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 12, 2005

PGE Stock Distribution: "You go to the PUC with the Utility you have..."

The Citizens' Utility Board of Oregon has been active over the course of the past few years in helping chart the best possible course for the future of PGE, from the perspective of the residential ratepayers it is our job to represent. Given the facts before us, the acceptance of the Portland General Electric application for stock distribution was the best possible outcome at this time. As CUB Executive Director Bob Jenks says, "You go to the PUC with the utility you have, not the utility you wish you had." Further talking points about this case include the following:

1. While CUB continues to believe that ownership of PGE by the City of Portland would provide customer benefits, this docket was not about that. This docket was wholly concerned with whether Enron will "spin off" PGE (by means of a stock distribution) which could result in an independent utility once again, or whether to tell Enron they must find another buyer for PGE. With the repeal of PUHCA, there are significant risks to asking Enron to make a new attempt to sell PGE. The PUC cannot tell Enron to sell it to Portland, they can only say, "Don't spin it off, you must sell it to someone."

2. CUB successfully opposed the sale of PGE to Texas Pacific Group. During that case we argued that either a sale to the City of Portland or a stock spin-off to an independent utility were preferable to ownership by Texas Pacific. By working to defeat that proposed sale (which we felt to be not in the best interests of customers), we helped create the opportunity for negotiations between the City of Portland and Enron, and we are disappointed that these negotiations failed. With the failure of that option, the spin-off to an independent PGE is the best option available. During this process, the City has done a great deal of work exploring how best it could govern such a utility. We hope the City will retain its planning, and continue to remain a possible purchaser if PGE is put up for sale in the future.

3. We continue to be concerned that, with PUHCA repeal, there will be a consolidation of the electric industry and PGE may not remain an independent locally-headquartered company. But that is also the consequence of denying the application to spin off PGE. If it is sent back to Enron (which is itself in a state of bankruptcy and dissolution), they cannot keep PGE, so they would be forced to sell it to someone.

4. The spin-off does not involve rate reductions and rate credits. In the past such credits have been granted for one of two reasons: 1) To guarantee to customers that the anticipated savings resulting from the reduction in costs associated with two utilities merging (synergies) will actually happen and will actually flow to customers; or 2) to offset the risks associated with a transfer in ownership, including the risk of imprudent cost-cutting, the risk of new management not understanding Oregon energy policy, and the financial risk associated with the debt that is used to finance the purchase of a utility company. This application does not involve either synergies or new risks. In fact, because there are significant risks associated with the uncertainty of staying with Enron and having it dispose of PGE in some other manner, this application will reduce risk.

5. CUB has continued to work for rate reductions within the dockets where it is appropriate and possible to do so. For example, in PGE's current rate case, UE 172, we have successfully lowered next year's rates by $3.75 million. It is in this arena, of dockets before the PUC dealing with rate regulation, that CUB can make a difference in protecting customers' pocketbooks, not in this Stock Distribution Application Docket.

6. The new utility tax policy (SB 408) reduces the likelihood that someone will come in and buy PGE as a means of acquiring a tax loophole. Under the old policy, an Oregon utility was more valuable as a piece of a larger company than as an independent stand-alone utility, because the large owner could take advantage of the tax loopholes allowed by Oregon to earn significantly above the state-authorized rate of return. Under the new policy, this loophole is closed. This means the value of PGE to independent shareholders should be equivalent to its value as a piece of a larger company and will reduce the likelihood that someone will offer a premium to purchase it from PGE shareholders.

7. CUB wishes we could guarantee that PGE's spin-off into an independent, Portland-headquartered company was an end-state. Unfortunately, we cannot. In the final analysis, there is greater uncertainty associated with denying this application than there is with accepting it.

Posted by Oregon CUB at 03:14 PM | Comments (0)

July 25, 2005

Where things now stand with PGE

How can a bankrupt company have that much say over how their assets are distributed?

A CUB member who's been paying attention to the saga of Portland General Electric in transition sent us the above question, in regard to Enron's decision to end negotiations with the City of Portland over a purchase of PGE. We thought it was an excellent opening for a general discussion of where things now stand.

Enron Corporation, which purchased PGE back in July 1997 (exactly 8 years ago) no longer exists as an independent going concern. Enron filed for bankruptcy 3-1/2 years ago and is now subject to a reorganization plan approved by a U.S. bankruptcy court in New York. Stephen Forbes Cooper is a professional specializing in bankruptcy management hired by the Enron estate, who represents Enron and makes decisions on behalf of Enron (the estate) without having been an employee of Enron Corporation. Enron now exists to distribute its assets to its creditors.

