payable (a)	$	168	$	181
ROU assets obtained in exchange for operating lease obligations	$	19	$	29
Transfer of title to assets constructed for and prepaid by LP&L	$	-	$	150

______________

(a)Represents end-of-period accruals.

‎

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 and six months ended June 30, 2022 and 2021 should be read in conjunction with the condensed consolidated financial statements (Financial Statements) and the notes to those statements herein, as well as the consolidated financial statements, the notes to those statements and “Item 1A. Risk Factors” contained in our 2021 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

Ring-Fencing Measures

Various ring-fencing measures have been taken to enhance our credit quality and the separateness between the Oncor Ring-Fenced Entities, Sempra and its affiliates (other than the Oncor Ring-Fenced Entities), and any other entities with a direct or indirect ownership interest in Oncor or Oncor Holdings. These ring-fencing measures serve to mitigate the Oncor Ring-Fenced Entities’ credit exposure to Sempra and its affiliates and any other direct or indirect owners of Oncor and Oncor Holdings, and to reduce the risk that the assets and liabilities of the Oncor Ring-Fenced Entities would be substantively consolidated with the assets and liabilities of any Sempra entity or any other direct or indirect owners of Oncor and Oncor Holdings in connection with a bankruptcy of any such entities. Such measures include, among other things: the 19.75% equity interest held by Texas Transmission; maintenance of separate books and records for the Oncor Ring-Fenced Entities; and our board of directors being comprised of a majority of Disinterested Directors. As a result, none of the assets of the Oncor Ring-Fenced Entities are available to satisfy the debt or obligations of any Sempra entity or any other direct or indirect owner of Oncor or Oncor Holdings. The assets and liabilities of the Oncor Ring-Fenced Entities are separate and distinct from those of any Sempra entities and any other direct or indirect owner of Oncor or Oncor Holdings. We do not bear any liability for debt or contractual obligations of Sempra and its affiliates or any other direct or indirect owner of Oncor or Oncor Holdings, and vice versa. Accordingly, our operations are conducted, and our cash flows are managed, independently from Sempra and its affiliates and any other direct or indirect owner of Oncor or Oncor Holdings. For more information on the ring-fencing measures, see Note 1 to Financial Statements.

Significant Activities and Events

Base Rate Review (PUCT Docket No. 53601) — On May 13, 2022, we filed a request for a base rate review with the PUCT and the cities in our service territory that have retained original jurisdiction over rates. The rate review includes requests for a 4.5% annual revenue requirement increase over current adjusted rates, a revised regulatory capital structure ratio, and an increased authorized return on equity. We cannot predict whether or to what extent the requests in the rate review will be approved, or the proceeding’s ultimate effect on our results of operations, financial condition, or cash flows. See “—Regulation and Rates” below and Note 2 to Financial Statements for a discussion of the base rate review and other significant PUCT matters.

COVID-19 Pandemic — To date, the COVID-19 pandemic has not had a material adverse impact on our business, financial condition, or results of operations. The extent to which the COVID-19 pandemic does impact our

results will ultimately depend on future developments, which are highly uncertain, including if circumstances related to the pandemic worsen, the severity and spread of COVID-19 and its variants, the duration of the pandemic and governmental actions to address the pandemic or mitigate its economic, public health and other impacts. We continue to actively monitor the pandemic and governmental requirements, and management may implement or rescind precautionary measures as it deems necessary based on the state of the pandemic.

The PUCT has authorized transmission and distribution utilities to use a regulatory asset accounting mechanism and a subsequent process to seek future recovery of expenses resulting from the effects of the COVID-19 pandemic. As a result, we are recording the incremental costs incurred by Oncor resulting from the effects of the COVID-19 pandemic, including costs relating to the implementation of our pandemic readiness plan, as a regulatory asset. At June 30, 2022, the balance of this regulatory asset was $36 million. We expect COVID-19 pandemic related costs, including costs related to our pandemic readiness plan, to continue throughout the pandemic, and depending on the duration of the pandemic, total expenditures deferred as a regulatory asset could continue to increase. For more information on recovery of regulatory assets and liabilities, see Note 2 to Financial Statements and Note 1 to financial statements in our 2021 Form 10-K.

Rate regulation is premised on the full recovery of prudently incurred costs. The regulatory assets we have established with respect to COVID-19 pandemic costs that we have incurred and may continue to incur are subject to PUCT review for reasonableness and possible disallowance in our current base rate review. Any failure to recover such costs could have an adverse effect on our cash flows, liquidity, financial condition and/or results of operations.

Long-Term Debt-Related Activities — On January 28, 2022, we entered into an unsecured $1.30 billion term loan credit agreement (January 2022 Term Loan Credit Agreement). We borrowed $400 million on January 28, 2022, $600 million on February 28, 2022 (February 2022 borrowing), $185 million on March 28, 2022, and $115 million on April 28, 2022 (April 2022 borrowing) under the January 2022 Term Loan Credit Agreement. On May 20, 2022, we repaid $650 million of the principal amount outstanding under the January 2022 Term Loan Credit Agreement. See “—Financial Condition—Liquidity and Capital Resources—Long-Term Debt Activity in the Six Months Ended June 30, 2022—2032 Notes and 2052 Notes Issuances” for more information. As a result of the repayment, the aggregate principal amount outstanding under the January 2022 Term Loan Credit Agreement at June 30, 2022 totaled $650 million.

On March 1, 2022, we redeemed in full the $400 million aggregate principal amount outstanding of our 4.10% senior secured notes due June 1, 2022 (2022 Notes).

On May 20, 2022, we issued $400 million aggregate principal amount of 4.15% senior secured notes due June 1, 2032 (2032 Notes) and $400 million aggregate principal amount of 4.60% senior secured notes due June 1, 2052 (2052 Notes). See Note 5 to Financial Statements and “—Financial Condition—Liquidity and Capital Resources—Long-Term Debt Activity in the Six Months Ended June 30, 2022—2032 Notes and 2052 Notes Issuances” for more information.

