In an about face from an earlier recommendation that the sale of Portland General Electric (PGE) to Oregon Electric Utility Co. (OEUC) be denied, staff at the Oregon Public Utility Commission (PUC) now says that the deal should be approved provided that a host of conditions are met, including a $75 million rate credit spread out over five years.

“We arrived at the $75 million figure based on our ‘big picture’ assessment of the risks, harms, and benefits of this transaction,” PUC Staff Case Manager Bryan Conway said last Wednesday. “We continue to see rate credits as necessary to ensure PGE customers will be better off under new ownership than the status quo.”

Conditions and rate credits recommended by staff and others involved in the case, such as the Citizens’ Utility Board, Industrial Customers of Northwest Utilities and the city of Portland, will be explored further in settlement conferences.

Staff’s initial recommendation, released this summer, recommended that the PUC reject the sale because it failed to provide net benefits for customers (see NGI, July 26). However, OEUC on Aug. 16 modified its offer to include a $15 million rate credit.

Earlier this year, OEUC submitted its application to purchase PGE, an Enron subsidiary. OEUC would be a limited liability company for which Texas Pacific Group (TPG), a private equity firm headquartered in Fort Worth, Texas, would provide the bulk of the financial backing.

In reviewing an application like this, the state commission must find that the proposed sale results in net benefits to the utility’s customers, as well as finding that the transaction will not impose a detriment on Oregon citizens as a whole.

PUC staff this week recommended a rate credit of $15 million per year for the first five years after closing the transaction, noting that the rate credits offset the net risks and harms present in the transaction and produce net benefits for customers.

Also, PUC staff said that the applicant must notify the commission regarding formation of new subsidiaries and provide access to all books and accounts of their affiliated interests. In addition, commission staff said that PGE will be treated on a stand-alone basis for determining the costs of utility service (including taxes) and setting rates.

With respect to financial ring fencing, staff said that PGE’s common equity cannot fall below 48% and each PGE distribution to OEUC will be used exclusively to pay direct operating expenses and debt for at least five years.

OEUC will respond to the latest round of comments by Oct. 11, 2004. Settlement conferences are currently scheduled for Sept. 27 and Oct. 14.

A public hearing, which will include cross-examination of witnesses, has been set for Oct. 19-22. Staff can modify its recommendation based on intervenor and company testimony during the public hearing.

A final decision by the three-member PUC is expected by early next year.

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