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News Release
Commission Rejects PGE Sale
March 10, 2005 (2005 - 007) (UM 1121)
Contacts: Lee Beyer, Chairman, 503 378-6611; John Savage, Commissioner, 503 378-6611; Ray Baum, Commissioner, 503 378-6611; Bob Valdez, Public Information Officer, 503 378-8962
Salem, OR - Today, the Oregon Public Utility Commission unanimously denied the application by the Texas Pacific Group (TPG) to buy Portland General Electric (PGE).
The Commissions findings and conclusions are set forth in a 76-page order.
"The potential harms or risks to PGE customers from the deal outweigh the potential benefits," said Commission Chair Lee Beyer. "Based on the evidence presented to us, we found that PGE customers would not be better off in terms of rates and service than they would with PGE as a separate, stand-alone company.
The Commission cited a large debt burden and short-term ownership as the major sources of risk while discounting the benefits of the deal alleged by TPG.
The large amount of debt to finance the purchase is the "primary source" of potential harm to PGE’s customers, the Commission order stated. "It is the single biggest source of risk," said Commissioner John Savage.
"The high debt percentage would likely result in lower credit ratings for PGE than it would in the absence of this transaction," states the order. Lower credit ratings for PGE could translate into higher future rates for customers.
The Commission also singled out the lack of an investment grade rating for Oregon Electric debt. "This increases the likelihood that PGE may need to engage in imprudent cost-cutting and reduced capital investment if earnings drop," the Commission wrote in its order.
The Commissioners also found that TPG’s intention to resell PGE within 12 years may lead to harm for customers. "While we did not agree with the parties’ assertions that TPG would slash costs, we could not dismiss all the risks associated with short-term ownership," said Commissioner John Savage.
The Commission expressed concern that TPG may fail to increase operations and maintenance spending where necessary and might not make discretionary investment that could benefit customers. These types of decisions would likely be more pronounced once TGP decides to sell PGE.
The Commission dismissed parties’ concerns about harm from the lack of access to information from TPG about PGE’s operation. "We would have the authority to get the necessary information directly from TPG that is related to PGE’s rates and service," said Beyer.
The Commission discounted or dismissed the benefits claimed by TPG.
TPG offered a customer rate credit of $43 million, spread over 5 years beginning in 2007. But the Commission heavily discounted this benefit because TPG’s proposal allowed it to be offset by any cost savings found in a future rate case.
"There will be some cost savings identified in the next rate case even if TPG doesn’t buy PGE," noted Commissioner Ray Baum, "so a rate credit with this kind of offset isn’t worth very much." The Commission was also troubled by TPG’s failure to identify the basis for the $43 million rate credit.
As part of the deal with TPG, Enron would provide some protection for customers from certain PGE and Enron liabilities.
For example, Enron would pay as much as $1.25 billion to cover PGE’s share of any losses related to lawsuits about Enron’s handling of its taxes and benefits. The Commission concluded that Enron would most likely provide this protection to PGE and its customers under any circumstances.
Enron would also pay as much as $94 million for losses from lawsuits over PGE’s activities, but the Commission discounted this benefit because customers may not pick up those liabilities anyway.
The Commission found no basis for TPG’s claims of a benefit to PGE customers from local board control and the end of Enron ownership.
Oregon Electric committed to seating five Oregonians on PGE’s Board of Directors as a way to "bring greater sensitivity to local issues." The Commission noted that "PGE currently has a local focus."
The Commission also found "the end of Enron ownership will occur without this transaction. The question is whether the immediate end of Enron’s ownership is a customer benefit. Today PGE is not a distressed company, either financially or operationally."
To evaluate the proposed transaction, the Commission compared TPG’s proposal to a future in which PGE operates as a separate, stand-alone utility.
"With Enron’s current hands-off approach, PGE is, essentially, acting as a stand-alone utility", the Commission wrote in its order, "There is little to suggest that PGE would operate differently" if PGE’s stock is distributed under Enron’s bankruptcy plan.
"PGE is operating well today, and we expect it to continue operating well," said Commissioner Beyer. "That was our base case."
The Commission did not consider the purchase of PGE by the City of Portland or another public entity. "No proposal was presented for us to consider," said Beyer.
The Commission offered no recommended conditions to eliminate the risks posed by the deal.
Commissioner Baum said that after considering this possibility, the Commission felt that the conditions are so interrelated that "we could not address them without substantially rewriting the application. That’s not the Commission role," he said.
"Customers will not see any change in service as a result of today’s action," said Chairman Beyer. "The lights will stay on and rates won’t change."
There are several possibilities for ownership of PGE in the future.
  • TPG could revise its application to address the Commission’s concerns. A revised application would be subject to public review.

  • PGE’s stock could be distributed to Enron’s creditors under the bankruptcy plan.

  • Another private company could buy PGE from Enron, a transaction that would be subject to Commission review.

  • A public entity could acquire PGE from Enron. The Commission may have no role in a public purchase.

  • Applicant could request reconsideration or appeal to Circuit Court.
Oregon Electric, a holding company created by Texas Pacific Group and local investors, proposed to purchase PGE for approximately $1.4 Billion. Oregon Electric would assume PGE existing debt of about $1.1 billion. The deal proposes that Oregon Electric and PGE combined will have approximately $1.7 billion in combined debt. Revenue from sales to PGE customers is the source of funds to finance the debt.
In April 2004, the Commission held five Open House Events and two Town Halls in PGE’s service territory for customers, stakeholders, and the general public to share their views on the proposed sale. The Commission also provided an online comment form on its website.
The case attracted an unusually high number of parties--47--including Commission staff that represented Oregon citizens. These include the Citizens’ Utility Board, Industrial Customers of Northwest Utilities, Associated Oregon Industries and the City of Portland, to name a few.
The Commission received 889 comments from the general public, 784 of the comments came via the Internet.
PGE serves about 755,000 customers in the northern Willamette Valley including Portland and most of Salem.
UM 1121 order