Currently, the value of the creditors' claims against the Enron estate is higher than the value of Enron's assets. Creditors have been told to expect to receive between 15% and 30% of their claims. Since PGE is one of Enron's remaining valuable assets (estimated net book value of slightly over $2 billion), there is much focus on both maximizing its value for creditors and also distributing that value to creditors as soon as possible. These goals, of course, played a significant role in the decision by Cooper to end discussion with the City of Portland over the purchase of PGE. Cooper and the rest of the group managing this bankruptcy have decided that stock distribution holds less risk than a potential City of Portland purchase. (The City being unwilling or unable to pay a $50 million surety on the deal was apparently one deciding factor in the end of negotiations.)

Within the next 6 months or so Enron will apply to the Securities & Exchange Commission (SEC) for permission to issue new common stock for PGE, equaling about 62 million shares. Once approved by the SEC, PGE will then issue those shares and will become an independently traded company on the stock exchange. It is expected that about 30% of the shares will be distributed directly to the creditors; the remaining 70% will be held in a Reserve to be overseen by Cooper for the settlement of remaining unresolved liabilities. Shares will continue to be released to creditors in chunks until the process is complete. As long as Cooper, as the Agent of Enron, holds a majority of stock, he also will have a majority voice in shareholder votes made on behalf of Enron and its creditors. This would include voting for Board Members and decisions regarding the sale of PGE to a third party, but not the day-to-day management decisions regarding PGE operations. By 2008, Cooper is expected to have distributed 70% of the shares and hold only 30% in Reserve, which would diminish his majority power but still remain a significant influence. The entire process could therefore go on for years, although the possibility exists for an entity to purchase PGE before the distribution is complete.

In the short term, we expect to see a turnover in the sitting Board of Directors for PGE by April 2006, concurrent with the stock issuance. This change in leadership offers an opportunity for either stabilizing current directions in PGE operations and management, or for making large changes.

The bigger issue surrounding the future of PGE and its effects on customers is the upcoming repeal by Congress of the Public Utility Holding Company Act. PUHCA creates protections for customers against high-risk utility owners. When those protections are no longer in place, we expect a consolidation of electric utilities (as we have seen in the telecommunications industry), and this would likely mean the loss of PGE as a stand-alone, Oregon-headquartered company. If PUHCA is repealed, then PGE will probably be acquired by a larger entity and may become part of someone's electric utility empire -- not a healthy situation for the industry that is the backbone of our economy, since there could be a falling domino effect should the parent company get into financial trouble. Larger utility structures also exacerbate an already-existing problem of making utility companies pay attention to local issues like rates, quality of service and long-term energy policy.

Our options for the future of PGE are now fairly limited, at least in the short term. Enron has filed a request with the Oregon Public Utility Commission for approval of their stock distribution plan, hoping to sell shares on the open stock market. Beyond this proceeding, any buyer of more than 5% of PGE's shares would have to file a separate application for approval; in this way, no one entity can gain a deciding interest in our utility without undergoing PUC scrutiny.

The PUC approval process is based upon looking at the benefits and risks to customers of any particular change of control in utility ownership. We take the law's "net benefit" standard very seriously, and we will examine Enron's filing looking for both risks and benefits. We will work to make sure that the final Commission order will further both the customers' and the public's best interest.

Posted by Oregon CUB at 02:36 PM | Comments (0)

July 22, 2005

Wrapping up the options for PGE

Well, there's been action on many fronts in the past few days, most of it having to do with the future of Portland General Electric. Enron announced the end of discussion with the City of Portland regarding the City's proposal to purchase PGE (read articles here). This was a disappointment, since we at CUB felt that public power would have been the best outcome for the customers of PGE. Though this public power bid began as a long shot, through the hard work of many people (including CUB staff), this became a viable option. We hope the City will keep their eyes open and the work they did close at hand, since no one knows what changes will occur to PGE's ownership in the future.

Also this week, the Governor has vetoed SB 671, the Mutual Utility Bill, and says he plans to do the same with SB 1008, the Oregon Community Power Bill. We worked hard to help write SB 1008 and are disappointed also that this bill did not fulfill its promise to become a successful vehicle for a local and publicly-owned PGE. However, we understand that the Legislative process is one full of surprises, twists and turns that are in the control of no one particular group or even politician. We do appreciate Governor Kulongoski stepping up to veto bills not in the best interest of PGE customers.

The remaining option on the table is stock distribution, an outcome favored by Enron and many local businesspeople. We wish to send a cautionary note to those who want to see an independent, privately-owned PGE as the end result: the law that has regulated utility structure and protected consumers for 70 years, the Public Utility Holding Company Act (PUHCA), is on the verge of being repealed by our sitting Congress. When that happens, we expect to see a flurry of activity around investment in utility companies, investment of the sort that has been illegal for most of the past century. We think it very unlikely that any independent PGE resulting from stock distribution will last long without attempts being made once again to purchase our utility.

That said, we believe that of the many options discussed for PGE since Enron began the bankruptcy process 2 years ago, the worst would have been a purchase by Texas Pacific Group, and that was successfully challenged and defeated by CUB and others. The best would have been a well-structured and responsibly-governed public power version of PGE, but it seems clear that that will not be the result in this round of changes. The middle road is what we are left with.

