BEFORE THE OREGON PUBLIC UTILITIES COMMISSION

UM 814

        Lloyd K. Marbet, the Utility Reform Project, and the Don't Waste Oregon Council [hereinafter "we"] oppose approval of the proposed Enron purchase of PGE.

        The purchase would harm PGE ratepayers and impair the development of competitive markets in power supply and energy conservation. The conditions of the "Stipulation" (April 30, 1997) among some of the parties in this proceeding do not come close to adequately compensating PGE ratepayers for the harm this merger threatens.

        Imagine for a moment that the sale of gasoline in the Portland/Salem metropolitan area were a state-regulated monopoly, retailing gasoline purchased by the "Transfuel Company" from any number of sources and transported via the company's long-distance gasoline pipelines. Transfuel would search the region for the best deals on wholesale gasoline. It would also use its pipeline capacity to make money buying gasoline from Northwest sources of refined products and selling it in California, with the money credited to reduce the price of gasoline it sells in its Oregon service area.

        Now imagine that Transfuel were purchased by Texaco. No amount of regulation within the capability of the Oregon Public Utility Commission (OPUC) could prevent Texaco from making use of Transfuels assets and strategic position for the benefit of Texaco stockholders. Transfuel would no longer be unconstrained in its search for low-cost supply and would no longer enjoy use of its own pipeline capacity to generate revenue from brokering petroleum products to California. That is what the Enron merger offers to PGE ratepayers.

I.      THE MERGER WOULD CONTRADICT UTILITY RESTRUCTURING TO ENHANCE COMPETITION.

        The Enron merger would move in a direction opposite from the "electric utility restructuring" notions prevalent throughout the nation. While regulators and legislatures are busy developing frameworks for separating the generation, distribution, and in some cases retailing functions of the currently integrated electric utilities, the Enron merger would consolidate what is primarily a distribution and transmission company (PGE) with a supplier and broker of energy (Enron), thus increasing vertical aggregation instead of reducing it.

        The only provision in the "Stipulation" addressing this problem is Condition 22, which merely obligated PGE to file a plan for customer access "to choose their electricity provider." Perhaps use of the singular term is more than a grammatical error. In any event, filing a plan does not make open access or competition happen, as none of the terms of the plan are specified. PGE could offer a plan that would further harm ratepayers and the cause of competition.

II.     THE MERGER WOULD AFFORD OPPORTUNITIES FOR CROSS-SUBSIDIZATION AND REDIRECTION OF REVENUE FROM WHOLESALE SALES NOW CREDITED TO OREGON RATEPAYERS.

        The merger would also join a regulated monopoly with an unregulated private corporation, thus giving rise to opportunity for cross-subsidization in the forms of the shifting of costs to the regulated entity and of revenue streams to the unregulated entity. The OPUC is well familiar with this problem, having witnessed it in the case of US West Direct and the Yellow Pages. In the case of PGE, the utility has currently averages more than $100 million per year in revenue from sales for resale, mostly to California.

        Enron could redirect some of this type of revenue by manipulating the PGE assets it is acquiring, particularly PGE's 800+ megawatt share of the Pacific Intertie transmission system between the Northwest and California. Currently, PGE buys low-cost power in the Northwest and sells it elsewhere (mostly to California over that transmission system for a profit. That profit is then accounted for in determining rates for PGE's ratepayers in Oregon, as it is the property paid for by those ratepayers that enables such sales to be made.

        Enron could divert this revenue to the corporate parent. A simple example: Enron/PGE might reduce the price of Northwest power sold to California while at the same time making deals with the California utilities for them to buy Texas gas from Enron at a healthy mark-up. That would reduce the revenue available to reduce electric rates in Oregon, while increasing Enron's unregulated profits.

        Protecting Oregon ratepayers from complicated shell games will be an entirely new and more difficult task for the PUC. Such transactions would simply become a subset of Enron's complex wholesale dealings throughout the West, requiring the Oregon PUC to keep detailed records on all Enron transactions throughout at least western North America. Enron now claims most company information is confidential.

        The OPUC Staff itself has admitted its probably inability to effectively police Enron: "Staff is confident that it can effectively regulate PGE as a stand-alone company. It is not nearly as confident of its ability to regulate PGE as a part of Enron."

        We question whether the mostly meaningless promises in the "Stipulation" are worth placing Oregon ratepayers in harm's way.

III.    THE "STIPULATION" IS MOSTLY MEANINGLESS, UNENFORCEABLE, AND NOT ENOUGH.

        A.     MEANINGLESS CONDITIONS.

        Most of the "Stipulation" is a recitation of conditions that the OPUC could and should adopt on its own authority. They do not require the agreement of Enron and PGE. These include Conditions 1-9, 11-14, 16, 18.