‎

RESULTS OF OPERATIONS

Operating Data
	Twelve Months Ended June 30,		%
	2022	2021	Change
Reliability statistics (a):
System Average Interruption Duration Index (SAIDI) (nonstorm)	79.4	81.8	(2.9)
System Average Interruption Frequency Index (SAIFI) (nonstorm)	1.3	1.3	-
Customer Average Interruption Duration Index (CAIDI) (nonstorm)	59.3	61.1	(2.9)

Electricity points of delivery (in thousands at end of period):
Electricity distribution points of delivery (based on number of active meters)	3,867	3,804	1.7

____________

(a)SAIDI is the average number of minutes electric service is interrupted per consumer in a year. SAIFI is the average number of electric service interruptions per consumer in a year. CAIDI is the average duration in minutes per electric service interruption in a year. Each of these results excludes outages during significant storm events.


	Three Months Ended June 30,				%		Six Months Ended June 30,				%
	2022		2021		Change		2022		2021		Change
Operating statistics:
Electric energy volumes (gigawatt-hours):
Residential	12,148		9,987		21.6		23,524		20,893		12.6
Commercial, industrial, small business and other	25,681		22,902		12.1		48,016		42,673		12.5
Total electric energy volumes	37,829		32,889		15.0		71,540		63,566		12.5

	Three Months Ended June 30,				$		Six Months Ended June 30,				$
		2022		2021	Change			2022		2021	Change
Operating revenues
Revenues contributing to earnings:
Distribution base revenues (a)	$	600	$	517	$	83	$	1,178	$	1,058	$	120
Transmission base revenues (TCOS revenues):
Billed to third-party wholesale customers		237		222		15		470		429		41
Billed to REPs serving Oncor distribution customers, through TCRF		132		120		12		262		234		28
Total transmission base revenues		369		342		27		732		663		69
Other miscellaneous revenues		22		19		3		40		36		4
Total revenues contributing to earnings		991		878		113		1,950		1,757		193

Revenues collected for pass-through expenses:
TCRF – third-party wholesale transmission service		290		260		30		571		509		62
EECRF		12		9		3		21		20		1
Total revenues collected for pass-through expenses		302		269		33		592		529		63

Total operating revenues	$	1,293	$	1,147	$	146	$	2,542	$	2,286	$	256

____________

(a)In general, distribution revenues from residential and small business users are based on actual monthly consumption (kWh), and, depending on size and annual load factor, revenues from large commercial and industrial users are based either on actual monthly demand (kilowatts) or the greater of actual monthly demand (kilowatts) or 80% of peak monthly demand during the prior eleven months.

‎

Financial Results — Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Total operating revenues increased $146 million, or 13%, to $1.293 billion during the three months ended June 30, 2022. Revenue is billed under tariffs approved by the PUCT.

Revenues contributing to earnings increased $113 million to $991 million during the three months ended June 30, 2022. The increase reflected the following components:

An Increase in Distribution Base Revenues — Distribution base rates are set periodically in a rate review docket initiated by either us or the PUCT. The PUCT allows utilities to file, under certain circumstances, DCRF rate adjustments between comprehensive base rate reviews to recover distribution investments and certain other related costs on an interim basis. Distribution base rate revenues increased $83 million to $600 million during the three months ended June 30, 2022. The increase in distribution base rate revenues primarily reflects:

o$63 million increase due to higher consumption attributable primarily to significantly warmer weather,

o$17 million increase due to the effects of the DCRF rate increases to reflect increases in invested capital, and

o$6 million increase due to growth in points of delivery.

See the DCRF Filings Table below for a listing of recent DCRF filings impacting revenues for 2021 and 2022. PUCT rules provide that DCRF filings may only be made between April 1 and April 8 of a given year. However, PUCT rules also provide that any DCRF filings initiated within 145 days of a comprehensive base rate review proceeding will be dismissed. As we filed a base rate review proceeding on May 13, 2022, which is within 145 days of the DCRF filing deadline, we did not file a DCRF in April 2022.

DCRF Filings Table


PUCT Docket No.	Filed	Effective	Annual Revenue Impact
51996	April 2021	September 2021	$	88
50734	April 2020	September 2020	$	70

An Increase in Transmission Base Revenues — Transmission base revenues (or TCOS revenues) are collected from load serving entities benefitting from our transmission system. REPs serving customers in our service territory are billed through the TCRF mechanism discussed below, while other load serving entities are billed directly. In order to reflect changes in our invested transmission capital, PUCT rules allow us to update our TCOS rates by filing up to two interim TCOS rate adjustments in a calendar year. TCOS revenues increased $27 million to $369 million during the three months ended June 30, 2022. The increase in TCOS revenues was due to the effects of the TCOS updates to reflect increases in invested capital.

See the TCOS Filings Table below for a listing of recent TCOS filings impacting revenues in 2021 and 2022.

TCOS Filings Table


PUCT Docket No.	Filed	Effective	Annual Revenue Impact		Third-Party Wholesale Transmission		Included in TCRF
53145	January 2022	March 2022	$	27	$	17	$	10
52352	July 2021	September 2021	$	48	$	31	$	17
51767	January 2021	March 2021	$	83	$	54	$	29
51115	July 2020	September 2020	$	43	$	28	$	15

Revenues collected for pass-through expenses increased $33 million to $302 million during the three months ended June 30, 2022. While changes in these pass-through tariffs affect revenues and the timing of cash flows, they do not impact operating income and do not contribute to earnings. The net increase reflected the following components:

An Increase in TCRF – third-party wholesale transmission service (TCRF Third-Party) — TCRF Third-Party revenues increased $30 million to $290 million during the three months ended June 30, 2022 due to higher TCRF Third-Party provider billings. TCRF is a reconcilable distribution rate charged to REPs to recover fees we pay to third-party transmission service providers under their TCOS rates and the retail portion of our own TCOS rate described above. Changes in our TCRF Third-Party revenue are to pass through changes in third-party wholesale transmission service expense. At June 30, 2022, there was no third-party wholesale transmission service expense being deferred as regulatory assets or regulatory liabilities (see Note 2 to Financial Statements). PUCT rules require us to update the TCRF component of our retail delivery rates on March 1 and September 1 each year.