We still have many unknown variables ahead, but this result is one we can live with, and of course CUB will stay engaged in the process of whatever happens to Oregon's largest electric utility company.

Posted by Oregon CUB at 02:47 PM | Comments (0)

July 20, 2005

Governor Vetoes the Mutual Utility Bill

Governor Kulongoski today used the power of the pen to veto SB 671, the Mutual Utility Bill. CUB has been strongly opposed to the Mutual Utility Bill, and is relieved that this utility model, which left much of its regulation and governance structure unexplained, will not be foisted upon Oregon ratepayers.

We appreciate the Governor's strong stand for customers and hope that he will look with an equally critical eye upon SB 1008, the Oregon Community Power Bill, another bill which legislators passed, despite its containing a provision that harms residential customers in the PGE service territory. (See below.)

Thank you to all the CUB supporters who have contacted the Governor during the past few weeks. Your voices were heard!

Posted by Oregon CUB at 04:20 PM | Comments (0)

Politics and the Future of Oregon Community Power

Back at the beginning of the 2005 Legislative Session, CUB was excited about the prospect of a State-led purchase of Portland General Electric. We participated in the development of Oregon Community Power, even helping write the bill, SB 1008. And we think it's all there: strong structure, responsible ratemaking, good governance.

Unfortunately, existing public power districts, led by the State's co-ops, opposed federal hydropower benefits for Oregon Community Power. They inserted language into the bill that would take away even existing levels of benefits, resulting in a potential 15% power cost rate hike for PGE customers. This bill passed the Senate, passed the House, and received a concurrence vote from the Senate today.

We had hopes of fixing the language in 1008 that hurts customers. In fact, we were assured by its sponsor that we would have a chance to fix the rate hike language when the bill was discussed in the House. Well, we were denied that chance, which is a blow to PGE customers and proponents of public power.

PGE customers should receive the hydropower benefits they currently get. Otherwise, the public power benefits of the bill could be offset by a significant rate hike. We had hoped that the bill would be revised in the Senate to remove the rate hike, but Senators today did not make this happen, and so we will ask the Governor to veto it. As always, you are welcome to add your voices to ours (Governor Kulongoski's number is 503-378-4582).

With the mutant utility bill already on the Governor's desk (yes, this is our second time this session to ask Governor Kulongoski to veto a bad bill), and the tax reform bill still struggling in the House, this could go down as the most anti-utility-consumer session in history. It just goes to show us how very much we need our utilities under stable ownership, providing the best-cost power available, with an eye to Oregon's energy future.

Posted by Oregon CUB at 03:57 PM | Comments (0)

July 15, 2005

CUB Letter to Governor Asking for Veto of SB 671

Here is the letter we sent to Governor Kulongoski (one of many customer group letters) this week asking him to veto SB 671, the Mutual Utility Bill.

Posted by Oregon CUB at 04:01 PM | Comments (0)

July 11, 2005

Oregon House Passes SB 671 -- CUB Hopes for Governor's Veto

The Oregon House of Representatives voted late yesterday to pass the business-backed proposal to turn PGE into a "hybrid" utility, the first of its kind. CUB has expressed concern about the bill over the past few months, due in large part to the backers' inability or unwillingness to answer detailed questions about what input customers would truly have over what is being called (see quote below) a "customer-owned utility."

Dozens of CUB members responded to our requests last week for messages and calls to their Representatives in the House and to Governor Kulongoski. Well, as they say, it ain't over yet. Keep those calls flowing to the Governor -- we think a veto is still well within reach. But he needs to know people are watching this issue! Governor Kulongoski can be reached at (503) 378-4582 or Write the Governor.

We aren't the only consumer advocacy group up in arms about this bill. OSPIRG is also weighing in, and we're glad to have them fighting alongside us on this issue. (See OSPIRG's blog entry here.)

PGE bill on way to governor: Legislation designed to help business interests buy PGE and convert it to a hybrid public-private utility passes the House

Oregonian, Monday, July 11, 2005

SALEM -- With legislative leaders continuing to negotiate a final budget deal, the Oregon House met Sunday evening to approve a short list of bills, including one that could aid the conversion of Portland General Electric to a consumer-owned utility...

In its first floor session in four days, the House's most significant vote was to approve Senate Bill 671, which would set up a financing method for a group of investors to buy PGE and convert it to a customer-owned utility...

House members expressed reservations about the financing method, saying they worried it could increase PGE customers' rates. They also noted that a variety of consumer and industry groups opposed the legislation.

"SB671 is risky business, and I ask you not to gamble with Oregon's future," said Rep. Chip Shields, D-Portland.

Kudos to Rep. Shields for recognizing a risk when he sees one. We sincerely hope the Governor is also looking at the details of this deal.

