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March 21, 2005

Reflections on the Texas Pacific Case

On March 10th, the Oregon Public Utility Commission released its order denying the proposal by Texas Pacific Group to purchase Portland General Electric. CUB intervened in the case and represented PGE residential customers' interest by voicing many concerns about the deal. The main issues for CUB were:
1) The level of debt involved in the deal and how that affects the financial stability of the utility;
2) The modeling done in Texas Pacific's due diligence papers showed cuts on maintenance, investment and payroll costs in a way that could eventually harm the utility's service; and
3) Perhaps most importantly, the short-term investment business model would have kept PGE hanging in a state of transition.

CUB Executive Director Bob Jenks sat down to reflect on the case and had this to say:

"What we really found very quickly was that Texas Pacific officials had no interest in having a real dialogue about the long-term fate of PGE, what would happen when they were ready to sell. In fact, it became apparent that even the local business leaders they had fronting the deal had no say in what Texas Pacific would do with PGE. Most decisions would have been up to the Oregon Electric Utility board, with Texas Pacific able to veto them. The one exception to that was the end-game, and on this the local board didn't have any say. Texas Pacific didn't want anyone having any input on a future sale other than themselves, and it showed that the real motivation here was greed."

About the profile of Texas Pacific:

"Texas Pacific is not used to losing negotiations. Some have described them as the biggest investment firm you've never heard of -- they keep a low profile but they play to win. However, they've never purchased a regulated electric utility and they were woefully unprepared for the approval process in the State of Oregon. To the degree that they've dealt with regulation, it's been federal regulation of airlines and banking, and that's largely a captive of special interests, big business. That's not what they found with Oregon's PUC process.

"Texas Pacific had no idea how to deal with CUB, AOI (Assoc. Oregon Industries), ICNU (Industrial Customers of Northwest Utilities), RNP (Renewable Northwest Project), and low income advocates, who are the stakeholders at the table with a regulated electric utility. They wished we would just go away so they could negotiate with the PUC staff. At the same time, the PUC staff was attempting to treat this like the other mergers and acquisitions Oregon has seen. They refused to consider that Texas Pacific was different, that the short-term ownership was relevant. The PUC order makes clear that the Commissioners thought it was relevant, and hopefully that sends a message to their own staff to think a little more broadly next time."

About what CUB learned from this case:

"The first thing that CUB learned is that we can stop these things. Conventional wisdom has said that the PUC is never going to say no, and the game is all about setting acceptable conditions. But CUB made the decision early on that this deal was so bad that our goal was not to get the Commission to put conditions on it -- our goal was to get the Commission to say no. The Commission has never said no before, but this time they did.

"The other thing this case reinforced is that the public cares, and is paying attention. The public may not be an actual party to the case, but the hundreds of emails the public sent, and the general climate of public opinion had an effect. That is also reflected in what's happening in the Legislature right now. [Hearings have been held on the fate of PGE and a bill, SB 1008, has been proposed to set up a state-owned utility to purchase PGE.] PGE has been up for sale by Enron for several years and there's been little interest in the Legislature, but now with the public interest, suddenly there is activity in Salem. When the people lead…

"Finally, I want to say that when the Commission denied this proposal, we heard by email, by phone calls, by letters, and by gifts of champagne, that people recognized and appreciated our leadership on this. This case has dominated our time since it really got going in February 2004. We have put in well over 1000 hours and filed hundreds of pages of testimony and other documents, in addition to making ourselves available to the media. Hearing from people at the end is really gratifying and we really appreciate that.

"At this point, we don't expect TPG to continue this fight. If they do, we'll be happy to square off with them again."

Posted by Oregon CUB at 02:46 PM

March 11, 2005

CUB Praises PUC Ruling on TPG

The Citizens' Utility Board of Oregon (CUB) praised the Oregon Public Utility Commission's rejection of Texas Pacific Group's bid to purchase Portland General Electric (PGE) today. "This was the only decision the Commission could reasonably make based on the evidence and the law," stated Bob Jenks, CUB's executive director.

In a case that has attracted national attention, CUB argued vehemently that Texas Pacific's short-term business model was not in customers' interest, and was designed specifically to take advantage of the regulatory system to earn excess profits for its investors. Jenks points out that, "a combination of profits from double-leveraged financing, collecting taxes that don't get paid to government, the upheaval of yet another sale in a few years, and the short-term incentive to cut maintenance and investment expense is a recipe for ratepayer abuse." It is also a recipe, Jenks noted, for losing PGE to an outside buyer who could easily decide to move the headquarters of this landmark Oregon business.

Every single customer representative group opposed Texas Pacific's proposal, and there was a general public outcry against the deal as well. Jason Eisdorfer, staff attorney for CUB, noted that, "The Commission's decision shows that the law and the regulatory process are working the way they're supposed to."

CUB is quick to point out that the future of PGE is still to be determined. "Now customers need to rally around and decide what we want for PGE's future," said Jenks. The Commission's rejection of Texas Pacific's application opens the door to a number of alternate possibilities for PGE, including the purchase by a newly formed regional power authority or the City of Portland, or a public offering of PGE's stock after its distribution to Enron's creditors.

CUB welcomes the Governor's leadership in exploring and promoting the best path to a more secure utility for PGE customers.

Regardless of PGE's eventual disposition, CUB applauds the Commission for its strong statement about appropriate utility ownership, and its rejection of Texas Pacific's proposal which offered customers neither the rate-reduction nor the stability they need.

Posted by Oregon CUB at 01:34 PM