Previously the sale was approved by the public utility commissions of Utah, Idaho, Washington, Wyoming and California.

Posted by Oregon CUB at 02:11 PM | Comments (0)

January 06, 2006

MidAmerican Case Reaches Settlement Agreement

A lot happened over the holidays, and if you weren't deliberately avoiding the newspapers (we did some of that ourselves), you may have heard the news: The MidAmerican offer to purchase PacifiCorp (Pacific Power here in Oregon) from ScottishPower was settled in late December. The parties to the case, including CUB, the Industrial Customers of Northwest Utilities, and the Staff of the Public Utility Commission, reached a Settlement Agreement that should allow MidAmerican Energy Holdings Co. to move ahead with becoming the new owner of PacifiCorp.

The current owner of PacifiCorp, ScottishPower, is a multinational corporation that has expressed interest in selling PacifiCorp, and which has itself been under threat of takeover. The end result of the MidAmerican case might have looked very different had PacifiCorp been a stand-alone company -- our approach to it would certainly have been different. In this case, however, the choice was between the current international corporate holding company and a potential national holding company. The devil, as they say, was in the details.

And the details of this Settlement include substantial commitments from MidAmerican on a number of fronts that are important to Pacific Power customers. MidAmerican made 53 commitments to all the states within the PacifiCorp territory (Oregon, Utah, Idaho, Wyoming, California, and Washington) and another 34 commitments that were negotiated by Oregon parties for the benefit of Oregon customers (on issues such as global warming, low-income assistance, access to information, and more). The most important commitments include:

1) Rate Credits: MidAmerican has promised $143 million in rate credits for customers, $40 million of that just for Oregon, most of those credits to be given within the next 5 years. All of these credits for all states were won in settlement negotiation by Oregon parties. This is not a large amount of money per customer, but does force MidAmerican to think about cost efficiency issues. In addition, the strong arguments of CUB and PUC Staff about customer rates and a real "net benefits" standard forced MidAmerican to give a more in-depth analysis of their proposed investment strategy for the utility. This analysis shows that many of their investment plans were not significantly different from the plans already in place under ScottishPower. Most importantly, this means that rates for Pacific Power customers are expected to be lower under MidAmerican ownership than they would have been under ScottishPower.

2) Developing Renewables: CUB has made addressing the issue of global warming emissions resulting from energy production a larger part of our mission. We took that new sense of urgency into these settlement negotiations and are happy to report that MidAmerican responded with some meaningful renewable energy commitments. MidAmerican has committed to developing almost 300 megawatts of new renewable energy by the end of 2007. For perspective, this is more renewable power than PGE and Pacific Power have purchased, together, in the past five years. In addition, MidAmerican has affirmed their support for the conservation and renewables programs managed by the Energy Trust of Oregon. Finally, MidAmerican has said they will turn over the steam rights to the Blundell Geothermal Plant in Utah to PacifiCorp, at no cost, making it possible for PacifiCorp to pursue expansion of this plant.

3) Local Control: Maintaining a reasonable amount of local control became a ground level issue for CUB, as we examined the dangers not only inherent in holding company structures, but how those dangers were exacerbated by last year's repeal of the Public Utility Holding Company Act of 1935. MidAmerican has stated that PacifiCorp headquarters will remain in Oregon. They also were responsive to concerns about PUHCA repeal, agreeing to retention of, and access to, records at both MidAmerican and at Berkshire Hathaway (which owns MidAmerican). MidAmerican also agreed to provide "ring-fencing" around PacifiCorp, a method of financially and structurally protecting the utility from any economic trouble suffered by either holding company. Finally, it was agreed that Warren Buffet (who owns Berkshire Hathaway) would exercise no control over the PacifiCorp, nor could his heirs inherit a power of control over the utility.

Part of the test of any merger or acquisition case is whether the people at the purchasing company are people you can work with. We found the negotiating staff of MidAmerican to be more creative and willing to find common ground solutions than ScottishPower has been.