Posted by Oregon CUB at 11:35 AM | Comments (0)

July 05, 2005

Unanswered Questions About Mutual Utility

Below are a list of questions we sent to backers of the Oregon Mutual Utility Bill, Senate Bill (SB) 671, on April 13, 2005. We have not yet received answers to these questions, and are therefore asking our members and all Oregon ratepayers to call their Representative (503-986-1000) telling them to Vote No on SB 671, and call Governor Kulongoski asking him to veto the bill if it reaches his desk (503-378-4582).

Questions As To The Application Of The Mutual Utility Construct

Regulation
1. What exactly would the PUC regulate, and how would it enforce its regulation?
2. What role would the Board have in approving any filing to the PUC? Because the PUC can't disallow costs, this would seem to be the critical step in setting the utility's policies and rates. Would customers and members of the public have access to this process?

Governance
3. You have already selected five board members.
a. Who was involved in selecting these five board members?
b. What is the rationale for having the initial self-selected board members picking the rest of the Board and this Board choosing new nominees to the Board? How does this foster a true election process? How does this support diversity of representation?
c. Are all 9 members subject to an election by customers?
d. Will board elections be contested (i.e., will customers have a choice of more than one candidate)?
e. Will customers separately elect each board member or will they be presented with a slate for the entire board that is currently up for election?
f. You state that, "customers will have the opportunity to propose alternative names" for the board. Would they make these recommendations to the nominating committee? How and by whom would these nominees be evaluated?
g. According to your Governance description, the governance structure is designed to represent the interests of all stakeholders. How is the governance structure designed to represent the interests of all stakeholders?
h. How will the nominating and corporate governance committee, which recruits and proposes board members, represent the interests of all stakeholders?
4. Could the board decide to forgo member elections or member nominations?
5. Would OMU be subject to the open meetings law and/or the public disclosure law?

Taxes
6. Your response to the Governor's task force says that you would not pay "federal income tax on retail sales to customers."
a. Are you saying that this entity would be tax-exempt? If not, what does this statement mean?
b. How would OMU be treated under the federal tax code and what sections of the tax code would apply to a mutual utility?
7. OMU claims that it will pay $12.3 million per year in state income taxes.
a. What is the basis for this figure?
b. What is the legal rationale for paying little or no federal taxes but significant state taxes?
c. Are there other entities that pay significant state income taxes but little or no federal taxes?

Rates
8. In your response to the Governor's task force you state that, "[b]ased on PGE's performance and conditions in 2004, OMU anticipates that after the transition to mutual ownership, the utility's refunds to its customers should be equal to or greater than the anticipated acquisition charge."
a. What analysis supports this statement?
b. 2004 was a reasonably good year for PGE, would your conclusion hold true in a year that PGE did not have a strong financial performance?
9. In your response to the Governor's Task Force you state that, "under mutual ownership PGE may reinvest net income in its system to ensure safe, reliable, low-cost power, and make refunds to its customer-owners. OMU anticipates these decisions will be made through a collaborative process involving PGE, its customer-owners and the OPUC."
a. What are the details of this collaborative process?
b. What would be the role of the PUC Staff, the PUC Commissioners, and the mutual utility's board of directors?
10. You state that, "each member's interest in refunds is based upon the customers' size as determined by the customer's actual usage, related to the cost of generation and distribution less fuel costs and purchased power."
a. What is meant by a customer's actual usage, and how would you determine a customer's actual usage related to distribution?
b. Based on this concept, what would be the expected division of any refunds between residential, commercial, and industrial customers?
11. You state that the PUC will set rates. When the PUC sets rates, what it actually does is determine which costs in a utility's budgets can be recovered from customers and which costs must be borne by shareholders.
a. What does PUC rate-setting mean for a utility without shareholders, where customers must absorb all the costs and risks, regardless?
b. If the PUC thought an expense was not justified, what action could it take?
c. Under current law, could the PUC approve rates that include costs that it did not believe were prudent?
d. The current statutes that provide the PUC with its regulatory power deal with issues like prudence and balancing the interests of shareholders and customers. What changes in PUC regulatory authority would be necessary to allow it to regulate a mutual utility?
12. You state that the cost of interim financing can be avoided if the legislation is approved allowing for the use of securitization before OMU's purchase is finalized. You also state that once the enabling legislation is completed, OMU will issue the securitization bonds to repay interim investors.
a. With interim financing, when will customers begin paying for the securitized bonds? Without securitized financing, when will customers begin paying for the securitized bonds?
b. Are there circumstances under which customers would begin paying for the securitized bonds, before the deal is fully approved? If yes, what would the rate impact likely be?
13. Your materials state that you are, "developing a cost-of-service model so we can fairly share costs and savings among industrial, commercial and residential customers... One group of customers should not subsidize others; cost of service should be the primary determinant of prices charged."
a. Who is developing this cost-of-service model? What is its current status? Who will approve the model?
b. If cost of service is the primary determinant, what are the other determinants? How heavily will they be weighted?

