Regulated Stock Distribution A Good Step Above Texas Pacific

Below is a letter to the editor of the Willamette Week, in response to their article (9/14/05) which suggested that the PGE stock distribution agreement was a worse deal than that offered by Texas Pacific. Although Willamette Week decided not to publish the letter, saying it was too long for their LTE space, we offer it up here for the record.

The Citizens’ Utility Board of Oregon shares Willamette Week’s concerns over PGE rates and the future of PGE. However, we were shocked by Nigel Jaquiss’s claim that the plan to distribute PGE stock and return PGE to an independent publicly-traded company is worse than Texas Pacific Group’s (TPG) attempt to purchase PGE.  This suggests a serious memory problem.

Our analysis of the TPG deal, which included hundreds of pages of testimony, exhibits, and briefs to the PUC, demonstrated that ownership by TPG was far worse than creating an independent utility through the stock distribution plan. The PUC’s order heavily cites CUB’s analysis to support its decision to deny TPG ownership of PGE.

TPG planned to purchase PGE primarily with debt. This would have weakened PGE’s financial condition. The magnitude of the debt and the need to make payments on the debt could have had significant adverse affects on PGE and its customers including increased financing costs when PGE makes investments in infrastructure, and pressure on PGE to slash jobs and reduce maintenance of equipment.

The stock redistribution plan, on the other hand, will strengthen the financial position of PGE by removing it from its bankrupt parent, Enron. This will likely reduce financing costs and improve the ability of the company to make necessary investments in its system.

The article makes an issue of the fact that the stock distribution plan does not contain the Enron liability protections offered to TPG. In fact, Enron has indemnified PGE against tax and pension liabilities. As for the rest, the PUC found TPG’s protections had “little value” because CUB pointed out that liabilities based on wrongdoing cannot be passed to customers, but instead should be borne by shareholders.

Oregon uses a net benefits standard to evaluate changes in utility ownership. To meet this test, the PUC must compare an independent PGE to a PGE owned by Enron. There is a great deal of uncertainty and risk associated with turning down this application. Enron would then face two choices: sell PGE to someone else or ask federal bankruptcy court to preempt Oregon and allow the stock distribution without any protections. Compared to this, a regulated stock distribution has much less uncertainty and risk.

The article discusses rates and rate credits without noting that there are currently three open dockets at the PUC dealing directly with PGE’s rates. CUB has intervened in all of them, is working to reduce rates, and has won millions of dollars in rate reductions in those cases.

The article cites PGE’s projections for 2007 profits but fails to note that those are less than the $1 billion plus that TPG intended to suck out of PGE in just five years. We are skeptical of these profit projections, because we plan to fight against excess profits. PGE will have a general rate case in 2006 which will allow CUB, the PUC staff, and any parties worried about PGE rates to look under every rock, and examine and challenge every cost, with a goal of ensuring that 2007 rates are well below PGE’s forecasts.

Finally, it is important to note that we are very disappointed that the negotiations between the City of Portland and Enron failed to result in the sale of PGE to Portland.  Our analysis showed that the City’s plan had the greatest likelihood of reducing rates significantly over the long term. But that disappointment doesn’t change the fact that the stock redistribution plan is still better than allowing Enron to sell PGE to Texas Pacific, Warren Buffett, Sempra Energy, Shell Oil, Halliburton or any other wild-card corporate investor no longer hampered by the consumer protections of PUHCA.

To keep up with CUB, like us on Facebook and follow us on Twitter!

• Share this post on Facebook.
• Share this post on LinkedIn.
• Share this post with email.

« Back