The Portland Tribune, July 11, 2003

City loses bid for PGE

BY KRISTINA BRENNEMAN
The Tribune

The city of Portland's bid to acquire Portland General Electric has been rejected by Enron Corp., the utility's bankrupt parent.

The city's offer which reportedly totaled $2.2 billion and at least one other bid were deemed inadequate, according to Martin Bienenstock, Enron's bankruptcy counsel.

Enron is thus forging ahead with its plan to disperse the 42.75 million shares of PGE's common stock acquired when it bought the Portland utility in 1997 to Enron creditors.

Enron was expected to present the option today when it files its hefty reorganization plan in federal bankruptcy court in New York.

If the court approves the plan, a process that could take from several weeks to many months, it would make PGE a separate company owned by about 2,000 companies, banks and institutions.

"Obviously, no one has come up with an acceptable offer," said Fred Miller, vice president of operations at PGE. "If the city or anyone made an acceptable bid, it seems to me they'd have accepted it."

But city officials, who have devoted almost a year to acquiring the utility, said money was not the primary issue in the breakdown of negotiations with Enron. Instead, they pointed to lawsuits, government fines and other liability costs looming over customers.

Commissioner Randy Leonard said city officials tried to exclude liabilities from their deal with Enron and were rebuffed.

"I've become convinced as a result of those negotiations that they want PGE customers to be liable for some of their debt," he said. "These people don't give a hoot about Portland, Oregon. If Enron attempts to do something to hold Portland ratepayers liable, we do have the power of condemnation in our toolbox."

There are no plans to submit a new bid for PGE, Leonard said.

On hearing the commissioner's comments, Enron spokesman John Ambler shot back: "I certainly hope they are not violating the confidentiality agreement."

Commissioner Erik Sten, who spearheaded the city's pursuit of a takeover of the utility, insisted that a PGE acquisition is not dead. He said the city will carefully evaluate Enron's reorganization plan before it decides on its next move.

Besides condemnation, the city's options include appealing to the New York bankruptcy court or blocking the PGE stock spinoff plan through the Oregon Public Utility Commission, Sten said.

So far, the city has spent $850,000 on legal bills and other costs to pursue PGE.

"We're not walking away from this at this point," Sten said. "Now a bunch of banks own PGE instead of a bankrupt company. It's possible they'll sell it in the short term. We want to make sure they do the right thing."

Enron could resolve the city's liability concerns by guaranteeing in writing that ratepayers would be protected from costs, Sten said.

Another suitor

At least one other private company was seeking to buy the utility. It was rumored to be a leveraged buyout company with ties to Sierra Pacific Power Co., a Nevada utility that sought to buy PGE in 1999.

The PGE stock spinoff plan does not rule out a future sale, said Bienenstock, Enron's bankruptcy counsel, who is a managing partner at the New York law firm of Weil, Gotshal and Manges LLP.

"To date, no one has come up with an offer that is adequate," he said, adding that there was no reluctance "whatsoever" among Enron's creditors specifically about selling to the city.

"People thought this was going to be a bargain," he said. "Maybe bidders will go back and offer prices that are more fair."

Enron paid $3 billion for PGE six years ago. Two years later, it was set to sell it to Sierra Pacific for $2 billion, but Sierra terminated the deal at the onset of the Western energy crisis.

As recently as May 2002, the parent company planned to sell PGE to NW Natural for $2.9 billion, but the transaction foundered on the rocks of Enron's bankruptcy.

"If the buyer were to be assuming some of the liabilities due to certain mischief, or manipulation of the market, then maybe a discount is appropriate," Jim Bellessa, an energy analyst with D.A. Davidson & Co., said of the city's offer. Without the liabilities, "then they might have been trying to buy cheap. It's tarnished. You're buying something dented or scratched."

The Federal Energy Regulatory Commission is investigating Enron's and PGE's roles in manipulation of the energy market during the Western power crisis two years ago, and the utility is named as a party in other state investigations and lawsuits.

The city attorney's office rejected a Tribune request under Oregon Public Records law to provide the city's bid for PGE and the response from Enron.

Second time around

The current reorganization plan, including the possibility of a sale, was first floated by PGE two months ago.

Under the plan, Enron creditors would control PGE and decide when to sell, Bienenstock said. The stock would be listed on a national stock exchange, with no one of the 2,000 creditors controlling more than 2 percent of the stock.

"There are no dominant owners, no controlling interest of the claims," said Bienenstock, who said there are $200 billion in pending claims against Enron.

PGE is expected to get a new board of directors the board is now made up largely of Enron members within a year.

Jason Eisdorfer, energy program director for the Citizens Utility Board of Oregon consumer watchdog group, said a stock reorganization would not necessarily bring PGE stability.

"These are creditors who owned Enron money and had no intention of becoming shareholders of PGE," he said. "It's very likely they will turn around and sell PGE in a couple of years. It's absolutely necessary the public utility commission examine this plan."

PGE has two courses of action, Eisdorfer said: Prove to federal energy investigators that the utility did no wrong, and wait for the economy to improve to seek more money in a sale.

"It's a high-stakes gamble," he said.

PGE's Miller downplayed concerns that the utility's customers would be stuck with liability costs, including lawsuits and possible fines from federal and state investigations into the Western power crisis of 2001-02.

The only fees that PGE customers may face is in cases where they benefited from rate savings, as was the case in California, he said.

"The city is conjuring up an enemy," Miller said.

Oregon Public Utility Commission Chairman Roy Hemmingway stressed that he would not allow customers to pay for any PGE wrongdoing. He said the commission may decide to investigate the impact on PGE if there is a redistribution of stock to creditors, including liability concerns.

"PGE and Enron's intention is for it not to hurt ratepayers in any way," he said.

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