        B.     OVERLY VAGUE CONDITIONS.

        Other of the Conditions could be meaningful but are too vague to be enforceable. These include:

        C.     POSITIVELY HARMFUL CONDITIONS.

        Other of the Conditions are positively harmful to ratepayers and to competition in the fields of energy supply and conservation. Condition 17 establishes a system for withholding of customer information from PGE affiliates and from companies not affiliated with PGE, while allowing PGE itself to use the information in ways harmful to competition. For example, without reasonable access to customer-specific usage data, the marketplace will find it extremely difficult to provide cost-effective energy efficiency and low-income services, especially for residential, low-income and small commercial customers. There is ample precedence to allow for the dissemination and use of such information to achieve energy efficiency and low-income equity goals, as demonstrated in numerous instances in which utilities have provided such data without customer pre-approval to independent third parties involved in measuring and evaluating programs, in undertaking low-income weatherization programs, and in DSM bidding and other DSM programs.

        Instead of making customer usage information available, with safeguards, to potential competitors with the utilities, Condition 17 gives the utility, PGE, a complete monopoly on use of this information, thus giving PGE an insurmountable competitive advantage in the provision of energy efficiency services in the residential and small commercial sectors. Condition 17 appears to assume that PGE itself will not be engaged in any businesses subject to competition, but there is no legislation or CPUC requirement in Oregon that PGE leave the field of energy conservation, which should be competitive, not monopolized due to the utility's unique access to customer usage data.

        Any of the proposed requirements or tools to secure prior approval for energy service contractors will result in reducing the eligible or targeted DSM participants. Since 100% of the customers will be required to finance the Public Goods Charge (PGC), this means that some customers paying for the DSM services will not be offered those services.

        While there may be some tiny privacy concern about using the data, it is dwarfed by the unfairness problems inherent in any system will which will systematically prohibit or discourage qualified ratepayers from participating in and receiving the benefits of those programs.

        D.     SUBSTANTIVE REVENUE-RELATED CONDITIONS.

        The substantive revenue-related conditions (Conditions 19-20) have been portrayed as providing to PGE ratepayers a benefit of $141 million. They do not.

        First, Condition 19 is worded in a manner that makes it meaningless. The alleged $9 million annual credit will likely not occur, as it would begin in mid-1998 (12 months after completion of the merger) but truncate on "the effective date of new tariffs following a general rate case." Thus, if there is a general rate case prior to the year 2002, ratepayers will not receive the full credit. If a general rate case produces new tariffs in mid-1998, for example, then ratepayers would receive essentially zero credit.

        Condition 19 continues:

In the event that the actual savings are less than the guaranteed amount of $9 million per year, when determining the new tariffs, PGE will adjust its cost of service to reflect a total merger related cost of service reduction of $9 million in such new tariffs for a period not to extend beyond five years after merger completion.

To begin with, the "in the event" clause in this provision has no predicate, as the term "actual savings" is never defined or even used in any other clause in the "Stipulation." Second, this shows that PGE is actually proposing to provide zero guaranteed rate benefits. What PGE should be proposing is to charge rates for 4 years that are $9 million per year less than its overall cost of service as determined in the next general rate case. Instead, PGE is proposing in the next general rate case to claim that certain cost reductions actually realized by the utility were "merger-related." To the extent PGE can identify $9 million of such alleged cost reductions (not too hard when the overall cost of service is over $800 million), it will claim to have satisfied this condition--even though the result will be no benefits to ratepayers whatever.

        Condition 20 offers a serious threat to ratepayers. It states that the $105 million credit to ratepayers upon merger completion eliminates all claim PGE ratepayers may have on PGE's business relationships, wholesale activities, and non-franchise retail activities. This is grossly insufficient to compensate ratepayers for their investment in PGE transmission facilities. The OPUC has held ratepayers responsible for paying the cost of PGE's negative-value assets. In 1995, for example, the Commission ordered ratepayers them to pay some $555 million over 17 years to compensate PGE shareholders for their investment in the abandoned Trojan nuclear power plant (in addition to all decommissioning costs). Condition 20 offers the prospect for ratepayers to lose their claims to PGE's positive-value assets, particularly its share of the Pacific Intertie transmission system. It is that system that has enabled PGE to produce large revenues from wholesale power sales, even during years (1992-95, for example), when PGE had insufficient generating resources to provide the power consumed by its native "franchise" load.

        Note that the "Exclusions" to Condition 20 are not effective to protect ratepayers. They refer to revenue from the use of "PGE resources" but use that term, quite clearly, to refer to PGE generating resources, not to PGE transmission system resources. Exclusion 2, for example, states that ratepayers will continue to be credited with revenue from PGE's short-term power sales (one of a myriad of undefined terms in the "Stipulation") "only in the event that PGE has surplus resources t the time it enters into such sales." Thus, the term "resources" apparently refers to generation, not to transmission. Exclusion 2 is harmful in itself, by apparently granting to Enron stockholders the revenue from short-term power sales by PGE, provided PGE is generation-deficient (which has been PGE's condition since the closure of Trojan). PGE generates wholesale revenues by using its Pacific Intertie transmission capacity to broker power between the Pacific Northwest and Pacific Southwest regions, whether or not PGE owns sufficient generation to meet its native load.

        E.     PROCEDURAL "PROVISIONS".

        We of course disagree with the notion that the "Stipulation" and other materials "shall be entered into the record as evidence," as the "Stipulation" includes in its Other Provisions. None of the documents mentioned constitute evidence, as none has been offered in an evidentiary proceeding.

