Face-off over PGE
A public power advocate and a new investor make cases for the battered utility's future
GAIL KINSEY HILL
Portland City Commissioner Erik Sten on Friday urged state regulators to reject Texas Pacific Group's offer to buy Portland General Electric, likening the Fort Worth-based investment firm to the tycoons of the 1920s.
"To understand what is happening to our community today, we must look back to the time when the term 'robber barons' was coined," Sten said at a City Club of Portland forum. "Because they are back, and they want our electric company."
Tom Walsh, a housing developer and longtime Portlander who would sit on a new PGE board should the deal go through, offered a far different assessment to the polite crowd gathered at the Multnomah Athletic Club. He described an enlightened ownership structure and a committed local team that would "bring PGE back to its roots."
The City Club meeting was designed to offer opposing views on an issue that has been in the news since a bankrupt Enron put PGE up for sale 11/2 years ago. Sten has advocated a city-led purchase of PGE while Walsh has emerged as a key component of the Texas Pacific deal.
The face-off between the two men offered the first high-profile look at what is certain to be a long and contentious debate over whether the Oregon Public Utility Commission should allow Texas Pacific to buy Oregon's largest utility.
Fort Worth-based Texas Pacific wants to acquire PGE from bankrupt Enron in a deal valued at between $2.35 billion and $2.5 billion in cash and assumed debt.
Enron and U.S. Bankruptcy Judge Arthur Gonzalez already have approved the transaction, but several state and federal regulatory reviews remain. The required approval of the Oregon PUC is expected to be the most combative. Public hearings are expected to begin this spring.
State regulators must decide whether new owners would bring a "net benefit" to PGE's 755,000 residential and business customers and to the state overall.
In an application filed Monday with the PUC, Texas Pacific said the transaction would restore stability to a utility wracked by uncertainty since the Enron bankruptcy in late 2001 and bring in a strong local board chaired by former Oregon Gov. Neil Goldschmidt.
Sten maintains that the Texas Pacific bid is too low and that the "fire sale price" is proof that this "new group of Texas speculators with the merest facade of local participation" is out to make a big profit at the expense of PGE ratepayers.
Sten and some consumer advocacy groups also critical of the deal say Texas Pacific should guarantee a rate cut for PGE customers. It also should provide a better plan for long-term stability, they contend.
Sten led an earlier push by the city to acquire PGE, but the deal ran aground on the legal requirements of the bankruptcy and, according to Sten, on Enron executives' refusal to take city negotiators seriously.
The city still may pursue purchasing PGE, Sten said, should the PUC reject Texas Pacific's offer.
Efforts remain active to form public utility districts in parts or all of PGE's six-county service area. Voters in Multnomah and Yamhill counties have rejected recent PUD ballot requests, but a renewed push is under way in southeast Multnomah County. Voters in Clackamas and Washington counties will have their say later this year.
Utility districts have the power to seize utility assets and run the system as a public entity governed by an elected board.
Walsh didn't address the issue of public utility districts, but he bluntly rejected Sten's claim that Portland could bid again for PGE. If the Texas Pacific deal falls through, the only option that Enron will consider is spinning off the utility through the distribution of PGE stock to Enron's creditors, he said.
Walsh insisted that the Texas Pacific proposal gives the state its best chance of recapturing a wayward utility and rebuilding "a great company."
"They've been through hell with Enron," he said, referring to PGE employees who watched in late 2001 as Enron's plummeting stock price decimated their retirement accounts.
Walsh maintained that Texas Pacific offered a fair price for PGE and that the investment firm, under the board's directions, would craft a long-term strategy for the utility. He rebutted the notion that Texas Pacific would quickly sell PGE, although he acknowledged that the firm's funds can't hold onto their investments for longer than 12 years.
In addition to Walsh and Goldschmidt, new PGE board members would include Gerald Grinstein, a Seattle native and chief executive of Delta Air Lines, and Texas Pacific principals David Bonderman and Kelvin Davis.
Goldschmidt, Walsh and Grinstein each would invest about $830,000 in Oregon Electric Utility Co., the holding company created to carry out the purchase.
Through its investment funds, Texas Pacific would kick in $419.5 million. The Bill and Melinda Gates Foundation and Oaktree Capital Management, acting as passive investors, would add $103 million, and bank loans and notes another $707 million.
Finally, $240 million in suspended dividend payments from PGE to Enron would bring total cash and debt financing to $1.47 billion. The resources would cover an estimated $1.4 billion price tag at the time of closing and $70 million in transaction fees and expenses.