Ownership
14. Under this model, could PGE be sold to another entity? If so, who would make this decision?
15. In one information piece, Financing the Purchase of PGE, it states, "as the securitization bonds are repaid, customers' ownership interest in PGE continues to grow," yet in another piece, Acquisition Financing Strategy, it states that commencing "with the first monthly customer payment... PGE becomes a mutual company owned by its customers." When do customers become owners and what does ownership mean?
16. If a portion of PGE were to form a PUD or a municipality, what would happen to those customers' portion of the acquisition debt?

Financing
17. How does the cost of debt associated with securitized financing compare to the cost of financing the mutual utility without securitization or financing an acquisition with municipal bonds? How does it compare to tax-exempt financing?
18. Our understanding is that these bonds are securitized, and therefore the responsibility of PGE customers, not OMU; what bond covenants does OMU anticipate and whose responsibility would these be?
19. In your response to the Governor's task force, you state that, "[b]ased on OMU’s analysis to date, it does not anticipate the acquisition should affect factors such as PGE's credit rating, and capital structure requirement."
a. Who has done this analysis?
b. Has OMU discussed the mutual utility construct with any rating agencies and/or gotten any feedback from them?
20. Which of the following costs would be backed by securitized bonds:
a. The revenue that would go to Enron as part of the purchase?
b. The cost and profit to be paid to you and others who are involved in putting together this purchase?
c. The cost of the regulatory processes that are necessary to approve the proposal?
d. The cost and profit to be paid to the lobbyists that are pursuing your securitization legislation?
21. What are the start-up costs that you expect to implement the mutual utility construct, and what actions have you and those working with you taken to minimize those costs?
22. Would your legislation allow securitization of any costs beyond the original acquisition?
23. What are the details of the interim financing, and how will the transition from interim financing to securitization proceed?
24. What are the transactional costs associated with interim financing?
25. What are the transactional costs associated with securitized financing?

Investing In New Power Supply
26. With regards to the mechanism for financing new resource acquisitions OMU states, "PGE will continue to have the same access to capital markets for resource acquisition that it has historically enjoyed. A portion of revenues (representing customer-ownership patronage) may be retained to provide a source of equity capital for such expenditures and to maintain PGE capital structure. The acquisition will not change this requirement, although such retained funds will not constitute 'income' for federal income taxes and will be obtained 'pre-tax.'"
a. Will this be sufficient to fund new resources?
b. Will further securitization be required?
c. In addition, to retaining earnings, PGE and other utilities regularly look to new equity issuance to maintain their capital structure. How would OMU maintain its capital structure without new equity?
d. If net income is not sufficient to maintain and invest in the utility, how will new investments be financed and what effect would such financing have on the utilities credit rating?

Accountability
27. Who are the individuals currently involved in this proposal who expect to be paid if the deal is approved?
28. What is the estimated amount each expects to be paid?
29. How would the reasonableness of such payments be determined?
30. Would anyone have the authority to decline payment to any of these individuals?
31. Why was the decision made to offer legislation on securitization without tying that securitization to ownership by customers, election of the board of directors, or any other aspect of this deal?

Proposed Legislation
32. Does Section 6 (1) violate the constitutional prohibition against binding future commissions?
33. In Section 5(4)(b), what happens if the PUC identifies acquisition costs that are not just and reasonable to recover from ratepayers? Who would be responsible for paying those costs?
34. If the mutual utility is not successful in acquiring PGE, what is the practical result of having changed the PUC's general authority? What other proposals could make use of this new law?

Posted by Oregon CUB at 03:54 PM | Comments (0)

May 06, 2005

Senate Passes Oregon Community Power Bill!

The Oregon Senate today approved Senate Bill (SB) 1008 by a 17-7 vote to create Oregon Community Power, a regional, publicly-owned electric utility that could be the answer to what should happen with PGE. CUB has been involved both in asking the questions and finding answers on issues of governance, rate-making responsibilities, power resources, and more. We are happy to see this bill moving forward to the Oregon House. We will continue working with fellow customer groups, bill sponsors and other interested parties to make sure that SB 1008 offers the best solution to create a customer-focused, Oregon-based electric utility that assures long-term stability.

Oh, and don't think we've forgotten about the City of Portland's bid to purchase PGE. Our support has always been for an entity that could successfully manage a public purchase of Oregon's largest electric utility. We continue to search for a way to join the City and State proposals in the best interest of PGE ratepayers. Consumers need to tell their State Representatives in the House to keep SB 1008 moving so that Oregon Community Power can be a real option.

Posted by Oregon CUB at 02:53 PM | Comments (0)

April 21, 2005

Governor Withdraws from Competing State Bid for PGE

CUB understands Governor Kulongoski's decision not to have the State of Oregon compete with the City of Portland for the public purchase of PGE. We feel that this does not materially change the goal of a publicly-held utility company with low-cost, stable electricity for the almost 800,000 Oregonian customers that PGE currently serves.

