New York Times
January 11, 2005
Secrecy Stripped From Oregon Utility Sale
By DAVID CAY JOHNSTON
The Texas Pacific Group, after fighting to keep secret 700 pages of documents about its proposed purchase of Portland General Electric, reversed course yesterday and said it would make the documents public. The decision came after an alternative newspaper, Willamette Week, obtained most of the documents for an article published last week.
Nearly every major economic interest in Oregon opposes the purchase, but until now these groups could say little about their reasons for joining consumer groups in opposing the deal because the Oregon Public Utility Commission issued a broad secrecy order at Texas Pacific's request.
Lawyers for the opponents and for consumer groups said that the documents showed that Texas Pacific used the secrecy order to mislead the public, an accusation that Texas Pacific characterized as false and unfair.
Texas Pacific, founded by David Bonderman, is a $13 billion investment fund based in Fort Worth that buys distressed companies. It plans to pay $2.35 billion, in a debt-laden deal, to acquire the Portland utility.
The Oregon case has significance beyond Portland. It illustrates what consumer and industry lawyers in California, Texas and Washington said yesterday was a growing use of secrecy in utility cases to the detriment of ratepayers. It raises questions about moves in Congress to repeal a 1934 law that protects customers. And it illustrates the growing interest in electric utilities by leveraged buyout firms like Texas Pacific and Kohlberg Kravis Roberts & Company in New York.
K.K.R.'s planned purchase of Tucson Electric Power was rejected last month by Arizona utility regulators, who ruled it was too risky for ratepayers.
Congress may vote soon on repealing the 1934 law, the Public Utility Holding Company Act, a move that opponents say would open the door to short-term speculators and distant owners with little interest in the long-term reliability of electric service. Texas Pacific has said that unless the Securities and Exchange Commission exempts it from that law, it will not complete the deal.
The 1934 law was adopted after one of the biggest business scandals of the Depression, the 1932 collapse of the Insull Trusts, a network of heavily indebted utilities that included Portland General Electric, which is now owned by Enron.
Dan Meek, the lawyer for the Utility Reform Project, a Portland consumer group, said that the Oregon Public Utility Commission grants secrecy orders on request, which he considers improper.
"It amounts to a government-sponsored dog and pony show for the utility and its allies to make their own case, unchallenged," Mr. Meek said, adding that even after opponents make important discoveries in closed-door proceedings "the public is not allowed to hear about it."
Bob Valdez, a commission spokesman, confirmed that requests for confidentiality had increased in recent years, an issue the commission will study this year.
The documents show that Texas Pacific may resell the utility in three years, The Oregonian reported on Sunday after Texas Pacific gave it some of the documents. Last week, Texas Pacific emphasized that it planned to hold on to Portland G.E. for up to 12 years.
Erik Sten, a Portland commissioner who wants the city to buy the Portland G.E.'s assets, said Texas Pacific's release of the documents threw doubt on the legitimacy of the secrecy order. Documents cannot be both "meaningful and in need of secrecy and at the same time not important, which is what Texas Pacific is now saying," Mr. Sten said. "Either the protective order was given too freely or Texas Pacific is now misrepresenting its due diligence to the public."
Texas Pacific said yesterday that the documents, which it has testified were developed for $7 million, were analytical and should not be considered as policy or plans.
Mr. Sten called for reform of the laws allowing secrecy in utility cases. "The idea that the public should grant a monopoly to a speculative firm without access to the business plans is unreasonable," he said. "Public bodies can only exercise judgment on behalf of the public when they have heard the public's opinion - and that opinion has been manipulated through false public statements."
The newly disclosed documents also contradict public statements by Texas Pacific that the most likely way it would dispose of Portland G.E. was through an initial public offering, said Jason Eisdorfer, a lawyer for the Citizens Utility Board, a consumer group in Portland.
The documents "show that they stand to make hundreds of millions of dollars more on a sale than on an I.P.O.," said Mr. Eisdorfer, who has seen the documents. He said Texas Pacific had a duty of loyalty to its investors, including the Oregon public employees' pension fund, to obtain the highest price. An initial public offering at a lower price makes no sense legally or financially, he said.
Texas Pacific has maintained that the documents are mere analysis and consultant opinions, and that therefore no contradiction exists. Yesterday, an organization representing major Portland landlords, the Building Owners and Managers Association, asked the commission to reopen testimony in the case.
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