The Associated Press

City: PGE ratepayers won't benefit from Enron plan

By GILLIAN FLACCUS
The Associated Press
7/11/2003

PORTLAND, Ore. (AP) — Enron's plans for Portland General Electric in its bankruptcy reorganization present a worst case scenario for ratepayers, who could see trickle down costs from lawsuits and other liabilities, the city of Portland and watchdog groups said.

In the plan, filed Friday after five deadline extensions, Enron said it leaned toward distributing the stock of its Oregon subsidiary to its creditors, who are owed $67 billion, but hadn't ruled out selling PGE. The utility is Oregon's largest and one of Enron's key assets.

"We are still considering two scenarios, both of which wind up in the same place for PGE," said Mark Palmer, Enron spokesman. "Either way, PGE will be independent of Enron, out from underneath this very distressing situation."

Part of Enron's plan, already approved by major creditors, says creditors will divvy up proceeds from asset sales and auctions and receive equity in two new companies — one domestic, the other international.

According to the filing, PGE would be spun off into a third independent company owned by Enron creditors with an independent board of directors and PGE's current management.

"We feel that those are both good options because at the end of the day, we're separated from Enron and we would continue to be an independent company headquartered in Oregon," said Kregg Arntson, PGE spokesman.

Enron has fielded a number of bids for PGE in the past 10 months, but so far has found them inadequate. Under the stock redistribution plan, Enron's creditors can maximize their payout by waiting for a more lucrative deal and selling PGE later.

The city of Portland, whose bid for PGE was rejected by Enron, said the cost of future investigations, lawsuits and potential fines would trickle down to PGE's nearly 750,000 customers in the form of higher electricity rates.

"Enron's management may see this as a way to pass off the cost of PGE's liabilities to the rest of us," said Commissioner Erik Sten. "We need to make sure that Oregon's interests are presented clearly."

City officials said they haven't given up on a PGE purchase.

Their options could include taking a city bid directly to creditors and convincing them to sell PGE or exercising the city's power of eminent domain by moving to condemn and take over the utility's assets.

Condemnation is a "legally murky" area because experts disagree on whether the city would also be able to take over PGE's out-of-state generating resources, such as its coal plant in Wyoming, said Bob Valdez, spokesman for the state's Public Utilities Commission.

Without those plants, the utility's already weak generating capacity would be further reduced, forcing PGE to buy more than 50 percent of its power on the volatile wholesale market, he said.

"If people are trying to create less uncertainty, than condemnation is not the way to do it," said Arntson, the PGE spokesman. "We're talking years of litigation and millions of dollars in legal fees."

John Ambler, spokesman for Enron, said the cost of liabilities would not be passed on to ratepayers under a new company.

"PGE is responsible for the liabilities it creates, but it's not responsible for the general liability of Enron," he said.

Oregon's PUC must also sign off on any rate increases caused by liabilities, something they would likely refuse to do, Arntson said.

Bob Jenks, executive director of the Citizens' Utility Board, a Portland watchdog group, said plans to redistribute stock to creditors doesn't provide the long-term stability that PGE needs.

"It's hard to see what ratepayers get out of the deal," Jenks said.

Any sale of PGE to a private purchaser would require the commission's approval; Enron's reorganization plan must also be approved by bankruptcy court.

Enron, No. 7 on the Fortune 500 in 2000, went bankrupt in December 2001 amid crippling revelations of hidden debt, inflated profits and vastly complicated accounting schemes designed to support its facade of robust financial health. Thousands of employees abruptly lost their jobs and stock that once traded at $90 shrank to pennies.