A City of Portland-led purchase, with regional governance, or a State-backed regional ownership, or a combination of the two, would result in reaching our goal. According to CUB staff attorney, Jason Eisdorfer, "We have the bones of a good bill in SB 1008. So, we will hope to pass the bill out of committee today and continue to work on the language to make it as clear and tight a proposal for public power as it can be. That way, either the Legislature can act on the bill as a whole or potentially integrate it with the City proposal." [Note: the bill did pass out of the Senate Business & Economic Development Committee on 04/21/05.]

CUB has been encouraging the City and State to work together, and we hope that this decision on the part of the Governor will result in an increased willingness of those at the City and State levels to work cooperatively toward a regional public power utility. The bottom line, however, is that CUB will continue to actively support both proposals in hopes of helping to usher one or the other, or a combination of the two, towards the finish line.

Whether this shift in the politics of the public power proposals will affect other contenders for the future of PGE, such as the purchase proposal by Oregon Mutual Development Inc., is unclear. What it does do is strengthen the bargaining position of the City of Portland in purchase negotiations with Enron, and the City maintains its advantage of having worked on their bid the longest and being able to move forward most quickly in a restricted timeline. The stock distribution option remains a fall-back position that contains significant drawbacks in comparison to a locally owned public utility. (Please see "What about stock distribution for PGE?" for more information about this possibility.)

Posted by Oregon CUB at 03:25 PM | Comments (0)

April 20, 2005

PUHCA fate will influence future of PGE

In "Power Window," an article in today's issue of Willamette Week, author Nigel Jaquiss points out that:

"PGE's fate is being decided 3,000 miles away, in Congress. The U.S. House is considering an energy bill with a provision to repeal current utility restrictions, thus greatly expanding the possible universe of buyers for PGE. Most utility watchers expect the House bill to pass as soon as this week and a Senate version to pass by next fall. The upshot: An out-of-town buyer becomes PGE's most likely next buyer."

We at CUB are happy to see the seeds of a public discussion about the importance of the Public Utility Holding Company Act and what this could mean for Oregon's own utility-in-transition. (See our Take Action opportunity at the top right of this website to urge your Congressional representatives to save PUHCA.)

Bob Jenks, CUB executive director, had this to say about the role of PUHCA in PGE's eventual disposition: "Losing the utility regulation of PUHCA makes it far more unlikely that PGE would clear the hurdles of stock distribution to become a stand-alone, locally-headquartered company again. We have our doubts about whether stock distribution is the best case scenario for PGE residential ratepayers (See What about Stock Distribution for PGE?), but we would find that preferable to purchase by a large investment corporation located in another state or another country. PUHCA has provided important protection to utility customers for 70 years. We would all suffer from greater instability and higher prices should it be repealed."

Posted by Oregon CUB at 11:28 AM | Comments (0)

April 18, 2005

What About Stock Distribution for PGE?

In all the discussion of what will happen with PGE, one of the likely outcomes, stock distribution, has not yet been discussed here on the CUB site. If none of the purchase proposals currently on the table (City of Portland Public Purchase, Oregon Community Power Public Purchase, or Oregon Mutual Utility Purchase) goes through, then it is very likely that Enron will begin the process of distributing PGE stock to their creditors, who then most likely will sell that stock on the stock market, bringing PGE back to its status as a publicly-traded company.

CUB argued during the Texas Pacific attempt to purchase TPG that distribution of PGE's stock would be preferable to the business model that Texas Pacific was proposing. This does not mean, however, that stock distribution would be CUB's first choice or that we believe ratepayers would benefit the most from that sort of future for PGE. Here's why:

1) Lengthy Process with an Unknown Completion Date: As part of Enron's bankruptcy proceeding, distribution of PGE's stock would happen in stages over a long period of time. Bankruptcy proceedings can easily take longer than a decade to complete, especially large and complex ones such as the Enron bankruptcy.
2) Control Remains with Enron: During most of the stock distribution process, control of PGE would remain with Enron, its creditors, and the Disputed Claims Reserve (DCR) Overseers. We have no way of knowing who will be appointed by Enron to oversee the PGE distribution process or even to sit on the PGE board during these years.
3) No Guarantees for Public Status: At the end of this long and complex distribution process, PGE could be a publicly traded, stand-alone company still headquartered in Portland. But no one can guarantee this, since Enron officials or those they appoint could decide to sell PGE, either whole or in large percentages of shares, at any point.
4) Takeover Purchase Could Happen Again: If indeed, PGE did make it intact through the long process of stock distribution to become a publicly-traded company again, there is always the possibility that another corporation could manage a takeover purchase, as Enron did in the late '90s, with an equally uncertain outcome.

