The Oregonian

Enron Pockets PGE's Tax Payments

02/03/02

JEFF MANNING and GAIL KINSEY HILL

Portland General Electric collected more than $357 million from ratepayers during the last four years to cover its federal income tax bills. The money ended up in the coffers of its parent company, Enron, which reportedly paid no federal income taxes in the last three years.

Enron paid just $17 million in federal income taxes for 1997, the year it bought PGE, and no federal income taxes in the three following years, according to Citizens for Tax Justice, a public interest group that advocates tighter tax laws.

In the years it owned PGE, Enron reported more than $2.68 billion in profits. With big losses elsewhere in its organization and tax-shelter subsidiaries in the Cayman Islands and other tax havens, Enron was able largely to avoid federal income taxes.

Nevertheless, Enron's Portland electric utility continued to send huge tax checks -- $89.3 million a year on average -- to its parent company from 1997 to 2000.

The Oregon Public Utility Commission allows the utilities it regulates to consider tax liabilities as part of its cost structure in setting its rates to consumers. In this case, because PGE is a subsidiary, the utility sent its payment for taxes to its Houston-based parent.

Ken Canon, director of Industrial Customers of Northwest Utilities, said state regulators should reconsider the way taxes are included in rate-making. The method may have worked with locally based utilities, he said, but it may treat ratepayers unfairly when owners are based outside the state.

"This is a new dynamic -- outside companies owning local utilities," Canon said. "The question the PUC has to ask is whether we're using Oregon customers' money to help subsidize the money-losing activities of Enron."

Today, Enron is bankrupt and mired in a national scandal. Thousands of employees, including hundreds in Portland, have been laid off. Others have suffered devastating losses to their retirement savings as Enron's stock has crashed. PGE is looking to its much-smaller cross-town neighbor, Northwest Natural Gas Co., to buy the company, rescuing it from the chaos of Enron's bankruptcy proceeding.

PGE officials confirmed that it sent the tax payments totaling $357 million to Enron, which filed a consolidated return for all of its holdings. What happened to the money then is Enron's concern, not PGE's, they said.

"We were following the letter of the law," said Scott Simms, PGE spokesman.

Enron officials did not return phone calls.

Other critics question whether the Oregon Public Utility Commission, whose charge is to set utility rates and protect the interests of ratepayers, should have allowed the payments.

"PGE's rates were constructed anticipating that $90 million a year would be paid in taxes," said Dan Meek, a Portland lawyer and utility consumer activist. "That wasn't happening here. Enron was pocketing the money. I wonder why no one at the PUC stepped in."

PUC officials said PGE taxes were handled appropriately. Utilities are allowed to collect sufficient revenue to cover costs, including taxes, said Marc Hellman, administrator and finance policy analyst for the PUC.

"I don't think there's an issue there," Hellman said.

Ever since Enron and PGE began negotiating their merger in 1996, both proclaimed the benefits to ratepayers. PGE executives and state regulators repeatedly spoke of the rigid "firewalls" preventing high-flying Enron from taking undue advantage of its Portland operation.

In the 41/2 years Enron has owned PGE, it has received at least $608 million in profits and taxes from the Portland utility.

To cover PGE's federal income tax bill in 1997, the company sent $119.5 million to Enron. The parent company, in turn, paid a total of $17 million in federal income taxes.

In the following three years, PGE sent $73.9 million, $81.6 million and $82.1 million, respectively, to cover its tax liability.

Enron paid no federal income tax in any of those years, according to Citizens for Tax Justice, which on Jan. 17 released a detailed analysis of Enron's tax payments based on the company's own financial statements. The 23-year-old nonpartisan group's analysis has been widely cited.

The money PGE paid for federal taxes came directly from ratepayers, Simms confirmed.

In the fall of 2001, PGE raised rates 31.5 percent for residential users and 50 percent for commercial users.

In addition to the tax money, PGE paid $251 million in profits to Enron from 1997 to the third quarter of 2001.

Enron did its best to "pick PGE clean," said Erick Johnson, a Portland lawyer who represents utilities but does not represent PGE or Enron.

There is apparently nothing illegal about the Enron-PGE arrangement. Losses elsewhere in Enron's vast and tangled corporate structure offset the taxable income at PGE, said Bob McIntyre, director of Citizens for Tax Justice.

Tax benefits from the company's employee stock options, 401(k) contributions and benefits from more elaborate tax strategies netted Enron a federal income tax rebate of $396 million from 1998 to 2000, according to data assembled by McIntyre's group. Enron's estimated 800 tax shelter subsidiaries established in the Cayman Islands and elsewhere were among those strategies.

Corporations have become increasingly aggressive in avoiding taxes.

"The last couple years have been pretty evil," McIntyre said. "The pressure from the corporations and their accounting firms has been intense."

Jeff Manning can be reached at 503-294-7606 or by e-mail at jmanning@news.oregonian.com. Gail Kinsey Hill can be reached at 503-221-8590 or by e-mail at gailhill@news.oregonian.com.