Rate cuts absent from application to buy PGE
Texas Pacific says it would bring stability and a local touch to the state's largest electric utility, but customer groups want rate relief
Texas Pacific Group filed with state regulators Monday its anxiously awaited application to acquire Portland General Electric and in so doing drew a line in the sand that sets up an almost certain clash with customer groups.
The plan filed with the Oregon Public Utility Commission kicks off an approval process in which Texas Pacific must show that its acquisition of PGE, Oregon's largest electric utility, from Enron would be in the "public interest."
The investment group, based in Fort Worth, Texas, said its proposed purchase would restore some badly needed stability to the local utility as well as local influence. Absent from the application was any mention of rate cuts.
Customer advocates repeated Monday their view that state regulators shouldn't approve the deal unless Texas Pacific can promise rate reduction or other more specific customer benefits.
Texas Pacific's plan instead focuses on distinctions between it and Enron, which was a controversial owner even before its fraud-ridden descent into bankruptcy.
"I place a very large premium on the benefits of this company going back to focus on its core business," said Neil Goldschmidt, the former Oregon governor, who was recruited by Texas Pacific to be part of its investment group. Goldschmidt will serve as chairman of the Oregon Electric Utility Co. -- the company created to acquire PGE.
That's not what some groups waiting for the application wanted to hear.
"This is one of the highest-priced utilities in the Northwest," said Jason Eisdorfer, a lawyer for the Citizens' Utility Board, which represents residential customers. "If you're really concerned about the region and its people, you need to talk about providing some rate relief."
Enron had emphasized wholesale electricity trading, telecom services and other ventures that it considered potentially more profitable than running an old-fashioned utility. Investigations since the Houston-based company's collapse have uncovered possible wrongdoing in many of those operations. Enron's energy-trading schemes contributed to electricity price increases.
Texas Pacific announced in November that it had reached tentative agreement to buy PGE from Enron for $2.35 billion in cash and assumed debt. The prominent investment fund enlisted a trio of local luminaries -- Goldschmidt, Portland businessman Tom Walsh and Seattle executive Gerald Grinstein -- to serve on PGE's board.
Texas Pacific needs approval from the PUC to go forward with the acquisition. The firm asked the PUC to approve or reject the deal by September.
In its application, Texas Pacific lists six ways in which its proposed acquisition will benefit customers:
It will rid Oregon of Enron and put PGE in the hands of strong, stable ownership.
It will re-establish "local focus" through the presence of Goldschmidt; Walsh, a developer and former Tri-Met director; and Grinstein, former chief executive officer of Burlington Northern and current chief executive of Delta Air Lines. The trio will invest $2.5 million personally in the deal.
The utility would recruit a first-class board.
The purchase would "reinvigorate board-level strategic direction and long-term planning."
Under Texas Pacific, PGE would make new capital investments to ensure reliability as well as the acquisition and development of new power resources.
The company's new board would reinforce PGE's efforts to improve performance and instill financial discipline.
The PUC has scheduled a prehearing conference on the application for March 16, at which time the commission will determine the timetable for the case. Typically, such a review takes nine months, said a PUC spokesman, Bob Valdez.
At first glance, key players in the PUC review said they see very little to like in Texas Pacific's application.
"What is stunningly omitted here is any discussion of driving down rates to where they can be competitive," said Ken Canon, executive director of Industrial Customers of Northwest Utilities, a trade group representing large industrial users of electricity.
PGE raised rates for industrial customers by 50 percent in 2001.
Canon and others questioned the relevance of the "significant Oregon representation" on the proposed PGE board. Goldschmidt, Walsh and Grinstein will own 95 percent of the voting stock of Oregon Electric, according to TPG's application and Texas Pacific would own 5 percent of the voting stock. But Texas Pacific will own nearly 80 percent of the equity of the acquired company, while the local trio will own less than 1 percent.
Critics also questioned Texas Pacific's claims that it will bring stability to PGE. The equity investment firm typically sells off its holdings after just a handful of years and can, by its own internal rules, hold no asset longer than 12 years.
"It doesn't look like there are a lot of specific public benefits," said Erik Sten, the Portland City commissioner who fought for a city takeover of the utility. "But I want to take a good look at the filing."
Eisdorfer, of the Citizens' Utility Board, said his immediate response was to oppose Texas Pacific's acquisition.
"If this becomes a case of benefits by platitude, the deal is in trouble," Eisdorfer said. "TPG has the burden of proof in this case on why it should be approved. And there's not a lot of meat on this bone. Our initial reaction is, it's not good enough."
Rate cuts possible later
Goldschmidt did not rule out the possibility of rate relief as he and Texas Pacific learn more about PGE's business and possibly find ways to reduce costs. He said one of the biggest attractions of the deal for him was the possible scenario of Texas Pacific ultimately spinning off PGE and restoring it as an independent, stable operation.
Texas Pacific is one of the nation's largest equity investment firms with stakes in about 30 companies, which collectively employed 250,000 people and generated combined revenues of $36 billion last year.
The Oregon Public Employees Retirement System is the single largest investor in Texas Pacific's various funds. That fact has prompted conflict of interest questions for Goldschmidt, whose wife sits on the Oregon Investment Council, which oversees investments of the huge public pension fund.