In addition to these drawbacks of the bankruptcy proceedings themselves, stock distribution would by its very nature lack the advantages of a public power purchase by the City or State: low-cost financing, tax-exempt status, and a board appointed by elected leaders to look out for ratepayers. (Click here for more detailed information on the two Public Power Proposals.)

We therefore say again, that stock distribution, while preferable to purchase by a corporation looking for short-term profits, is not the preferred option for Oregon ratepayers. Given the available options, CUB supports a publicly-owned utility that would provide long-term stability, lower rates, and community-oriented leadership for the future of PGE.

Posted by Oregon CUB at 02:30 PM | Comments (0)

Mutual Utility Proposal

A "hybrid" organization purchase proposal has been under construction by a group calling itself Oregon Mutual Development Company (Mutual Utility). The Mutual Utility would be a privately-run but customer-owned company, similar to a cooperative. Like the two public ownership models, the Mutual Utility would potentially have the advantages that no shareholders would exist to draw profit payments from the utility; and the utility would remain locally owned and managed, potentially with existing employees and executives.

There are, however, some key differences between the hybrid proposal and the two true public ownership models. The Mutual Utility is a group spearheaded by former PacifiCorp employees and includes other business people in the realm of tax policies and finance. It would rely on the securitization of bonds, borrowing against additional future revenue customers would pay on their bills, to finance the deal. Eventually, customers would wind up owning the utility. In addition to having some very high-powered current and former utility execs behind this deal, the Mutual Utility has also hired some very high-powered lobbyists to move their case forward in Salem.

Unfortunately, the public ownership in this deal has fewer advantages than that of the two true public ownership proposals on the table. According to CUB Executive Director Bob Jenks, this deal "does not seem to offer the advantages" such as lower tax-exempt borrowing rates, and avoidance of federal income taxes, that the other two sales would. The Mutual Utility deal would be a purchase of PGE's stock, which includes liabilities, financed by bonds secured by the future payments of PGE customers. The bonds would presumably be held by an investment bank or equity firm, potentially even a firm very much like Texas Pacific Group.

Mutual Utility supporters say that the PUC would continue to regulate the utility. This sounds better than it is, because, without shareholders, customers in this hybrid model would be on the hook to pay all the costs, debts and liabilities. Thus, the PUC could never disallow any costs and would have to pass through all costs, whether prudent or not, to the customer. This leaves us wondering what would be the point of paying for PUC regulation at all.

One of the big questions that arises is who exactly runs the utility. Mutual Utility proponents claim that customers would vote for the Board of Directors, but a first Board has already been chosen, and current Board members will nominate candidates for the future. CUB's position is that within this system the Board could conceivably remain an "inside game" among select business people.

Other questions include: How would new investments in the power production system be financed? How would we ensure that new investments are the best and most prudent ones possible? How would rates be set? Finally, there have been contradictory statements from Mutual Utility proponents about the potential tax liability of the company, and this issue is a matter of millions of dollars for customers.

Obviously, from CUB's perspective, the Mutual Utility model raises more questions than it answers. CUB is looking into these issues and more as they arise in discussions with the parties involved in all aspects of the various proposals.

Posted by Oregon CUB at 10:48 AM | Comments (0)

April 17, 2005

Public Power Proposals

Two viable options are now on the table that would create such a public utility: SB 1008 (introduced by Senator Ryan Deckert, Senator David Nelson, and Senator Vicki Berger) would create a state power authority called Oregon Community Power. OCP has the advantage of a broad geographical and political base, and a host of financial and practical advantages. This proposal is being crafted by customer groups along with others in a workgroup created by the Senate Business & Economic Development Committee.

The same financial and practical advantages also apply to a proposal that the City of Portland, led by City Commissioner Erik Sten and endorsed by Mayor Tom Potter, purchase PGE. The City has an additional advantage in that it can move forward quickly, an important fact in light of the announcement that Enron would like potential buyers to make offers within one year.

Lower Rates

The rates that would be charged by Oregon Community Power can be expected to be lower than rates otherwise would be, because a publicly-owned version of PGE will have lower costs. For example, a public utility would have access to tax-exempt financing, which is only available to government institutions. This means that all new power plants, transmission lines, and distribution facilities could be built at a significantly lower cost than any non-governmental alternative. In addition, a public utility would not be subject to state and federal income taxes. While we know that PGE has not paid taxes in recent years, customers have been charged hundreds of millions of dollars in taxes. With a public utility, customers would no longer be charged for income taxes. (Note: OCP would pay property taxes and franchise fees to local governments.) Finally, a public utility would not have shareholder equity as part of the financing. Therefore, a public utility would not have to pay higher cost interest on equity, but would rely on lower cost debt.

Stability

In the last 8 years, there have been 4 attempts to purchase PGE (Enron, Sierra Pacific, NW Natural and Texas Pacific). During this time, PGE's rates have become among some of the highest in the Pacific Northwest. A public utility would be focused on providing reliable service at the lowest cost, not helping sell itself to the highest bidder.

