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Spinoff option: Will it fly for PGE?

Enron's idea to give creditors ownership stirs concern over long term

The new owners of Portland General Electric could fill a stadium if bankrupt Enron Corp.'s latest plan for unloading its subsidiary ultimately is adopted.

Energy traders, banks, insurance companies, even the company that supplied a fleet of cars ÑÊEnron creditors all ÑÊwould receive shares of PGE's stock in partial payment of the bankrupt Texas energy trader's massive debt.

Under the plan, floated for the first time last week, Enron would distribute PGE's stock to its creditors if it can't sell the utility for the price it wants in an ongoing auction process. Enron owns all 42.5 million shares of the utility's stock.

There are about 26,000 claims against Enron, mounting into multiple billions of dollars, ranging from $500 million owed J.P. Morgan Chase & Co. to the $200 owed Portland's Great Harvest Bread Co. for turkey sandwiches and muffins.

'Many creditors who receive this stock will trade it immediately; many will hold it because they think it's a good investment,' said Robert Bingham, a restructuring consultant with Kroll Zolfo Cooper LLC who also is a PGE board member.

If the spinoff idea flies, PGE would become an independent company 'much like we were before Enron,' Peggy Fowler, the utility's chief executive officer, said in newspaper ads published last week.

How long it would remain independent, however, is unclear.

'Once distribution starts, neither Enron nor the creditors committee really have the power to determine what happens to PGE,' Bingham said in an interview at PGE headquarters. But, he added, it's 'highly unlikely' that any one creditor could gain control and sell PGE.

Portland stays in auction

Bob Jenks, executive director of the Citizens Utility Board of Oregon, disagreed, saying the creditors would wield power over PGE through its board of directors. And when the economy recovers, he predicts, they'd sell the company.

'They will still have a board that is not interested in the long-term interests of the company,' he said. 'PGE needs ownership that is interested in long-term resources and capital commitment. There isn't anything about this plan that indicates stability.'

The stock distribution idea was floated Thursday in PGE's quarterly report to the U.S. Securities and Exchange Commission.

Enron's reorganization plan must be approved by a New York bankruptcy judge and the creditors committee. The company reportedly will not agree to sell PGE for anything less than

$2.6 billion, sources say. It paid $3.1 billion for the utility in 1997.

Jenks saw the latest stock plan as a ploy to nudge potential bidders, including the city of Portland, into raising the price they would pay for PGE. Commissioner Erik Sten, who is leading the city's effort to purchase the utility, also was skeptical of Enron's motives.

'The creditors control the situation,' he said, 'and if they keep the stock, they feel they can get more money out of Oregonians. After all the broken promises and misdeeds done to our state, we're being asked to jump to the conclusion that everything is going to be fine without any real plan.'

Sten said the city will stay in the auction process until the end and would either buy PGE or work to ensure that Oregon ratepayers are protected.

Criteria winnow buyers

PGE has been on the auction block since August 2002, weathering court delays, lack of buyers and, at one point, the possibility of Enron rolling the local utility into a reorganized energy company, OpCo.

'Everybody has been expecting the announcement about who our new owners are going to be,' Fowler said during an interview in her office Thursday. 'It will be awhile before we have that. Externally, it's pretty clear now that Enron will not be the owner of PGE.'

Bingham met with members of the Oregon Public Utility Commission on Thursday to update them on the bankruptcy process and the auction. He said several parties are interested in buying PGE, but there is no guarantee they will make offers that meet Enron's two criteria.

First, they must offer a price that creditors perceive as being reasonably close to the value of PGE's stock.

'There is some number at which the committee would say it's worth selling, even though it's less than I think it's worth,' Bingham said. 'Unless an offer comes up to that level, I don't think the company or the committee would entertain it.'

The second criterion, Bingham said, is that the buyer have the financial wherewithal and the right connections so that state utility regulators and other constituencies would take a favorable view of the transaction.

Bingham predicted that no determination is likely to be made until June on which option, a sale of PGE or the stock distribution, would go forward.

'It became clear around the end of last year that many of the assets were going to be difficult to sell,' Bingham said of the market dip. 'It's not a great market to sell in. Somebody said if (investor) Warren Buffett is buying pipelines, it's probably not a great time to be selling them.'

Even if an acceptable buyer for PGE materializes, Bingham said, the transaction would have to clear a number of hurdles Ñ including OPUC approval and investigations related to PGE's alleged manipulation of the trading market.

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