See the TCRF Filings Table below for a listing of recent TCRF filings impacting revenues in 2021 and 2022.

TCRF Filings Table


			Billing Impact
			for Period Effective
PUCT Docket No.	Filed	Effective	Increase (Decrease)
53675	May 2022	September 2022 - February 2023	$	154
52898	November 2021	March 2022 - August 2022	$	(61)
52175	May 2021	September 2021 - February 2022	$	149
51560	November 2020	March 2021 - August 2021	$	(87)
50883	May 2020	September 2020 - February 2021	$	81

An Increase in EECRF Revenues — EECRF revenues increased $3 million to $12 million during the three months ended June 30, 2022 and were generally offset in operation and maintenance expense. The EECRF is a reconcilable rate designed to recover current energy efficiency program costs and annual performance bonuses earned by exceeding PUCT targets in prior years and to refund or recover any over/under recovery of our costs in prior years. We recognize the annual performance bonuses in other miscellaneous revenues upon approval by the PUCT. PUCT rules require us to file an annual EECRF tariff update by the first business day in June of each year for implementation on March 1 of the next calendar year.

See the EECRF Filings Table below for a listing of recent EECRF filings.

EECRF Filings Table


PUCT Docket No.	Filed	Effective	Program Costs		Performance Bonus		Under-/ (Over)- Recovery and Other
53671 (a)	May 2022	March 2023	$	52	$	28	$	3
52178	May 2021	March 2022	$	49	$	31	$	3
50886	May 2020	March 2021	$	53	$	14	$	(2)
49594	May 2019	March 2020	$	50	$	9	$	(3)

____________

(a)Pending PUCT approval.

Wholesale transmission service expense increased $30 million to $290 million during the three months ended June 30, 2022. The increase is due to higher fees paid to third-party transmission entities. Wholesale transmission service expense is a reconcilable expense that is offset with TCRF Third-Party revenues as discussed above.

Operation and maintenance expense increased $23 million to $255 million during the three months ended June 30, 2022. The increase includes $10 million in higher labor and contractor related costs, $5 million in higher vegetation management costs, $3 million in higher insurance and other costs, $2 million in higher material and transportation costs and a $2 million increase in energy efficiency program expenses. In general, increases in operation and maintenance expense are driven by increases in investment in property, plant and equipment. Inflation, particularly the cost of labor, as well as availability of labor and materials, also contributed to increased operation and maintenance costs, and we expect to continue to experience higher costs related to labor and materials in the near term.

Depreciation and amortization increased $14 million to $223 million during the three months ended June 30, 2022. The increase is attributable to ongoing investments in property, plant and equipment.

Provision in lieu of income taxes netted to $49 million (including a $1 million benefit related to nonoperating income) during the three months ended June 30, 2022 compared to $33 million (including a $3 million benefit related to nonoperating income) during the three months ended June 30, 2021.

The effective income tax rate was 17.6% and 16.3% for the three months ended June 30, 2022 and 2021, respectively. The effective tax rate on pretax income differs from the U.S. federal statutory rate of 21% primarily due to the amortization of the regulatory liability for excess deferred taxes as a result of the TCJA, partially offset by the effects of the Texas margin tax.

Taxes other than amounts related to income taxes increased $5 million to $140 million during the three months ended June 30, 2022. The increase is primarily due to increases in property taxes attributable to ongoing investments in property, plant and equipment and increases in local franchise taxes payable by us to municipalities due to higher customer consumption.

Other deductions and (income) - net was $8 million favorable for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The variance is primarily due to an $11 million gain on a sale of certain non-utility property, a $2 million decrease in professional fees and a $1 million increase in AFUDC – equity income, partially offset by a net $6 million unfavorable change in the value of certain compensation plan trust assets during the three months ended June 30, 2022 compared to the three months ended June 30, 2021. See Note 10 to Financial Statements for more information.

Interest expense and related charges increased $6 million to $108 million during the three months ended June 30, 2022. The increase is primarily due to higher average borrowings attributable to ongoing investments in property, plant and equipment, partially offset by lower average interest rates on the borrowings.

Net income increased $60 million to $229 million during the three months ended June 30, 2022. The increase was driven by increases in revenues from higher customer consumption attributable primarily to significantly warmer weather, updates to base transmission and distribution rates to reflect increases in invested capital, customer growth, and a gain on a sale of certain non-utility property, partially offset by increases in costs associated with additional investments (primarily depreciation, property taxes and borrowing costs) and increases in operation and maintenance expense.

‎

Financial Results — Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Total operating revenues increased $256 million, or 11%, to $2.542 billion during the six months ended June 30, 2022.

Revenues contributing to earnings increased $193 million to $1.950 billion during the six months ended June 30, 2022. The increase reflected the following components:

An Increase in Distribution Base Revenues — Distribution base rate revenues increased $120 million to $1.178 billion during the six months ended June 30, 2022. The increase in distribution base rate revenues primarily reflects:

o$72 million increase due to higher consumption attributable primarily to significantly warmer weather during the second quarter of 2022 as compared to the second quarter of 2021,

o$36 million increase due to the effects of the DCRF rate increases to reflect increases in invested capital, and

o$13 million increase due to growth in points of delivery.

An Increase in Transmission Base Revenues —TCOS revenues increased $69 million to $732 million during the six months ended June 30, 2022. The increase in TCOS revenues was primarily due to the effects of TCOS updates to reflect increases in invested capital.

Revenues collected for pass-through expenses increased $63 million to $592 million during the six months ended June 30, 2022. The net increase reflected the following components:

An Increase in TCRF Third-Party — TCRF Third-Party revenues increased $62 million to $571 million during the six months ended June 30, 2022 due to higher TCRF Third-Party provider billings.

An Increase in EECRF Revenues — EECRF revenues increased $1 million to $21 million during the six months ended June 30, 2022 and were generally offset in operation and maintenance expense.

Wholesale transmission service expense increased $62 million to $571 million during the six months ended June 30, 2022 due to higher fees paid to third-party transmission entities.

