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Willamette Week - July 9, 2003

Enron's Endgame
Can the bankrupt energy giant stick Oregon ratepayers with its liabilities?

(503) 243-2122

Next week, nearly 750,000 Oregonians will find out whether they could be forced to help pay Enron's bills.

The collapsed kilowatt colossus is scheduled to present a reorganization plan to a New York bankruptcy court judge on Friday that will outline the future of Portland General Electric, the $1.9 billion subsidiary that Enron purchased in 1997.

Some public officials and utility watchers say Enron's strategy will be to shift millions of dollars in liabilities--including lawsuits from employees who lost their pensions, angry shareholders and a variety of other sources--from Enron's owners to PGE customers.

"I have some real concerns about Enron's exploiting Portland ratepayers," says City Commissioner Randy Leonard. "I want to know what happens to the liabilities that Enron has consistently tried to get PGE to assume."

In PGE's most recent quarterly filings with the Securities and Exchange Commission, the company notes a number of lawsuits arising from Enron's meltdown and potential regulatory issues with the Federal Energy Regulatory Commission.

Since that filing, which was made in May, new lawsuits have been filed against PGE by the state of Montana, the federal Department of Labor and a local group of former shareholders.

It is impossible to quantify the potential cost of all the suits and regulatory penalties, but the total could easily run into the hundreds of millions of dollars.

Since Enron's spectacular implosion in 2001, PGE has operated in a sort of limbo. While Houston-based Enron tossed out most of its management and employees, PGE, which is not bankrupt, has continued operations, although the company is now owned by faceless institutions left holding the bag when Enron flamed out.

In legal filings and public statements, Enron and PGE officials have said the most likely resolution is to dole out PGE's stock to Enron's creditors.

But ratepayer advocates are nervous about that idea. Ken Canon, executive director of Industrial Customers Northwest, a consortium of big energy consumers who want to keep their rates down, says carving up PGE offers no more stability than the current situation. "These are the people who made Enron possible," says Canon of the creditors, the largest of which are New York commercial banks. "They didn't intend to be owners of a regulated utility. Their interest is in getting as much money out as possible as quickly as possible."

Canon adds that creditors are unlikely to hold onto their stock for more than a couple of years, which means PGE would go up for sale again soon.

One way out of the deadlock is for a third party to step in and buy the company. The City of Portland has been trying unsuccessfully to purchase PGE from Enron since the fall. (Although Leonard and other city officials have sworn not to divulge details, it is widely believed that the city and its investment banker, Goldman Sachs & Co., have put a bid of more than $2 billion on the table.)

One explanation for the city's failure to clinch the deal, says utility activist Dan Meek, is that the big banks that own Enron think they can squeeze more money out of PGE by holding onto the company. One way of doing so would be to dump some or all of PGE's liabilities on ratepayers. Once those liabilities have been paid off, the utility would fetch a higher price.

In the final analysis, PGE's ability to force ratepayers to shoulder all or part of its liabilities depends on the state Public Utility Commission, the Salem agency that regulates Oregon's investor-owned utilities.

PGE critics are pessimistic, pointing to the 53 percent rate hike the PUC granted the utility two years ago for industrial customers, as well as the commission's willingness to let PGE charge ratepayers tens of millions dollars annually for taxes it does not pay.

"If history is a guide, the PUC will acquiesce to creditors' demands," Meek says. (The PUC is also currently in flux. Two of the three seats on the commission are vacant after commission chairman Roy Hemingway's resignation last month.)

Paul Graham, an Oregon Department of Justice lawyer who represents the PUC, disagrees with Meek. Graham says that the commission would expect creditors to bear any liabilities incurred in legal or regulatory judgments.

"Normally, creditors would assume any potential liabilities," Graham says. "To shift liabilities to ratepayers, they will have to prove to the PUC that the liabilities are a result of prudent behavior."

PGE Executive Vice President Fred Miller echoes Graham. "Public officials' perception of how our liabilities will be handled is just plain wrong," Miller says. "Most of the things that would happen would be shareholder responsibility."

But Leonard says that, in a battle between ratepayers and PGE, he'd bet on the utility every time. "The ability of PGE attorneys to convince the PUC that their costs must be reflected in rates is a proven fact," he says. "I'm convinced that they could structure costs of liabilities to get higher rates."


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