By working out this Settlement agreement, we at CUB are not advocating ownership by a large holding company as our preferred utility model, by any means. The choice in this case was whether to stay with Scottish Power ownership, ownership which has pushed hard for higher rates almost every year, or whether to allow the purchase by MidAmerican to go through. CUB staff worked hard on these negotiations during the first 3 weeks of December. We believe the deal we worked so hard to reach is one that will offer some real improvements, or in PUC lingo, some real "net benefits" to Oregon customers.

Posted by Oregon CUB at 10:15 AM | Comments (0)

December 20, 2005

Settlement Discussions in MidAmerican Case

The MidAmerican case is down to the nitty gritty of settlement discussions. Is there enough creativity and flexibility among the applicants at MidAmerican and among the parties here in Oregon, to make a deal? Settlements have been reached among most parties for MidAmerican purchase of PacifiCorp holdings in Utah, California, and Idaho. We in Oregon are holding out for hard discussion of some of the issues we hold to be most important:

1) Will there be any kind of rate credit or assurance of sharing potential cost savings with customers? MidAmerican has argued that because this is an acquisition offer, not a merger offer, most of the usual costs savings would not apply. We understand this argument but continue to believe that some sign of good faith in rates is a strong component of a good deal.

2) Will Oregon maintain a fair amount of local control? There has been discussion about moving PacifiCorp headquarters to Utah. CUB would like to see those headquarters remain here in Oregon.

3) Global warming is here and it isn't going to change course without serious action to reduce our levels of greenhouse gas emissions. MidAmerican and PacifiCorp have both historically produced the majority of their energy using coal. What kind of renewables plan and global warming plan are they willing to commit to?

The settlement discussions are continuing and may come to a close before the new year. Because current Pacific Power owner ScottishPower has expressed interest in selling the utility, it looks as though change of some sort is definitely coming to Oregon's second largest electric utility company. CUB will continue to push for the best possible deal for PacifiCorp customers.

Posted by Oregon CUB at 02:08 PM | Comments (1)

November 22, 2005

CUB Files Testimony in MidAmerican Case, Finds No Net Benefit for Customers

Yesterday CUB filed its Opening Testimony in the Merger Application Case of MidAmerican Energy Holding Company's (MEHC) proposed purchase of PacifiCorp, known locally as Pacific Power & Light. CUB's position was that "MEHC's proposed acquisition, as proposed, fails to provide customers with a net benefit."

We came to this conclusion by examining the following factors:

MEHC has offered as the major benefit of this purchase the commitment to invest a large amount of money in PacifiCorp's infrastructure. We are concerned that this "investment exuberance" is not balanced by a concern for the effect on rates; in fact we argue that MEHC has shown in its initial filing an "utter lack of concern either for the operations of PacifiCorp or for the effect of this dynamic on rates." We point out in our testimony that, with 6 of these merger application cases in the past 8 years, we do have a fair amount of experience that would lead us to expect more in the way of concern for the financial impacts on customers.

We also wonder "if PacifiCorp can be adequately protected" without the legal protections of the Public Utility Holding Company Act (PUHCA) which was enacted in 1935 specifically to address the dangers of megacorporate takeovers of utility companies, such as this one. In the early 1930s, many utilities went bankrupt due to complicated corporate structures and carrying debt for riskier businesses. Warren Buffett (the nation's second richest man) owns Berkshire Hathaway which owns MEHC, and was instrumental in repealing PUHCA this year so that he could expand his empire to include utilities. We want to make sure that we really enact the power of the stronger state regulation that was touted as a good reason for doing away with the federal regulatory protections of PUHCA.

Finally, we talk about the fact that "Warren Buffett, Berkshire Hathaway, and MEHC have demonstrated a decided lack of leadership in addressing environmental issues, most notably the looming threat of global warming."

When we crunched the numbers we found that this purchase could lead to a $77 million harm to customers rather than the $200 million benefit that MEHC claims. Interestingly enough, the Public Utility Commission Staff, in their Testimony also found a net financial harm to customers that could result from the purchase rather than the promised net benefit.

