Citizen activists who fear that Enron Corp. will sell Portland General Electric's assets out from under regulation aren't alone in their worried interpretation of Enron's plan of reorganization.
A trio of bankruptcy law experts approached by The Business Journal say, to varying degrees, that the plan could lay the groundwork for breaking up PGE. Unless the plan is amended to more clearly state that PGE will remain whole, the law professors said, it arguably provides the foundation for selling the utility's power plants and transmission lines to multiple buyers who would be free from state regulation. It follows that the cost of electricity for local residents and businesses would increase sharply.
"These terms [in the plan] are fairly unclear, but they strike me, overall ... as providing the power to sell the assets piecemeal," said University of Pennsylvania Law School Professor David Skeel. "If [Enron] means to not do that, they could say that explicitly."
"What's in the creditors' interest is getting as much money as they can," said Skeel, author of "Debt's Dominion: A History of Bankruptcy Law in America." "This is one case where creditors' interests and ratepayers' interests could be diametrically opposed."
"The Enron reorganization plan, one can argue, is a masterpiece," Meek said. "It fulfills its intent, allowing Enron the discretion to sell PGE's assets out from under state regulation without bringing that to the attention of any but the most sophisticated readers."
Meanwhile, Meek said, the U.S. Bankruptcy Code, on its face and as interpreted by recent court cases, states that any plan approved by a bankruptcy court for disposition of a debtor's assets takes precedence over any state law that might otherwise bar such disposition. In other words, he said, state law requiring the Oregon Public Utility Commission to approve the sale of PGE or of its assets would present no barrier.
Meek is right, said UCLA law professor Lynn LoPucki. Language in the plan that talks about liquidating assets held by a PGE trust, and which defines the plan's use of the term "sales transaction" to include sales of substantially all of the assets of PGE, is clear enough, he said. If the plan's authors were limiting themselves to discussing how PGE stock would be sold or distributed, they could have limited themselves to use of the word "stock," rather than also using the work "assets," he said.
"If I were living there [in Portland], and I were concerned about my utility rates, I'd be very nervous about this," said LoPucki, a bankruptcy specialist and a co-author of casebooks on secured credit and commercial transactions.
The Business Journal
of Portland - September 22, 2003
"On its terms, the plan seems to buy them time. If you're a cynic, you could conclude that they don't want to address this issue now," said David Skeel, a professor at the University of Pennsylvania Law School. "If I were a ratepayer I would want Enron to alter the language to rule out a later claim they can sell the assets piecemeal."
The language rather clearly allows for the piecemeal sale of PGE's assets, said UCLA law professor Lynn LoPucki. "I think they came out and said it."
They said it, and the clearest indication of that is they don't deny that the plan allows for it, said Portland City Commissioner Erik Sten. Enron and PGE constantly state that they have no intention of breaking up PGE, but they won't say that the plan prohibits the possibility.
"If the plan didn't allow that, I think they would point that out, and I think it's absolutely clear that they are not doing that," Sten said.
The Business Journal of Portland - September 29, 2003
Wording in the amended plan, an accompanying amended disclosure statement and a press release issued by Enron all suggest that PGE's assets--such as power plants and transmission lines--won't be sold out from under state regulation. However, Portland lawyer Dan Meek, a longtime proponent of publicly held utilities, said the new language fails to ensure that PGE will retain those assets. Without them, he said, ratepayers face sharply increased rates.
"It's a subterfuge," Meek said of the amended language. He said Enron's experts are reacting to his earlier criticism, but not in any way that changes the result.
"I agree with Meek," said Lynn LoPucki, a bankruptcy professor at UCLA's School of Law. "The plan drafters are shuffling their feet, but they are not moving."
LoPucki and two other bankruptcy experts, contacted by The Business Journal before the amended plan was filed, agreed, to varying extents, that those provisions could allow for such a break up.
Meanwhile, Enron's amended disclosure statement--a separate document that summarizes and explains the reorganization plan to creditors--states that "a break-up of PGE is not an option under the plan." The Sept. 18 press release issued by the bankrupt estate contains the same words.
That language is no more clear than is the phrase "going-concern," Meek said by e-mail. "Selling PGE, the distribution utility, absent its power plants and high-power transmission lines, is not legally a 'break-up' of PGE."
Meek and LoPucki both noted that the disclosure statement is not a controlling document. The bankruptcy court would interpret the plan of reorganization, which does not include the break-up sentence.
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