Operation and maintenance expense increased $37 million to $504 million during the six months ended June 30, 2022. The increase includes $21 million in higher labor and contractor related costs, $7 million in higher vegetation management costs, $5 million in higher material and transportation costs and $4 million in higher insurance and other costs.

Depreciation and amortization increased $31 million to $445 million during the six months ended June 30, 2022. The increase is attributable to ongoing investments in property, plant and equipment.

Provision in lieu of income taxes netted to $88 million (including a $4 million benefit related to nonoperating income) during the six months ended June 30, 2022 compared to $66 million (including a $6 million benefit related to nonoperating income) during the six months ended June 30, 2021.

The effective income tax rate was 17.2% and 16.4% for the six months ended June 30, 2022 and 2021, respectively. The effective tax rate on pretax income differs from the U.S. federal statutory rate of 21% primarily due to the amortization of the regulatory liability for excess deferred taxes as a result of the TCJA, partially offset by the effects of the Texas margin tax.

Taxes other than income taxes increased $10 million to $285 million during the six months ended June 30, 2022. The increase is primarily due to increases in property taxes attributable to ongoing investments in property, plant and equipment, increases in local franchise taxes payable by us to municipalities due to higher customer consumption and increases in payroll taxes.

Other deductions and (income) - net was $4 million favorable for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The variance is primarily due to an $11 million gain on a sale of certain non-utility property, a $2 million decrease in professional fees and a $1 million increase in AFUDC – equity income, partially offset by a net $11 million unfavorable change in the value of certain compensation plan trust assets during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. See Note 10 to Financial Statements for more information.

Interest expense and related charges increased $12 million to $216 million during the six months ended June 30, 2022. The increase is primarily due to higher average borrowings attributable to ongoing investments in property, plant and equipment, partially offset by lower average interest rates on the borrowings.

Net income increased $86 million to $423 million during the six months ended June 30, 2022. The increase was driven by increases in revenues from updates to base transmission and distribution rates to reflect increases in invested capital, higher customer consumption attributable primarily to significantly warmer weather during the second quarter of 2022 as compared to the second quarter of 2021, customer growth and a gain on a sale of certain non-utility property, partially offset by increases in costs associated with additional investments (primarily depreciation, property taxes and borrowing costs) and increases in operation and maintenance expense.

OTHER COMPREHENSIVE INCOME (LOSS)

We expect that net after-tax losses of approximately $3 million that are currently reported in accumulated other comprehensive loss at June 30, 2022 related to cash flow interest rate hedges will be reclassified into net income as an increase to interest expense within the next 12 months as the hedged items affect earnings.

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FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows — Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Cash provided by operating activities totaled $645 million and $523 million during the six months ended June 30, 2022 and 2021, respectively. The $122 million net increase is primarily the result of a $168 million increase in transmission and distribution receipts, a $21 million increase in customer deposits primarily held in restricted accounts, an $18 million increase in accounts payable due to timing of payments to vendors and a $15 million decrease in funding to employee benefit plans, partially offset by a $58 million increase in inventory purchases and a $37 million net increase in income tax and property tax payments.

Depreciation and amortization expense reported in operating activities in the condensed statements of consolidated cash flows was $41 million and $40 million more than the amounts reported in the condensed statements of consolidated income in the six months ended June 30, 2022 and 2021, respectively. The differences are due to certain regulatory asset amortizations being reported as operation and maintenance expense in the condensed statements of consolidated income in accordance with GAAP.

Cash provided by financing activities totaled $822 million and $638 million during the six months ended June 30, 2022 and 2021, respectively. The $184 million net increase is the result of a $117 million net increase in debt financing activity and an $87 million increase in capital contributions from members, offset by a $20 million increase in distributions to members. See Notes 4 and 5 to Financial Statements regarding short-term borrowings and long-term debt activity, respectively, and Note 7 to Financial Statements for additional information regarding capital contributions from and cash distributions to our members.

Cash used in investing activities totaled $1.378 billion and $1.181 billion during the six months ended June 30, 2022 and 2021, respectively. The $197 million net increase is primarily the result of a $192 million increase in capital expenditures and a $26 million decrease as a result of the 2021 completion of our joint project with LP&L, partially offset by $19 million in proceeds from a sale of certain non-utility property in 2022.

Long-Term Debt Activity in the Six Months Ended June 30, 2022

January 2022 Term Loan Credit Agreement — In January 2022, we entered into the January 2022 Term Loan Credit Agreement with a commitment equal to an aggregate principal amount of $1.30 billion. The January 2022 Term Loan Credit Agreement matures on April 29, 2023. We borrowed $400 million on January 28, 2022, $600 million at the February 2022 borrowing, $185 million on March 28, 2022, and $115 million at the April 2022 borrowing under the January 2022 Term Loan Credit Agreement. Following the April 2022 borrowing, no additional amounts remain available for borrowings under the January 2022 Term Loan Credit Agreement. The proceeds from each borrowing were used for general corporate purposes, including to repay outstanding CP Notes and, in the case of the February 2022 borrowing, to redeem $400 million aggregate principal amount outstanding of our 2022 Notes, plus accrued and unpaid interest on the 2022 Notes. On May 20, 2022, we repaid $650 million of the principal amount outstanding under the January 2022 Term Loan Credit Agreement. As a result of the repayment, the aggregate principal amount outstanding under the January 2022 Term Loan Credit Agreement at June 30, 2022 totaled $650 million. See “2032 Notes and 2052 Notes Issuances” below for more information.

The January 2022 Term Loan Credit Agreement 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. The January 2022 Term Loan Credit Agreement also contains a senior debt-to-capitalization ratio covenant that effectively limits our ability to incur indebtedness in the future. See “—Credit Rating Provisions and Material Debt Covenants—Material Debt Credit Rating, Financial and Cross-Default Covenants” below for additional information on this covenant and the calculation of this ratio.