Resource Planning/Economic Development

Oregon's economy has been harmed by having electricity rates soar in recent years. Electric utilities need to plan years ahead in order to ensure the lowest cost and least risk power supply. A utility cannot adequately plan for the next 20 years when it does not know who will own it next year or what their business model will be. Because a public utility would have no other business interests and would not be up for sale, its only business model would be to provide electric power to its customers. This means that it could focus on fueling Oregon's economy by providing low rates.

Oregon Energy Policy

Oregon has one of the most innovative energy policies in the country. PGE is the nation's leader in green power options. Oregon allows industrial customers direct access to the wholesale market. Oregon has a non-profit organization, the Energy Trust, that invests in energy efficiency and renewable programs integrating the programs that were once offered independently by PGE, Pacific Power and NW Natural. A public utility would continue these programs.

Workforce Interests

Everyone understands that, not only does our economy depend on the power that PGE supplies to homes and businesses, but that the thousands of people that PGE employs--comprised of linemen, customer service people, and management--are also crucial to making a good future for the economy and the community that is Oregon. A public utility would value the people who work for the utility and the important economic role those jobs play in the larger economy.

The Community's Interest Is the Utility's Interest

Enron's attempt to manipulate the power market did not reflect Oregon's interests or values. Neither did Texas Pacific's attempt to make a quick billion dollar profit on PGE. A public utility would be an Oregon-run, Oregon-headquartered utility that does operate in our interest and reflect our values. By statute and by inclination, the Board of a public utility would make decisions in the best interest of the customers and community served by the utility.

High Quality Board through Gubernatorial Appointment

A public utility would be led by a Board selected by the Governor based on their credibility, their experience, their creativity and their ability to make decisions in the interests of the customer and the community. This Board would be able to represent the diverse viewpoints of the utility's extended service territory.

Posted by Oregon CUB at 12:46 PM | Comments (0)

April 16, 2005

What's next for PGE?

The question on everyone's lips after the denial of Texas Pacific Group's bid to purchase PGE is, "So now what?" The future of Portland General Electric is of interest to all PGE customers, residential, commercial and industrial, as well as to a range of economic and political leaders around the state.

Options currently being discussed include the sale of PGE to a public entity financed by either the City of Portland or the State of Oregon. CUB supports the development of both the City and State public ownership proposals. The City proposal has been on the table the longest, with Portland City Commissioner Erik Sten having taken an early lead on the issue, and Mayor Tom Potter joining Sten in supporting the proposal. The City has the ability to finance the purchase with low-interest government bonds and can move forward quickly.

The State of Oregon proposal has been a more recent proposal, but the bill that would create the State Power Authority, SB 618 (introduced by Senator Ryan Deckert), has the tentative support of the Governor's office. It has the advantage of a broader geographical base and would avoid the criticism of those who are wary of allowing the City of Portland to own, even in a purely formal way, a regional power utility.

Both of these proposed sales to Oregon governmental entities could present substantial rate savings to customers, based upon the use of tax-exempt financing for utility investments, the exemption of governmental entities from paying federal income tax (a tax which has for years been collected but never paid to government by Enron-owned PGE), and the removal of the need to pay a profit to private investors.

A third sale option has recently received some sizable press coverage, a "hybrid" organization purchase by a group calling itself Oregon Mutual Development Co (Mutual Utility). The hybrid would be a privately-run but customer-owned company, similar to a cooperative. Like the two public ownership models, the Mutual Utility would potentially have the advantages that no shareholders would exist to draw profit payments from the utility; and the utility would remain locally owned and managed, potentially with existing employees and executives.

There are, however, some key differences between the hybrid proposal and the two true public ownership models. To find out more specifics about the Mutual Utility Proposal, click here.

Of course, it's still possible that if none of these three proposals were to pan out, or if Enron were to simply refuse to accept these offers, PGE's stock could be distributed to Enron's creditors through the bankruptcy process. Over time, PGE might then be an independent, publicly-traded company again. Finally, there is a slight possibility that another corporate investment buyer would submit a proposal and be accepted by the PUC and the bankruptcy court. This is an unlikely wild card that has the most unknown variables.

In the meantime, we continue to work on the two public ownership proposals, trying to help craft a future for PGE that really would ensure customers' best interests.

Posted by Oregon CUB at 11:39 AM

April 14, 2005

Texas Pacific abandons PGE bid

From this Oregonian article: "'We have learned a great deal about the regulatory and political processes in the state of Oregon,' Texas Pacific said in a statement issued Wednesday. 'Certainly everyone is now aware that these processes are time consuming and complicated in ways beyond what any of us could have reasonably expected at the start.'"

We did try to tell them.

Go to Current News to link to the article.

To find out about options on the table for PGE's future, go to Public Power Proposals or Mutual Utility Proposal.

Posted by Oregon CUB at 03:28 PM

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