The Oregonian published an article today about this filing, "PUC staff recommends against MidAmerican." You can read our Opening Testimony here.

Posted by Oregon CUB at 03:50 PM | Comments (0)

October 14, 2005

CUB Filing MidAmerican Comments Today

As you probably know, MidAmerican Energy Holdings Company, owned by Berkshire Hathaway, owned by Warren Buffett, is the latest suitor at the Oregon electric utility debutante ball. MidAmerican wants to purchase PacifiCorp (Pacific Power here in Oregon) and has the enthusiastic approval of current owner ScottishPower. This suitor has brought a substantial bouquet, promising long-term ownership and plenty of capital investment. Still, there are issues that have CUB concerned.

In our comments filed today on the MidAmerican case (UM 1209) with the Oregon Public Utility Commission, CUB addresses the following of those issues:

1) First and foremost, CUB would like to know what effect this purchase, and the large amounts of capital investment proposed, would have on customer rates. Already PacifiCorp is forecasting rate increases of 4% a year, every year into the foreseeable future. We know the Buffett/Berkshire/MidAmerican plans would mean even higher increases, but we don't know exactly what those would look like. In our comments we state, "there is, without exaggeration, not a single direct reference to the affordability or reasonableness of rates for PacifiCorp customers under MidAmerican ownership" in their application. We applaud MidAmerican's willingness to invest in the company they wish to purchase, but that must be balanced by a realistic look at how customers' rates would be impacted.

2) Also, our research shows that MidAmerican has been able to achieve a higher profit, or rate of return, in Iowa, than is allowed under Oregon utility regulations. The regulated system does include opportunities for manipulating larger profit margins that simply aren't accounted for under the regulations (such as double leveraged holding company structures, and the phantom tax situation we passed SB 408 to rectify). CUB would like to make sure that Oregon customers will not be paying an inflated rate of return to MidAmerican shareholders.

3) CUB is asking the Commission to consider carefully the issue of power shifts: "This application presents two types of loss of local control and input: loss eastward toward Salt Lake City, Des Moines and Omaha, and loss upward to increasingly larger and more distant corporate layers." Oregon has worked hard to develop what is perhaps the finest renewable and energy efficiency programs in the country. We don't want to lose them because some executives we never see from Iowa do not believe they are important. Job shifts to Utah are also at issue. And of course, whenever the corporate structure expands, it can become infinitely more difficult to get the information you need, reach the person you need, or have a problem addressed.

4) Finally, the repeal of the Public Utility Holding Company Act of 1935 (rest in peace) leaves utility customers "like a snail out of its shell... now exposed to massive holding companies seeking to increase profit by any means." Warren Buffett is already a rich man with a large empire. If PacifiCorp should become a part of that empire, and should it expand even further as he seems to have planned, we need the Commission to be setting conditions now to protect customers later. For example, we believe the Commission should set conditions guaranteeing preservation of, and access to, information regarding investments and rate setting. That will not level the playing field between international mega-corporations and Oregon utility customers, but it is a way to keep track of what is really going on with our utility.

This case is really just getting going. We file with the PUC today, and will be interested to see the response to our concerns. A copy of our actual Comments can be accessed here.

Posted by Oregon CUB at 02:00 PM | Comments (0)

September 16, 2005

Autumn brings movement in utility ownership

PGE Stock Distribution and Rate Reduction

As the summer ends, CUB is wrapping up a PGE RVM (resource valuation mechanism) case, UE 172, in which we won a reduction for PGE customers of $3.75 million for 2006. This case contained some hard issues involving Company attempts to charge customers twice for the same cost, to apply to residential customers costs that should apply only to industrial customers, and a general attempt to push rates up beyond what we felt was reasonable. We are pleased with this reduction in rates for the coming year and hope that you are, too.