2022 Notes Redemption — On March 1, 2022, we redeemed in full the $400 million aggregate principal amount outstanding of our 2022 Notes, which were to mature on June 1, 2022. The redemption price was equal to 100% of the principal amount of the 2022 Notes, plus accrued interest to, but not including, the redemption date of March 1, 2022. Following the redemption of the 2022 Notes, none of the 2022 Notes remain outstanding.

2032 Notes and 2052 Notes Issuances — On May 20, 2022, we issued $400 million aggregate principal amount of the 2032 Notes and $400 million aggregate principal amount of the 2052 Notes.

We intend to allocate/disburse the proceeds from the sale of the 2032 Notes (net of the discounts and fees to the initial purchasers and the estimated pro rata expenses related to the offering of the 2032 Notes) of approximately $395 million, or an amount equal to the net proceeds from the sale of the 2032 Notes, to finance and/or refinance, in whole or in part, investments in or expenditures on one or more new and/or existing eligible green projects in accordance with our sustainable financing framework. Eligible green projects include transmission and distribution projects connecting renewable energy sources to the ERCOT grid, customer energy efficiency programs, and deployment of automated metering infrastructure and smart grid technology. Prior to the allocation/disbursement of the full amount of the net proceeds from the sale of the 2032 Notes, we temporarily applied the entire amount of such net proceeds to repay a portion of the principal amount outstanding under the January 2022 Term Loan Credit Agreement. We used the proceeds from the sale of the 2052 Notes (net of the discounts and fees to the initial purchasers and the estimated pro rata expenses related to the offering of the 2052 Notes) of approximately $392 million for general corporate purposes, including to repay $255 million of principal amount outstanding under the January 2022 Term Loan Credit Agreement.

Long-Term Debt Activity Subsequent to June 30, 2022

July 2022 Term Loan Credit Agreement — In July 2022, we entered into an unsecured term loan credit agreement equal to an aggregate principal amount of $650 million (July 2022 Term Loan Credit Agreement) with a commitment equal to an aggregate principal amount of $650 million. The July 2022 Term Loan Credit Agreement has a maturity date that is 366 days after the date on which the funding availability period ends. The July 2022 Term Loan Credit Agreement provides that we may borrow up to the full amount available under the July 2022 Term Loan Credit Agreement in up to three borrowings, which may be made, at our option, at any time on or before August 31, 2022. We intend to use the proceeds from any borrowings under the July 2022 Term Loan Credit Agreement for general corporate purposes. At the time of this quarterly report on Form 10-Q, no borrowings have occurred under the July 2022 Term Loan Credit Agreement.

The July 2022 Term Loan Credit Agreement 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. The July 2022 Term Loan Credit Agreement also contains a senior debt-to-capitalization ratio covenant that effectively limits our ability to incur indebtedness in the future. See “—Credit Rating Provisions and Material Debt Covenants—Material Debt Credit Rating, Financial and Cross-Default Covenants” below for additional information on this covenant and the calculation of this ratio.

Short-Term Debt Activity in the Six Months Ended June 30, 2022

Credit Facility — At June 30, 2022, we had a $2.0 billion unsecured Credit Facility that may be used for working capital and other general corporate purposes, issuances of letters of credit and support of our CP Program. The Credit Facility has a maturity date of November 9, 2026. We also have the option of requesting up to two 1-year extensions and an option to request an increase in our borrowing capacity of up to $400 million in $100 million minimum increments, provided certain conditions set forth in the Credit Facility are met, including lender approvals. Borrowings under the Credit Facility are classified as short-term on the balance sheet.

At June 30, 2022, we had no outstanding borrowings under the Credit Facility, no CP Notes outstanding and no outstanding letters of credit. At December 31, 2021, we had no outstanding borrowings under the Credit Facility, $215 million of CP Notes outstanding and $8 million of outstanding letters of credit.

Because the CP Program is supported by our Credit Facility, any CP Notes outstanding effectively reduce the available borrowing capacity under our Credit Facility. Considering CP Notes, letters of credit outstanding and the limitations described below, available borrowing capacity under the Credit Facility totaled $2.0 billion at June 30, 2022 and available borrowing capacity under the Credit Facility totaled $1.777 billion at December 31, 2021.

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. The Credit Facility also contains a senior debt-to-capitalization ratio covenant that effectively limits our ability to incur indebtedness in the future. See “—Credit Rating Provisions and Material Debt Covenants—Material Debt Credit Rating, Financial and Cross-Default Covenants” below for additional information on this covenant and the calculation of this ratio.

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.

CP Program — We maintain the CP Program, under which we may issue unsecured CP 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 issue CP Notes from time to time, and the proceeds of CP Notes are used for working capital and other general corporate purposes. We had no CP Notes outstanding under the CP Program at June 30, 2022 and $215 million of CP Notes outstanding under the CP Program at December 31, 2021.

The CP Program obtains liquidity support from our Credit Facility. We may utilize either the CP Program or the Credit Facility at our option for funding. See Note 4 to Financial Statements for additional information regarding the CP Program.

Available Liquidity and Liquidity Needs, Including Capital Expenditures

Capital Expenditures — Our board of directors has approved capital expenditures of $3.0 billion for 2022. In addition, the most recent long-term plan presented to our board of directors in October 2021 provides for capital expenditures of $3.0 billion to $3.1 billion in each of the years 2023 through 2026. These capital expenditures are

expected to be used for investment in transmission and distribution infrastructure, including investments to support system expansion, system maintenance, and technology and innovation.

Pension Plans and OPEB Plans Funding — Our funding for the pension plans and OPEB Plans for calendar year 2022 is expected to total $5 million and $35 million, respectively. Based on the funded status of the pension plans at December 31, 2021, and the latest actuarial projections, our aggregate pension plans and OPEB Plans funding is expected to total approximately $414 million in the five-year period 2022 through 2026, an increase from previous funding expectations primarily due to financial market conditions, which resulted in lower than previously anticipated investment performance of pension assets in the first half of 2022. During the six months ended June 30, 2022, we made cash contributions to the pension plans and OPEB Plans of $2 million and $18 million, respectively. See Note 8 to Financial Statements for additional information regarding pension plans and OPEB Plans.

