A ring-fence is a financial and structural separation of a company from other entities in its ownership chain. The use of separateness provisions like ring-fences for businesses, and specifically electric utilities, is not unique to Oncor. They have been implemented for other electric utilities as a way to mitigate the risk that the utility would be negatively impacted by a financial loss or bankruptcy of its unregulated parent company or affiliate.
While Energy Future Holdings Corp. (EFH), as majority investor in Oncor, does have certain ownership rights, it does not have all the rights that typically are seen with majority ownership of a company. Oncor’s limited liability company agreement restricts EFH to only two members of the 11-person board of directors and also requires certain actions by the Oncor board to obtain independent board member approvals. Oncor’s board includes six independent directors, each of which qualifies as independent under New York Stock Exchange independence standards, and two of which qualify under an even more stringent “special independent director” test set forth in Oncor’s limited liability company agreement.