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Enron stiffed state on PGE taxes
Revelations come as Salem mulls bill to block public takeover of utility
City officials studying a purchase of Portland General Electric say its parent company, Enron Corp., never paid the utility's state income taxes, despite collecting more than $35 million from PGE ratepayers over a three-year period.
The city's chief administrative officer Tim Grewe also is investigating whether Enron ever paid PGE's property taxes to the city at a time when the energy trader was making $10 billion a year. Grewe said they uncovered the tax information when they were researching the liabilities and taxes that PGE paid Enron as part of a consolidated tax statement. They found the information in Enron's filings with the U.S. Securities and Exchange Commission for those years.
'We stumbled onto the fact that taxes PGE was collecting were not making their way back to the Oregon treasury,' he said. 'Enron never paid taxes to the Oregon treasury. This isn't about PGE; they paid their taxes. They went to Enron but it never came back. '
'From PGE's perspective Enron had other businesses in Portland different than PGE,' said Jim Piro, the utility's chief financial officer. 'They had a broadband business, and they had a trading business. I can only speak to PGE. We pay our property taxes directly to the counties; we send our checks directly to them. We have never paid our property taxes to Enron. If Enron Broadband and Enron Wholesale didn't pay their property taxes that could be a different issue.'
Piro said the utility followed the standard practice required by the tax code and paid its federal and state income taxes to Enron, but he doesn't know what happened later.
State revenue officials will not reveal corporate tax information.
Enron officials could not be reached for comment.
Grewe said they are studying other annual filings since 1999 to determine if Enron, which collected PGE's taxes due to local and state coffers.
At an assessed value of $201 million for its Multnomah County poles, transmission and other property, PGE paid $10 million in property taxes for 2001, or a rate of $20 per $1,000. Grewe said he has no idea if the now-bankrupt Enron actually paid the money. He does know that PGE paid a $100 business license tax, the minimum amount required.
A congressional study in April 2002 revealed that Enron never made the federal tax payments for the years 1997 through 2001.
The revelation comes on the eve of a statehouse hearing on a bill to block the city from buying PGE because of the potential loss of state income taxes.
Rep. Greg Smith, R-Heppner, filed the bill last week as legislators scrambled to fill a $740 million budget shortfall. A hearing is scheduled this morning before the House Business, Labor and Consumer Affairs Committee, chaired by Rep. Betsy Close, R-Albany.
In papers filed with the Federal Energy Regulatory Commission and forwarded to the Oregon Public Utility Commission, PGE reported that in 2001 it paid an estimated $70 million in annual state income tax, property taxes and franchise fees to local and state governments. Of the total, state income taxes made up $9 million. No comparable figures are available yet for 2002.
City Commissioner Erik Sten, who has been spearheading the city's exploration of a possible purchase of PGE, has said that the proposed public entity managing the utility Ñ although it would not be required to Ñ in all likelihood would continue voluntarily to pay all the local fees and taxes PGE now pays. But he said the state tax component is being studied.
'We are not going to stiff the state on revenues,' said Sten, who added that city officials plan to testify on the PGE bill.
'This is typical Salem behavior,' Sten said. 'No one called us about it. I don't think this is ultimately going to pass. You have a Legislature that is for local control unless Portland is doing something. It's another example of grandstanding.'
Ater Wynne LLP, the law firm representing the city in the PGE purchase, is now studying the tax implications of converting PGE to a public entity.
'The goal here is to secure the assets in a way that boosts rather than hurts Oregon's economy,' Sten said. 'We're publicly minded. Our goal is to do the right thing.'
Sten said the city also is trying to clarify what PGE's position is on the Smith bill. PGE Executive Vice President Fred Miller said the utility has no interest in the legislation. However, the utility at one time supported Oregonians for Jobs and Power, which is fighting a public takeover of PGE.
'It's not in our interest to have that pass,' Miller said. 'We still oppose condemnation, but not purchase by a public entity. (The bill) would limit our options.'
The city is currently in discussions with Enron management about buying the estimated $3 billion utility. Under pressure to speed up its Chapter 11 bankruptcy reorganization, Enron reportedly is seeking a resolution on the PGE purchase by March 15.
The city's plans are unrelated to an effort by the Oregon Public Power Coalition to create a people's utility district. The coalition has said it will back off if the city purchase goes forward.
Another option Ñ for PGE to be rolled into a restructured Enron Ñ appears to be dead.
Martin Bienenstock of the New York firm Weil Gotshal & Manges, Enron's lead lawyer in the bankruptcy case, told the Financial Times newspaper last month that Enron is now almost certain to be broken up and its assets either sold off or distributed to creditors.
'We had this hypothesis that the businesses together would be worth more than they would be separately. The evidence to date,' Bienenstock conceded, 'doesn't bear that out.'
'There's certainly been acknowledgment there will be liquidation,' said David Bennett, a partner at Dallas-based Thompson & Knight LLP who is representing a group of 18 Enron North America oil and gas company creditors known as the Dunhill Group.
Both the city and the Oregon Public Power Coalition argue that a public acquisition would lower electricity rates by reducing high corporate salaries, and by eliminating the need to pay federal taxes and to generate profits for corporate shareholders.
In the mail
PGE has filed papers with the Oregon Public Utility Commission showing it paid $56 million in state income taxes for the five-year period of 1997-2001. The amount paid for fiscal 2002 will be released in May.
In 2001, the utility paid $33 million in franchise fees, $3.4 million in fees to the utility commission and $9 million in state income taxes. Another $22 million was set aside for federal taxes and $27 million in statewide property taxes and sent to Enron. As a subsidiary, PGE was part of Enron's consolidated tax filings until May 2001, when Enron decided to change from consolidated to unconsolidated tax returns.
The utility paid its own state and federal taxes in 2001 and 2002, although Enron decided to reconsolidate its tax filings with PGE in December 2002.
The taxes are written into the rates charged PGE customers.
Tax payments disputed
Based on Enron's history of tax schemes, public utility advocates Thursday requested that the Oregon Public Utility Commission investigate if they had paid state taxes.
'My contention is it's the PUC's responsibility to find this out,' said Dan Meek, a leader of the public power coalition. 'They can require PGE to tell them. The PUC has broad authority. They can tell PGE, 'Hey produce this today.' It's their duty.'
Ed Krantz, senior revenue requirement analyst for the utility commission, tried to verify the amount of PGE income taxes but was rebuffed by Oregon Department of Revenue officials.
'We aren't authorized,' Krantz said. 'We can't get the Oregon income tax and confirm they (PGE) actually paid that. I can't really tell you if they paid those taxes because we cannot verify it with the Revenue Department.'
State disclosure laws prohibit the Revenue Department from releasing tax filer information, said Deni Cooperrider, the agency's public information officer.
'We can't do that,' Cooperrider said. 'We're highly bound by statute on that. We literally could go to jail for disclosing any particular of a tax filer.'
Lewis Horowitz, a partner at the Portland law firm of Lane Powell Spears Lubersky, said that without the additional tax revenue from PGE, state and local governments may find an alternate way to collect the money.
'The state is going to balk if the city cuts them out of $30 million in revenue,' he said. 'The county is going to, too. But keep in mind these taxes are paid by Oregonians Ñ they're in the rate base.'