Additional Liquidity Needs — In addition to the items discussed above, other material contractual obligations and commitments arising in the normal course of business primarily consist of purchase obligations under outsourcing agreements and operating lease obligations. See Note 6 to Financial Statements for information regarding leases. Purchase obligations under outsourcing agreements total $163 million over the next five years. In addition, we regularly evaluate opportunities to make selective strategic acquisitions involving regulated assets, which could potentially impact our liquidity and capital expenditures. See “Item 1A. Risk Factors—We regularly evaluate opportunities to make selective strategic acquisitions involving regulated assets. Acquisitions involve various risks, and we may not be able to realize the anticipated benefits of any such acquisitions” in our 2021 Form 10-K.

Available Liquidity — Our primary source of liquidity, aside from operating cash flows, is our ability to issue CP Notes, borrow under our Credit Facility and, when available, borrow under our term loan credit agreement. Because the CP Program is supported by the Credit Facility, CP Notes outstanding effectively reduce the available borrowing capacity under the Credit Facility. Cash and cash equivalents totaled $66 million and $11 million at June 30, 2022 and December 31, 2021, respectively. Considering any CP Notes and letters of credit outstanding, available liquidity (cash, cash equivalents and available borrowing capacity under the Credit Facility) at June 30, 2022 totaled $2.066 billion, reflecting an increase of $278 million as compared to December 31, 2021.

We expect cash flows from operations combined with long-term debt issuances and term loan credit agreements as well as availability under the Credit Facility and the CP Program to be sufficient to fund current obligations, projected working capital requirements, maturities of long-term debt, capital expenditures, minimum funding requirements for pension plans and OPEB Plans, operating lease obligations and purchase obligations under outsourcing agreements for at least the next twelve months. On July 6, 2022, we entered into the July 2022 Term Loan Credit Agreement. At the time of this quarterly report on Form 10-Q, the entire $650 million remained available for borrowings. Should additional liquidity or capital requirements arise, we may need to seek member capital contributions or preserve equity through reductions or suspension of distributions to members. In addition, we may also consider 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.

The COVID-19 pandemic has not had a material adverse impact on our liquidity to date. However, we do face risks and uncertainties related to the pandemic, including the potential impact on capital and credit markets of which we cannot predict whether, or to what extent, the pandemic will have a material adverse impact on our liquidity, ability to access the capital or commercial paper markets, or obtain new credit commitments from commercial banks in the future. For further discussion of risks and uncertainties related to the COVID-19 pandemic, see “Item 1A. Risk Factors—Our business could be adversely affected by health epidemics and pandemics, including the current COVID-19 pandemic and its variants” in our 2021 Form 10-K.

Member Contributions and Distributions

Contributions — We received $106 million in cash capital contributions from our members on July 26, 2022. In the six months ended June 30, 2022, we received the following cash capital contributions from our members:


Receipt Date	Amount
February 17, 2022	$	106
April 26, 2022	$	106

Distributions — The Sempra Order and our Limited Liability Company Agreement set forth various restrictions on distributions to our members. Among those restrictions is the commitment that we will make no distributions that would cause us to exceed the PUCT’s authorized regulatory debt-to-equity ratio. Our current PUCT authorized capital structure is 57.5% debt to 42.5% equity. The distribution restrictions also include the ability of a majority of our Disinterested Directors, or either of the two member directors designated by Texas Transmission, to limit distributions to the extent each determines it is necessary to meet expected future requirements of Oncor (including continuing compliance with the PUCT debt-to-equity ratio commitment). At June 30, 2022, our regulatory capitalization was 54.4% debt to 45.6% equity, and as a result we had $1.115 billion available to distribute to our members.

The PUCT has the authority to determine what types of debt and equity are included in a utility’s regulatory debt-to-equity ratio. For purposes of this ratio, debt is calculated as long-term debt including any finance 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 accumulated other comprehensive loss and the effects of acquisition accounting from a 2007 transaction.


Declaration Date	Payment Date		Amount
February 18, 2022	February 18, 2022	$	106
April 27, 2022	April 28, 2022	$	106

Capitalization and Return on Equity

We have committed to the PUCT to maintain a regulatory capital structure at or below the debt-to-equity ratio established periodically by the PUCT for ratemaking purposes. Our current authorized regulatory capital structure of 57.5% debt to 42.5% equity went into effect in November 2017 as part of the PUCT order issued in the rate review we filed in PUCT Docket No. 46957. In PUCT Docket No. 46957, the PUCT also set our authorized return on equity at 9.8%. Our regulatory capital structure was 54.4% debt to 45.6% equity at June 30, 2022. Our ability to incur additional long-term debt is limited by our authorized regulatory capital structure, as we are able to issue future long-term debt only to the extent that the issuance of such debt would not cause us to exceed the authorized regulatory debt-to-equity ratio. See Note 7 to Financial Statements for further discussion of our regulatory capitalization.

Our GAAP capitalization ratios were 43.3% debt to 56.7% equity at June 30, 2022.

Credit Rating Provisions and Material Debt Covenants

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 August 4, 2022.


Credit Rating Agency	Senior Secured	Commercial Paper
S&P	A+	A-1
Moody’s	A2	Prime-2
Fitch	A	F2

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.

As described in Note 4 to Financial Statements, the CP Program obtains liquidity support from our Credit Facility. As described in Note 5 to Financial Statements, our senior secured debt is secured pursuant to the Deed of Trust by a first priority lien on certain of our transmission and distribution assets.

Material Debt Credit Rating, Financial and Cross-Default Covenants — The Credit Facility contains terms pursuant to which the interest rates charged under the agreement may be adjusted depending on our credit ratings. A decline in our credit ratings would increase the cost of borrowings under the Credit Facility and likely increase the cost of our CP Program and any future debt issuances and additional credit facilities. The CP Program requires prompt notice to the dealers of any notice of intended or potential downgrade of our credit ratings.

