Planned sale of cell towers puts firm-funded ventures in the spotlight
A telecom subsidiary of Portland General Electric is in the midst of selling its broadband wireless business, including 24 cell towers scattered throughout the greater Portland metropolitan area.
Portland General Distribution Co. has several interested bidders but could not reveal them because of signed confidentiality agreements, said spokeswoman Gail Baker.
The towers are currently located on land owned by PGE but leased to Verizon Communications Inc., AT&T Broadband, T-Mobile U.S., Qwest Communications International Inc. and other telecom companies, said Michael Dougherty, a senior affiliated interest analyst with the Oregon Public Utility Commission.
PGE spent $2 million three years ago to help the once promising telecom venture lay conduits for fiber-optic cable. Sale of the towers will go toward the subsidiary's liabilities, including the remaining $1.1 million of the loan from PGE.
The conduits for telephone, video and data services remain empty, although Portland General Distribution 'is currently watching the market' and will make a decision whether to use them, Baker said.
Portland General Distribution's $1.1 million loan balance sparked a tongue-lashing from public regulators at a March 13 hearing, when PGE sought to enter the loan in its books as an account receivable for a related company.
The commission rejected the request, citing several other examples in which PGE had neglected to supply information about loans to Enron-related companies that pose a risk to its earnings. State law requires regulated utilities to report expenses involving affiliated interests within 90 days.
Last year, utility regulators came across a PGE request to lend $2 million to its subsidiary, Portland Energy Solutions. Commissioners approved the loan request, despite opposition from consumer groups.
PGE also sent a $27 million dividend to Enron for corporate-owned life insurance, which the commission found out about after the fact.
Any default on the telecom loan would be applied to PGE's earnings of $66 million, said Dougherty, who called the entire telecom project 'a risk to ratepayers.'
'This is one of several episodes in which the company did not play by accounting standards,' said Joan Smith, one of the three members of the Oregon Public Utility Commission. 'This is yet one more piece of the onion being peeled back. I'm disappointed in the company that it was not reported.'
Patrick Hager, PGE's manager of regulatory affairs, said the utility does take affiliate dealings 'seriously.'
'We were under the mistaken impression we did not need to file,' Hager said.
Company founded on high hopes
Portland General Distribution was launched in August 2000 to compete with AT&T and other companies in local exchange and long-distance toll telecommunication service. Like other local telecom startups, its plans went awry when stock values, capital investment and demand all declined.
The company said in a December 2000 business plan that it would 'leverage PGE's brand strength and distribution infrastructure to become a competitive overbuilder delivering video, data and telephony services.'
In the plan, Portland General Distribution executives proposed raising $387 million Ñ some of that in equity, secured debt and other means.
But it was PGE that paid the initial $2 million cost of the conduits in May 2000. According to a report by the public utility commission, PGE didn't want to get into the telecommunications business but helped Portland General Distribution because it didn't have franchise agreements in Beaverton, Wilsonville and other cities where it wanted to lay lines.
The subsidiary also wanted to take advantage of open trenches and install telecommunications conduits at the same time as other utility installations. PGE retained sole ownership of the conduits on the condition that the assets would be sold to Portland General Distribution as soon as the latter obtained the franchises in those cities.
Portland General Distribution repaid $875,865 of the $2 million loan in May 2001. Now, with the conduits empty, it has no way of raising revenue.
'PGE had a broadband company that was going to be the answer to the future,' Smith said. 'They realized they couldn't make it. They found it was a lot more complex and required more capital than they had.'
PGE calls it a minor expense
Portland General Distribution reported income losses in 2000 and 2001, but neither the company nor the public utility commission would release the financial statements on the grounds that they contain confidential proprietary information.
Portland General Distribution is not related to Enron Broadband, the scandal-plagued Internet division that is now under investigation by the U.S. Securities and Exchange Commission.
David White, PGE's counsel, said the expense was never included in ratemaking, did not affect its credit rating and was a small percentage (0.03 percent) of its total assets.
Jack Raiton, professor of accounting and corporate finance at Oregon Graduate Institute, said PGE investors had a right to know what the substance of the loan was.
'That's documentation the auditors look for,' said Raiton, the former corporate comptroller at Tektronix and chief financial officer at Planar Systems. 'Anytime there was an intercompany agreement, it should be documented.'