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Utility alliance takes on takeover

PGE, PacifiCorp roll up shirt-sleeves to keep Enron asset out of public hands

Within weeks of potentially being sold off by its bankrupt parent, PGE has forged a united front with the state's other major investor-owned utility, PacifiCorp, in an all-out campaign to head off a public takeover of PGE.

PGE, a subsidiary of Enron Corp., and PacifiCorp are launching a campaign to fight a Sept. 30 ballot initiative backed by the Oregon Public Power Coalition. The initiative would create a people's utility district in Multnomah County that could take over PGE.

PGE Executive Vice President Fred Miller said the anti-PUD campaign will involve advertising and other public presentations. No public relations or advertising firm has yet been selected to run the campaign, he said, nor has a budget been agreed on. 'We'll spend whatever it takes to win,' he said.

This is not the first time PacifiCorp and PGE have united to fight a PUD. PGE spent $1 million in 1988 to defeat the Pioneer PUD in North and Northwest Portland, said Dan Meek, a leader of the Oregon Public Power Coalition.

What does Meek expect this time around?

'Massive spending, breaking all records for campaign spending, which is what they did in 1988,' he said. 'What's going to stop them from spending as much now?'

The coalition is continuing to collect signatures to set up PUDs in Washington and Clackamas counties 'but has a long way to go,' Meek said.

PGE executives said in a Feb. 12 letter to employees that the PUD initiative 'could result in the condemnation of PGE's assets and break apart our service territory, while providing no benefits to customers or PGE employees.'

Both the Oregon Office of Energy and Multnomah County plan hearings in early April to consider the PUD, 'and we have to make sure our perspective is presented,' Miller said.

The campaign would seek to persuade voters that turning PGE into a publicly owned utility would cost state and local governments millions in tax revenues now collected from the utility without necessarily providing cheaper electric bills.

'Basically, the PUD effort lacks so much merit that it won't be difficult to win,' Miller said. 'I think people, once they understand, will agree with us.'

The city of Portland's exploration of a possible purchase of PGE assets in the Enron auction process, now under way, is unrelated to the PUD effort, although the threat of a PUD takeover gives the city additional leverage since public power leaders have said they would stand aside if Enron should sell PGE to the city.

PacifiCorp management doesn't like the idea of public ownership any more than PGE's managers do. The company sent out a news release a week ago saying that its Multnomah County service area is 'not for sale.'

The utility's management warned against 'any attempt to move its Multnomah County customers into a situation where they face the kind of uncertain future that would come from being served by a startup utility such as that being proposed by the Oregon Public Power Coalition.'

PacifiCorp, which operates under the name Pacific Power, also claims that the PUD would:

• Incur $6,000 in debt per customer to buy the existing distribution systems.

• Not own the necessary generating facilities to supply customers.

• Result in the loss of $40 million in local tax revenue and another $1.7 million in local charitable support.

'We're obviously going to fight it and make sure it doesn't happen,' PacifiCorp spokeswoman Jan Mitchell said of the PUD effort. She said the coalition's petitions did not specify the PUD would merely take over PGE operations but potentially other utilities in Multnomah County.

Bill would block city purchase

Rep. Greg Smith, R-Heppner, whose district includes PGE's Boardman coal-fired and natural gas-burning power plants and three public electricity cooperatives, filed a bill last Tuesday to block Portland from either buying or exercising its powers of eminent domain to take over 'electric companies.'

Smith said he's concerned about the loss of PGE's $34 million in state income tax payments Ñ an amount that public power advocates say is wildly off the mark Ñ at a time when the state is struggling to bring its budget in line with sharply reduced tax revenues.

He also objects to another entity using electricity generated by Columbia River basin dams that is made available on a preferential basis to PUDs by the Bonneville Power Administration.

'It's important for this body to have this discussion on whether a corporate asset should be taken off the tax rolls,' Smith said. 'The real issue lies in if PGE goes public, do the new directors have an obligation to go for preferential (BPA) power Ñ and what impact will that have on our co-ops?'

Portland city Commissioner Erik Sten, who's driving the city's effort to buy PGE's assets, said the city needs to at least be able to look at the numbers and see if the idea makes economic sense.

'The last thing this state needs right now is to have different parts of the state fighting each other,' he said. 'We need to talk to build mutual strategies. Enron is in the process of liquidating our largest utility. We need to work together for solutions.'