Borrowings under the Credit Facility bear interest at per annum rates equal to, at our option, (i) adjusted LIBOR plus an applicable margin of between 0.875% and 1.50%, depending on certain credit ratings assigned to our debt, or (ii) an alternate base rate (equal to the higher of (1) the prime rate of the administrative agent, (2) the greater of the federal funds effective rate or the overnight bank funding rate, plus 0.50%, and (3) adjusted LIBOR plus 1.00%) plus an applicable margin of between 0.00% and 0.50%, depending on certain credit ratings assigned to our debt. Based on our current debt ratings as of August 4, 2022, our LIBOR-based borrowings would bear interest at adjusted LIBOR plus 1.00% and our alternate base rate borrowings will bear interest at the alternate base rate plus 0.00%. The Credit Facility also provides for an alternative rate of interest upon the occurrence of certain events related to the phase out of LIBOR.

The Credit Facility includes sustainability-linked pricing metrics related to specific environmental and employee health and safety sustainability objectives. The Credit Facility provides that the applicable margin and commitment fee may be increased, decreased or have no change depending on our annual performance on the two sustainability-linked pricing metrics set forth in the Credit Facility, and to date no such pricing increases or decreases have been implemented. The maximum pricing adjustment in any given year is +/- 0.01% on the commitment fee and +/- 0.05% on the applicable margin.

Our Credit Facility, Note Purchase Agreement, and term loan credit agreements each contain a financial covenant that requires maintenance of a consolidated 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 applicable agreement (principally, the sum of long-term debt, any capital leases (referred to as finance leases under current accounting literature), short-term debt and debt due currently in accordance with GAAP). Capitalization for each of our Credit Facility and term loan credit agreements is calculated as membership interests determined in accordance with GAAP plus debt described above. The ratio under our Note Purchase Agreement is calculated as total debt (all debt of Oncor and its subsidiaries on a consolidated basis) divided by the sum of total debt plus capitalization. Capitalization under the Note Purchase Agreement is calculated as membership interests plus liabilities for indebtedness maturing more than

12 months from the date of determination, with capitalization determined in accordance with GAAP and practices applicable to our type of business. At June 30, 2022, we were in compliance with this covenant and all other covenants under the Credit Facility, Note Purchase Agreement and term loan credit agreements.

Certain of our 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, Note Purchase Agreement and the term loan credit agreements, 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 under those facilities to be accelerated.

Under the Deed of Trust, an event of default under our indentures or, after all applicable notices have been given and all applicable grace periods have expired, under the Note Purchase Agreement, would permit the holders of our secured debt to exercise their remedies under the Deed of Trust.

Guarantees

At June 30, 2022, we did not have any material guarantees.

COMMITMENTS AND CONTINGENCIES

See Note 6 to Financial Statements for discussion of commitments and contingencies.

CRITICAL ACCOUNTING ESTIMATES

We prepare our Financial Statements in accordance with GAAP governing rate-regulated operations. Application of these accounting policies in the 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 revenues and expenses during the periods covered. We believe that there have been no significant changes in our critical accounting estimates during the six months ended June 30, 2022, as compared to the critical policies and estimates disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K.

CHANGES IN ACCOUNTING STANDARDS

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

REGULATION AND RATES

Matters with the PUCT

2022 Base Rate Review (PUCT Docket No. 53601) — On May 13, 2022, we filed a request for a base rate review with the PUCT and the 209 cities in our service territory that have retained original jurisdiction over rates. The rate review test year is based on calendar year 2021 results with certain adjustments. The rate review includes a request for an annual revenue requirement increase over current adjusted rates of 4.5%, and, if approved as requested, would result in an aggregate annual revenue requirement increase of approximately $251 million. The rate review also requests a revised regulatory capital structure ratio of 55% debt to 45% equity and an authorized return on equity of 10.30%. Our current authorized regulatory capital structure ratio is 57.5% debt to 42.5% equity and our current authorized return on equity is 9.8%. In June, a procedural schedule was agreed to by the parties to the proceeding, which would result in a hearing on the merits being held from September 26, 2022 to October 5, 2022, if a settlement is not reached among the parties. We also agreed to extend the requested effective date of the rate increase such that the jurisdictional deadline for the PUCT to act on our rate review request has been extended to December 29, 2022. We expect new rates would go into effect by the end of the first quarter of 2023. However,

we cannot predict whether or to what extent our requests in the rate review will be approved or the proceeding’s ultimate effect on our results of operations, financial condition, or cash flows.

See Note 2 to Financial Statements for a discussion of other significant PUCT matters for the six months ended June 30, 2022.

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.

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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 occur in the ordinary course of business. From time to time we transact in financial instruments to hedge interest rate risk related to our forecasted issuances of debt. There were no such hedges in place at June 30, 2022.

At June 30, 2022, all of our long-term debt, other than term loan credit agreement borrowings, carried fixed interest rates. In addition, borrowings of short-term debt under the Credit Facility bear interest on a floating rate basis. At June 30, 2022, there were no borrowings under the Credit Facility. At June 30, 2022, the borrowings under the January 2022 Term Loan Credit Agreement bore interest at an adjusted term SOFR (calculated based on one-month term SOFR as of a specified date, plus the SOFR Adjustment plus a spread of 0.575%). SOFR began in April 2018 and it therefore has a limited history. The future performance of SOFR cannot reliably be predicted based on hypothetical or limited historical performance data. Uncertainty as to SOFR or changes to SOFR will affect the interest rate of our borrowings under our term loan credit agreements.

Based on the amount of floating rate debt outstanding as of June 30, 2022, a hypothetical 100 basis point change (up or down) in the weighted average interest rates would not have a material impact on our results of operations or financial condition. For more information on our borrowings and interest rates charged, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Liquidity and Capital Resources,” and Notes 4 and 5 to Financial Statements.

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 REPs through rates significantly reduce our credit risk. At June 30, 2022, we had accrued $9 million in a regulatory asset with respect to amounts deemed uncollectible from REPs.

