In the end, the relative stability and autonomy of Portland General Electric (PGE), despite being owned by bankrupt Enron Corp., defeated the proposed $2.35 billion purchase by private investors headed by Texas Pacific Group (TPG), according to background provided by the Oregon Public Utility Commission (PUC) in the wake of its unanimous rejection Thursday of the TPG offer because of its perceived excessive debt and risk.
TPG issued a statement indicating that it would study the PUC order and consider its options, which fall into three categories: re-filing a revised proposal, challenging the decision in court or walking away from the proposed deal. In the meantime, public sector proposals were expected to move forward at the City of Portland and in the state legislature where proposals have surfaced for buying PGE from Enron and turning the utility into a public-sector power provider. PGE's management has long maintained that it is opposed to a public takeover.
In total, there are at least five options for PGE's future ownership, but there is also a broader public policy question of why a second Western state regulatory commission in less than three months has rejected an offer to sell a healthy investor-owned utility to a private investment group using large amounts of debt. The Arizona Corporation Commission (ACC) in December rejected a bid by a private investors group headed by three major Wall Street buyout firms to purchase UniSource Energy Corp.
In the Oregon case, if none of the various private- and public-sector buyout options pan out, the worst case scenario would be that PGE would continue its ongoing operations under ownership divided among the 9,000 creditors in Enron's Chapter 11 bankruptcy, a move that the federal bankruptcy court has already approved.
"The end of Enron ownership will occur without this transaction," the PUC decision stated. "The question is whether the immediate end of Enron's ownership is a customer benefit. Today, PGE is not a distressed company, either financially or operationally. With Enron's current hands-off approach, PGE is, essentially, acting as a stand-alone utility."
Oregon's regulators concluded that PGE most likely would not operate any differently after having its stock distributed to the Enron creditors. In contrast, the PUC found "harms or risks to customers" outweighing potential benefits from the TPG purchase, which included too large an amount of debt ($1.7 billion) to suit the state officials, making the potential credit rating of the new holding company, Oregon Electric Utility Co., below investment grade, the regulators concluded.
"The high debt percentage would likely result in lower credit ratings for PGE than it would be in the absence of this transaction," the regulators' order stated.
Public power advocates, of whom there are many among elected officials at all levels in Oregon, were buoyed by the PUC's rejection. Dan Meek, an activist attorney heading his self-created Utility Reform Project, urged the City of Portland to continue with its plans for acquiring the private-sector utility through the bankruptcy court.
However, Meek said the TPG plan is not necessarily dead, pointing out that the would-be buyers could pump up the amount of equity and lower the new debt inherent in its deal that the PUC rejected. "TPG is putting up only about $50 million total in equity, while creating over $700 million [in] new debt, on top of PGE's existing $1 billion of debt," Meek said in a prepared statement, following the PUC announcement.
"Considering the low price TPG is getting from Enron, TPG could restructure the deal with far less debt and far more equity and still make about $1 billion in total profit over a five-year period, culminating with the sale of PGE to others."
Nevertheless, TPG was very circumspect, issuing this terse reaction through its Oregon Electric company in Portland: "Oregon Electric has received a copy of the Oregon Public Utility Commission's order, which was issued today. We will be undertaking a thorough and careful review of the order and evaluating our next steps."
In the wake of PUC decision, Oregon Gov. Ted Kulongoski said that regardless of the future path for PGE, the utility should remain in one piece and not be broken up into smaller entities. "I do not see how PGE customers would benefit from breaking the utility up into smaller, stand alone entities. Doing so would likely be counterproductive to the goals of affordability and reliability," he said.
The governor also said that if TPG decides against pursuing the PGE deal, "our first step will be meeting with representatives of the different proposals to learn more about their plans. We also plan to contact the bankruptcy court and other interested parties. Our primary goal will be to identify the different roles that the state may be able to play in charting a future for PGE."
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