Northwest Natural Gas Co. confirmed Friday that it is negotiating with Enron Corp. to buy its slow growing electric utility Portland General Electric Co. (PGE), but added “there can be no assurances that any transaction will result” from its negotiations. Enron has been trying to sell the utility for nearly two years, and was close to completing a $3.1 billion deal with Sierra Pacific Resources, but that sale fell apart nearly six months ago in the midst of the California energy crisis (see NGI, April 30).

A potential purchase price for PGE, which serves 1.4 million customers in Oregon, is now estimated to be around $2.8 billion, which would include cash, stock and assumed debt, according to The Wall Street Journal, which first reported that negotiations were taking place between Houston-based Enron and Portland, OR-based Northwest Natural. Northwest Natural currently serves more than half a million customers in Oregon and Washington, and has an estimated value of $652.8 million. Its purchase of PGE would include the assumption of nearly $1 billion in debt.

A deal, which would give Northwest Natural another chip to play in buying natural gas for its power plants, would also reunite Richard G. Reiten, Northwest Natural’s chairman and CEO, with PGE, where he had served as president and COO between 1989 and 1996.

According to First Albany Corp. analyst Bob Christensen, a deal between Enron and Northwest Natural would benefit Enron, calling PGE a “low single-digit earnings grower.” He said that PGE represented 8% of Enron’s projected 2002 earnings before interest and taxes (EBIT), and “we were looking for PGE’s EBIT to grow 1% in 2002.”

Cash generated by the sale would “presumably go to Enron’s high growth trading business, which is growing at over 25% per annum rate; has over 20% rate of return on invested capital; and would become a bigger percentage of overall earnings.” Christensen added that for Enron, “the sale would be accretive by $0.05 per share…Enron would earn $2.25 per share in 2002 versus our previous estimate of $2.20.”

Enron acquired PGE in 1997 to serve as a platform for selling power in California’s deregulated market. However, since that time, the mega trader has moved away from power plants and has concentrated on its trading business. Sierra Pacific, based in Reno, had agreed to purchase PGE in November 1999 and had gone to great lengths to win regulators’ approval (see NGI, Nov. 15, 1999).

Earlier this month, Enron agreed to sell its oil and gas fields in Indian to BG Group Plc for $388 million. Its stock has fallen almost 60% this year, in part because of the resignation of CEO Jeffrey Skilling, potential losses in its California business, problems with negotiations over power contracts in Indian, losses and job cutbacks within its young bandwidth business and a slide in the global economy.

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