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.

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