        Parties to the "Stipulation" may have a misconception of the term "evidence.". Not just any document in the agency record is "evidence." To the contrary, the "evidence" in a contested case is the sworn testimony of witnesses.

In a contested case, by contrast, the issues are supposedly framed by preexisting criteria. Arguments are to be presented by parties and testimony by sworn witnesses. ORS 183.415.

Marbet v. PGE, 277 Or 447, 461, 561 P2d 154 (1977). ORS 183.415(8) provides:

Testimony shall be taken upon oath or affirmation of the witness from whom received. The officer presiding at the hearing shall administer oaths or affirmations to witnesses.

ORS 183.450(2) provides:

All evidence shall be offered and made a part of the record in the case, and except for matters stipulated to and except as provided in subsection (4) of this section no other factual information or evidence shall be considered in the determination of the case. Documentary evidence may be received in the form of copies or excerpts, or by incorporation by reference. The burden of presenting evidence to support a fact or position in a contested case rests on the proponent of the fact or position.

"Offering" of evidence in a contested case means providing a sworn witness for it. ORS 183.450(3) provides:

Every party shall have the right of cross examination of witnesses who testify and shall have the right to submit rebuttal evidence.

        In a contested case, the agency is acting in a judicial or quasi-judicial capacity. These statutes establish that evidence in a contested case must be actual "evidence," even if application of the Oregon Rules of Evidence (ORE) is not mandatory.

Statutory contested case procedures include the opportunity for discovery, subpoenas, sworn testimony and cross-examination.

Oregon Business Planning Council v. LCDC, 49 Or App 153, 264, 619 P2d 1291 (1981).

        A determination that a particular transaction involving a regulated utility will or will not result in benefit to ratepayers is certainly one that necessitates contested case procedures to establish facts by means of evidence.

        ORS 183.310(2)(a) defines "contested case" as

a proceeding before an agency:

                         (A) In which the individual legal rights, duties or privileges of specific parties are required by statute or Constitution to be determined only after an agency hearing at which such specific parties are entitled to appear and be heard;

                         (B) Where the agency has discretion to suspend or revoke a right or privilege of a person;

                         (C) For the suspension, revocation or refusal to renew or issue a license where the licensee or applicant for a license demands such hearing; or

                         (D) Where the agency by rule or order provides for hearings substantially of the character required by ORS 183.415, 183.425, 183.450, 183.460 and 193.470.

This proceeding would fall within this definition. And, to ensure that a contested case hearing is conducted, we will if necessary file a complaint under ORS 756.500(1) to allege that PGE's action in accepting merger with Enron will harm ratepayers and violate various provisions of law, including that requiring the demonstration of benefit for ratepayers.

IV.    THE "MOU" IS MOSTLY MEANINGLESS, UNENFORCEABLE, AND NOT ENOUGH.

        On the MOU (see Condition 18), it obligates PGE to spend $1 million per year for 10 years on fish and wildlife projects to be selected by the consensus of a "steering committee" consisting of PGE and the various environmental groups that signed the MOU. In addition, PGE grants $500,000 for the pet projects of the groups. The rest of the MOU is essentially meaningless. PGE promises to develop "a suitable geothermal project or projects of at least 22.5 MWa in total," but that promise has no deadline. PGE promises to "follow through with the 25 MW wind project at Vansycle Ridge," whatever it means to "follow through." The parties to the MOU "recognize that PGE will have the opportunity to recover above-market costs attributable to the projects." This gives PGE an opportunity to avoid its potential obligations, should the OPUC decline to charge such costs to ratepayers.

        The MOU obligates PGE to make a filing with the OPUC to implement conservation in accordance with the Comprehensive Review. This also is meaningless. PGE can make a bad filing that will be rejected. Further, the Comprehensive Review was itself dominated by the utilities and called for the utilities to maintain a ratepayer-funded monopoly on conservation in their service areas. It is highly anticompetitive and in the long run harmful to the development of energy conservation as a viable service.

        There is a provision on "low income" in the MOU, but its language is too vague to impose any enforceable obligations on PGE, except to make a $50,000 grant in 1997 for "the organization sponsoring the best proposal to develop increased volunteerism or other sources for funding energy bill-paying assistance."

        Note that PGE got even more from the groups signing the MOU than acquiescence on the merger. They got the groups to acknowledge that "PGE will be relicensing all its hydroelectric projects over the next decade." This may come as a surprise to the Warm Springs Tribes and others.

CERTIFICATE OF SERVICE

        I hereby certify that I served the foregoing COMMENTS OF LLOYD K. MARBET, DON'T WASTE OREGON COUNCIL, AND UTILITY REFORM PROJECT by mailing a true and correct copy thereof, placed in a sealed envelope and deposited in the U.S. Postal Service at Portland, Oregon, on May 2, 1997, with the postage prepaid, to the service list in this proceeding. I also faxed the document to the PGE legal office.

Dated: May 2, 1997 

__________________________

Daniel W. Meek