Meek, of the Oregon Public Power Coalition, called Smith's bill 'absolutely absurd. I would think legislators have something better to do than interfere with the opportunity for a public institution like the city of Portland to acquire a public utility for the benefit of the people.'

Public takeover advocates say that their goal is to hold local governments harmless from tax losses. City finance officials exploring a purchase of PGE's assets have not yet decided on the issue of state income taxes but insist that local tax payments, although not required, would continue to be made.

Linda Williams, an adviser to the Oregon Public Power Coalition, said it is not clear whether Enron has paid any state taxes on PGE's behalf. It did not, according to a U.S. Senate investigation last year, pay federal taxes Ñ even though PGE set the money aside for that purpose.

According to PGE's annual report for 2001, the utility paid $3 million in state and local taxes.

Proposed savings questioned

Enron is expected to announce in the next several weeks if it is selling PGE to a private buyer or the city of Portland, or whether it is retaining the utility in a reorganized Enron.

Among those reportedly still in the bidding: NW Natural and the New York-based leveraged buyout firm Kohlberg Kravis Roberts.

The city of Portland is exploring whether municipal ownership could help reduce electricity rates, or at least stabilize them, in a bid to restore the region's historical low energy-cost status ÑÊa major factor in the region's growth over the past half century.

Sten said the city-owned utility can provide customer savings of anywhere from 10 percent to 30 percent. The savings, he says, would come largely from not having to pay federal taxes, not having to generate profits for shareholders and not having to pay the high salaries and bonuses that private sector utility executives are paid.

But even a city-funded study by Regional Financial Advisors Inc. last year questioned the potential savings.

The report listed two major concerns:

• The city may not be able to fund the billion-plus purchase through lower cost tax-exempt bonds, eliminating one source of potential savings and putting it on a par with a private buyer.

• The city may not be able to purchase hydropower on a preferential basis from the BPA, another potential source of savings sometime in the future.

The preference would offer little advantage in the near term because of lower-than-average snowfall and BPA's recently announced rate hike. There's a proposal, however, that in 2006 would limit the amount of electricity that could be granted on a preferential basis to new public power customers.

Flurry of studies emerges

Still another effort to stop a takeover is being led by Oregonians for Jobs and Power, which initially had PGE backing that later was withdrawn, reportedly at Enron's insistence. Its members include Liberty Northwest, Norris, Beggs & Simpson and Pac/West Communications, which is headed by former state Sen. Paul Phillips.

In its most recent volley, the Jobs and Power group faulted a county-funded study by the Regional Power Study Group that claims public ownership could reduce corporate overhead, avoid income taxes and require a lower cost of capital that would save ratepayers up to $200 million a year.

Not so, said a counterstudy by ECONorthwest, sponsored by the Jobs and Power group. Its report said the Regional Power study 'seriously overstates the true cost reductions that can be achieved through a public acquisition of PGE.'

The ECONorthwest study argues that if a public entity buys PGE, it is more likely to increase rates to customers to recoup its purchase price than a private buyer would.

Private companies are not allowed by the Oregon Public Utility Commission to recoup through increased rates a purchase at higher-than-book value. A PUD or municipally owned utility would not be subject to PUC jurisdiction.

'This is done to guard against companies overpaying for utilities and then passing on the excess purchase price to their customers,' the ECONorthwest report said.

'It raises the question as to who would be most advantaged, a private or public buyer,' said PGE's Miller. He said the 'fundamental flaw' of the Regional Power Study Group study 'was the argument that a public purchase would save ratepayers money. That $200 million in savings would actually be a $50 million increase.'

In a letter criticizing the Regional Power study, state PUC Chairman Roy Hemmingway wrote that 'no matter what a new owner pays for PGE, that price by itself will not change rates, even if a private purchaser outbids the city by a great deal or pays much more than PGE's regulated assets are worth.'

A new owner of PGE 'cannot under Oregon law ask the PUC for a rate increase to cover its purchase price,' Hemmingway said.

The savings from not paying income taxes, however, probably would be passed onto customers, he said.

Contact Kristina Brenneman at This email address is being protected from spambots. You need JavaScript enabled to view it. and Don Hamilton at This email address is being protected from spambots. You need JavaScript enabled to view it..