Our exposure to credit risk associated with trade accounts receivable totaled $919 million at June 30, 2022. The receivable balance is before the allowance for uncollectible accounts, which totaled $12 million at June 30, 2022. The exposure includes trade accounts receivable from REPs totaling $617 million, which are generally noninvestment grade and from transmission customers totaling $68 million, which include investment grade distribution companies and cooperatives and municipalities, which are generally considered low credit risk. At June 30, 2022, REP subsidiaries of our two largest customers represented 25% and 23% of the trade accounts receivable balance, respectively. No other customers 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, liquidity, financial position and/or results of operation.

Our net exposure to credit risk associated with trade accounts and other receivables from affiliates was zero at June 30, 2022.

Except as discussed herein, the information required in this Item 3 is not significantly different from the information set forth in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K and is therefore not presented herein.

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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 risks, uncertainties and assumptions 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 2021 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 our actual results to differ materially from those projected in such forward-looking statements:

legislation, governmental policies and orders, and regulatory actions, including those of the U.S. Congress, the President of the U.S., the Texas Legislature, the Governor of Texas, the FERC, the PUCT, ERCOT, NERC, the Texas RE, the U.S. Department of Energy, the EPA, and the TCEQ, and including with respect to:

allowed rate of return;

permitted capital structure;

industry, market and rate structure;

rates and recovery of investments;

acquisition and disposal of assets and facilities;

ownership, operation and construction of assets and facilities;

changes in tax laws and policies; and

changes in and compliance with environmental, sourcing/supply chain, reliability and safety laws and policies;

legal and administrative proceedings and settlements, including the exercise of equitable powers by courts;

weather conditions and other natural phenomena, including any weather impacts due to climate change;

acts of sabotage, wars or terrorist or cyber security threats or activities;

health epidemics and pandemics, including the evolving COVID-19 pandemic and its variants and its impact on our business and the economy in general;

loss of key technology platforms;

economic conditions, including the impact of a recessionary environment, inflation, supply chain shortages, and labor availability and cost;

unanticipated population growth or decline, or changes in market demand and demographic patterns, particularly in the ERCOT region;

ERCOT grid needs;

changes in business strategy, development plans or vendor relationships;

changes in interest rates or rates of inflation;

unanticipated changes in operating expenses, liquidity needs and capital expenditures;

inability of various counterparties to meet their financial obligations to us, including failure of counterparties to perform under agreements;

general industry trends;

significant decreases in demand or consumption of electricity delivered by us, including as a result of increased consumer use of third-party non-wires alternatives or other technologies;

hazards customary to the industry and the possibility that we may not have adequate insurance to cover losses resulting from such hazards;

changes in technology used by and services offered by us;

significant changes in our relationship with our employees, including the availability of qualified personnel, and the potential adverse effects if labor disputes or grievances were to occur;

changes in assumptions used to estimate costs of providing employee benefits, including pension and OPEB, and future funding requirements related thereto;

significant changes in accounting policies or critical accounting estimates material to us;

commercial bank and financial market conditions, access to capital, the cost of such capital, and the results of financing and refinancing efforts, including availability of funds in the capital markets and the potential impact of any disruptions in U.S. credit markets;

circumstances which may contribute to future impairment of goodwill, intangible or other long-lived assets;

financial and other restrictions under our debt agreements;

our ability to generate sufficient cash flow to make interest payments on our debt instruments;

actions by credit rating agencies; and

our ability to effectively execute our operational strategy.

Any forward-looking statement speaks only as of 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.

There has been no change in our internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In May 2022, we filed a base rate review with the PUCT and the cities in our service territory that have retained original jurisdiction over rates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Regulation and Rates” for a discussion of that proceeding. We are also involved in other 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. For a discussion of certain of these proceedings see Notes 2 and 6 to the Financial Statements.

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 “Item 1A. Risk Factors” in our 2021 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.

‎

ITEM 6. EXHIBITS

(a) Exhibits provided as part of Part II are:
Exhibits	Previously Filed*	As
	With File Number	Exhibit

(4)	Instruments Defining the Rights of Security Holders, Including Indentures

4(a)	333-100240 Form 8-K (filed May 20, 2022)	4.1	—	Officer’s Certificate, dated May 20, 2022, establishing the terms of Oncor’s 4.15% Senior Secured Notes due 2032 and Oncor’s 4.60% Senior Secured Notes due 2052.

4(b)	333-100240 Form 8-K (filed May 20, 2022)	4.2	—	Registration Rights Agreement, dated May 20, 2022, among Oncor and the representatives of the initial purchasers of Oncor’s 4.15% Senior Secured Notes due 2032 and Oncor’s 4.60% Senior Secured Notes due 2052.

(10)	Material Contracts

	Credit Agreements

10(a)	333-100240 Form 8-K (filed July 8, 2022)	10.1	—	Term Loan Credit Agreement, dated as of July 6, 2022, among Oncor Electric Delivery Company LLC, as borrower, the lenders listed therein, Sumitomo Mitsui Banking Corporation, as administrative agent for the lenders and as sole bookrunner, a lender and a joint lead arranger, and the other financial institutions party thereto.

‎

(31)	Rule 13a – 14(a)/15d – 14(a) Certifications.

31(a)		—	Certification of E. Allen Nye, Jr., Chief Executive of Oncor Electric Delivery Company LLC, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31(b)		—	Certification of Don J. Clevenger, Senior Vice President and Chief Financial Officer of Oncor Electric Delivery Company LLC, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)	Section 1350 Certifications.

32(a)		—	Certification of E. Allen Nye, Jr., Chief Executive of Oncor Electric Delivery Company LLC, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32(b)		—	Certification of Don J. Clevenger, Senior Vice President and Chief Financial Officer of Oncor Electric Delivery Company LLC, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(101)	Interactive Data File.

101.INS		—	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		—	Inline XBRL Taxonomy Extension Schema Document.

101.CAL		—	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		—	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		—	Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE		—	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
(104)	Cover Page Interactive Data File.

104		—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

__________________

* Incorporated herein by reference.

‎

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 thereunto duly authorized.

!!

	ONCOR ELECTRIC DELIVERY COMPANY LLC

By:	/s/ Don J. Clevenger
	Don J. Clevenger
	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

Date: August 4, 2022

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Oncor Electric Delivery 10-Q2022 Q2 Quarterly report

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