Enron’s bankruptcy reorganization plan and the continuing revelations about its trading manipulations in the California market, left the proposed sale of its Portland General Electric utility to neighboring Portland-based Northwest Natural Gas Corp. hanging on an increasingly thin thread of hope last week. Portland General landed on Standard & Poor’s “CreditWatch Negative” listing, with a notation that if the sale unravels the electric utility’s ratings could fall to the “speculative” level.

The now tenuous $2.98 billion deal also generated more consumer interest in Oregon earlier this month where the state regulatory commission is getting set to resume the proceedings on the merger May 17 after a 60-day hiatus. Enron is expected to have a management representative appear as requested by the regulators.

“Right now we are working to try to determine (first-hand) what Enron’s intentions are before the hearing next week,” Northwest Natural spokesperson Steve Sechrist said Friday. “So far, we don’t know what their intentions are.”

Enron now reportedly wants to hang on to the electric utility in a proposed much smaller, hard asset-based company that could operate aloof from the continuing bankruptcy proceedings in a federal court in New York City. But local support for the Northwest Natural purchase is starting to build among PGE customers, who are paying the highest rates among utilities in the Pacific Northwest, all of which are accustomed to some of the nation’s lowest retail power rates.

“To the extent that Enron were to reject or Northwest Natural were to cancel the sale contract or that PGE were to remain a wholly owned subsidiary of Enron not subject to the sale contract, S&P’s ratings of PGE could be lowered,” said Swami Venkataraman, in S&P’s San Francisco office. “Such a downgrade would reflect the general vulnerability of a wholly owned subsidiary to its insolvent parent. Nevertheless, it is important to note that at this stage, Enron has not rejected the sale contract. Also, PGE is currently pursuing satisfying S&P’s ring-fencing criteria.

“In the absence of a contract of sale or effective structural separation mechanism, PGE’s ratings are likely to be downgraded well into the speculative grade category.”

The Enron bankruptcy restructuring now clings tightly to PGE, a utility the formerly high-flying energy trader wanted to dump since 1999, two years after buying it. It was part of a proposal presented last week to the unsecured creditors’ committee in the Enron bankruptcy. This plan threatens to unravel Northwest Natural’s deal or suspend negotiations on its until after the creditors have reviewed the proposal.

While the caretaker management of Enron is heavily promoting the profit potential of a new company that consists mostly of PGE, a Brazilian utility and 15,000 miles of natural gas transmission pipelines, Oregon officials are unclear if the state Public Utilities Commission will have a role in approving the “new” owner of PGE, and large industrial customers are fearful the new company will try to boost profits from PGE, meaning additional rate increases on top of recent ones spurred by the western wholesale power price spikes of 2000-2001.

“They can change their name, they can change their management, but are customers willing to accept them as the owners of their utility?” asked Bob Jenks, head of the state’s Citizen Utility Board, in a report last Monday in the Portland Oregonian. “To the degree people see them (Enron) as criminals, it makes it that much harder for them to operate.”

According to a recent Oregonian survey of the top 10 utilities in the three-state Pacific Northwest region, PGE residential customers now pay the highest rates, with surprisingly four public-sector utilities (“public utility districts,” or PUDs) ranked Nos. 2 through 5.

Jenks and other consumer advocates are contending if a restructured version of Enron retains ownership of PGE rates likely will stay high and customer discontent will grow.

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