Portland may buy Enron's electric company to keep rates low


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The Seattle Times, August 29, 2002

By Daniel Taub
Bloomberg News

LOS ANGELES — The Portland City Council will consider bidding for Enron's biggest utility and may use government powers of condemnation to acquire the business from the bankrupt energy trader.

Portland General Electric (PGE), which the city tried to buy almost a century ago, was among the dozen assets Enron put up for sale Tuesday to pay off creditors owed more than $50 billion. Five years ago, Enron paid $3.1 billion for the utility, which some analysts say is the company's most valuable remaining asset.

In a 4-0 vote yesterday, the City Council authorized paying $500,000 to review purchase options. Local officials say they hope gaining control of the 742,000-customer utility will mean lower bills after a 40 percent increase last October.

Enron says it welcomes any bid as long as it isn't a forced sale.

"It's a very populist move to grab what they think has been taken away from them, which is control over their local utility," said Gary Ackerman, executive director of the Western Power Trading Forum, an industry group. "It's the consumers who win if they reduce the rates and who lose if they don't."

One way the city could take over Portland General would be to condemn its property, which municipalities can do to acquire land for public use, Commissioner Erik Sten said.

Enron spokesman John Ambler said "anyone is welcome" to bid on Portland General. The company would oppose attempts by the city to condemn the property, he said.

Failure to reach an agreement with Enron on a purchase price might require a judge to decide the matter in a condemnation case.

City officials say municipal ownership of Portland General would ensure low-cost electric service.

"Their cost of capital is lower, and they don't pay taxes," said Peter Navarro, an economics and public-policy professor at the University of California, Irvine, who studies energy issues.

Before yesterday's vote, Portland General Chief Executive Officer Peggy Fowler told the City Council the utility has performed well under Enron despite its parent's troubles, and will continue its commitment to the city.

"We've had a good record — an excellent record — of delivering safe and reliable power," Fowler said. "That hasn't changed. Simply put, PGE is not Enron. I am not here to defend Enron. If anyone has a right to be angry at Enron, it's myself and PGE employees."

An Oregon law may bar Portland from condemning utility-owned generators that burn natural gas and coal, which accounts for 36 percent of Portland General's power supply. Even if the law doesn't apply, the city would prefer to negotiate a price with Enron to avoid a protracted court battle, Sten said.

Under city ownership, the utility would have lower expenses for tax and interest payments, Sten said.

The city's general-obligation bonds are rated Aaa by Moody's Investors Service, Moody's highest rating. The city would issue bonds to finance the acquisition and pay them off with utility revenue, Sten said.

"We haven't actually determined that a public buyout, in any scenario that might develop, is the best one," Sten said. "It's just better than any scenario we can see developing right now."

Enron filed for bankruptcy in December after restating $586 million in profit and revealing a network of off-book partnerships used to hide debt and inflate profits.

Enron has since sold its energy-trading business and other assets.

In May, Portland-based Northwest Natural Gas canceled a $2.98 billion purchase of Portland General, citing complications from the bankruptcy proceedings.

Portland General and the Transwestern pipeline are "the pick of the litter" among Enron's remaining assets because they produce steady income through regulated businesses, said Art Gelber, president of Houston-based utility consultants Gelber & Associates.

Enron's creditors' committee hasn't "developed a view" on the Portland City Council plan, said Luc Despins, an attorney representing the committee. "We're aware of it, but we have not formulated a view on this yet," he said.

Portland isn't the only government eyeing the utility. Six Oregon counties are considering a joint offer through a company called Willamette Valley Power.

Like the city of Portland, Willamette Valley Power would hire a contractor to run the utility, said Kevin Padrick, an attorney serving as the group's consultant. Willamette's goals are similar to those of City Council members, Padrick said.

Enron said initial indications of interest for its assets will be due in October, with final bids due in November. Bankruptcy Court filings on asset sales would be in December.

"We have not made any decision either individually or collectively as a council of what our actions are going to be," Portland Mayor Vera Katz said before the vote. "All this is doing is bringing us to the table to have those discussions with those people who are very interested in making sure Enron's debts are paid off."