As temperatures outside start to drop, the tenor of utility purchase negotiations is heating up. After months of research and negotiation, CUB signed the Agreement for PGE's Stock Distribution Application, UM 1206 (talking points here). The application, which awaits PUC approval, would pave the way for PGE to become an independent, publicly traded utility once again. We fought for, and received, conditions that improved the terms of the stock distribution, and feel that the outcome yields a better risk/benefit position than sending PGE back to Enron and the bankruptcy court. While we would have preferred that PGE be sold to the City of Portland, that deal was rejected by Enron's bankruptcy management team. Since that rejection, the stock distribution is the best of the options left open to us.

After running a fairly comprehensive series of articles regarding the Texas Pacific purchase attempt of PGE, Portland-based Willamette Week ran a rather disappointing cover story this week on the current stock distribution case. The author's insistence that this deal is worse than that offered by Texas Pacific only goes to show that people have already forgotten how bad the Texas Pacific proposal truly was. It also indicates a lack of clarity on the legal restrictions of the regulatory process.

CUB takes every opportunity that actually exists to fight for customers' access to better service at a better price, and the reason we are so successful in this advocacy is because we understand and respect the process, both its real opportunities and its real limitations. Look for CUB's more complete response to the WW cover story next week.

MidAmerican Public Meetings

Another high profile case, the MidAmerican proposal to purchase PacifiCorp, is also getting ready to take off. Several meetings have been scheduled for public comments:

If you have a chance to attend one of these meetings, please do. The more people turn out to see what's really going on with their utility, the better the chance that that utility won't be caught in a bad bargain.

Posted by Oregon CUB at 09:55 AM | Comments (0)

September 06, 2005

Oregonian Runs CUB Opinion Editorial on MidAmerican Proposal

Yesterday, the Oregonian ran CUB Utility Analyst Lowrey Brown's Op-Ed piece on the upcoming MidAmerican PacifiCorp merger proposal, "PacifiCorp acquisition shouldn't be rubber-stamped." The piece outlines some of CUB's concerns regarding the proposed deal, emphasizing that, unlike other industries in which Warren Buffett has invested, utility customers do not have full freedom of the market: "[T]hey're captive. Electricity... is a basic necessity of daily life." The centrality and importance of this basic service is underlined by this past week's devastation in Louisiana and Mississippi, where lack of electricity services intensified an already very dangerous situation.

Please take a look at the article, either at the direct link above, or through our website, www.oregoncub.org/currentnews.

Also, don't forget that tonight is the night Al Gore is coming to town. He'll be discussing global warming in a multimedia presentation at Portland's Convention Center. See below for details.

Posted by Oregon CUB at 12:43 PM | Comments (0)

May 27, 2005

Here we go again! MidAmerican Offers for PacifiCorp

More unexpected utility news hit the streets just this week. We had only begun to clear our offices of the mountains of data that went into Texas Pacific's attempted purchase of PGE (which CUB helped to foil), when we heard that a new potential deal was on the table. Warren Buffet's MidAmerican Energy Holdings Co. has reached an agreement with Scottish Power on an offer for PacifiCorp, Oregon's second-largest electric utility company.

CUB's staff attorney, Jason Eisdorfer, was quoted on the issue in the Oregonian Wednesday: "The [regulatory] process is legally robust and the participants are mature. There's not a whole lot of naivete with regards to this stuff. We're all well-versed." In other words, we're ready to go 'round again. (Read full article here.)

We will look with interest to see what is in MidAmerican's initial offering. However, we already have noted with concern that PUHCA, the Public Utility Holding Company Act, a 70-year-old federal law that prevents corporations from using utility ratepayers as pawns in corporate speculative ventures, is in danger of being repealed. With PUHCA repealed, nothing would deter Buffet from continuing to purchase utility companies and creating a huge mega-utility that could create a risk of catastrophic structural failure for utility customers. And it also has not escaped our attention that lobbyists for Warren Buffet are part of the charge to convince Congress to dismantle PUHCA.

So we will wait and see what his company's offer includes, and we will address it on its merits, looking out for Oregon residential ratepayers.

Posted by Oregon CUB at 03:30 AM | Comments (0)