03:58 PM PST on Thursday, March 10, 2005

By kgw.com and AP Staff

SALEM -- Oregon regulators rejected Texas Pacific’s $2.35 billion bid to buy Enron subsidiary Portland General Electric, ruling that the risks of ownership by the Texas investment group outweighed the benefits to ratepayers.

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PGE's downtown Portland headquarters.

"Based on the evidence presented to us, we found that PGE customers would not be better off in terms of rates and service than they would with PGE as a separate, stand-alone company," said Oregon Public Utilities Commission chairman Lee Beyer late Thursday morning.

“…Let’s be clear today: PGE is not a distressed company either financially or operationally.”

The commission's major concerns were a large debt burden and short-term ownership likely by the Texas company, Beyer said.

The decision sets the stage for Portland to purchase PGE, the state's oldest and largest utility with 755,000 customers.The OPUC's decision will not affect PGE's customers.

"The lights wil stay on, and the rates won’t change," Beyer said.

Texas Pacific has 60 days to appeal the OPUC’s decision in Marion or Multnomah county circuit courts.

A federal bankruptcy plan approved for Enron last year has already laid out a stock distribution plan that would essentially return PGE to its original form as an independent investor-owned utility if Texas Pacific decides against an appeal of the decision and abandons its proposed takeover.

If Texas Pacific does not appeal, the fate of PGE rests with Enron creditors, who must decide whether to put the stock distribution plan into effect or consider other offers, including the city of Portland's bid.

Texas Pacific, a privately held Fort Worth investment firm, had been trying to build support for the PGE buyout from bankrupt Enron for more than a year, despite widespread criticism and resistance in Oregon, complicated by a sex scandal involving former Gov. Neil Goldschmidt.

Texas Pacific had initially named Goldschmidt to lead the takeover before he resigned as chairman of a proposed holding company, Oregon Electric Company.

Oregon Electric issued a short statement saying it had received a copy of the OPUC's ruling.

“We will be undertaking a thorough and careful review of the order and evaluating our next steps,” Oregon Electric said.

Enron spokeswoman Jennifer Lowney said the company "is disappointed with the commission's decision, but we need time to study the order further before we decide on our next course of action."

The OPUC had been considering the decision for nearly three months since it heard closing arguments on Dec. 14 on the deal. State law required the commissioners to decide whether ratepayers would benefit from the takeover and that no public harm would result. The OPUC could have approved the deal outright or spelled out conditions for approval if the proposal had not met the legal test.

Gov. Ted Kulongoski said the decision will give Oregonians a chance to carefully consider the role of Portland General Electric in the state economy. But he said he expects no changes in operation.

"I want to be clear about this -- PGE is not in crisis," Kulongoski said. "As a utility, it is well-run and today's decision should not have any immediate impact on customers."

Portland remains interested in PGE

The city of Portland, led by Mayor Tom Potter and city Commissioner Erik Sten, has an offer on the table to buy PGE and turn it into a municipal utility.

"The Public Utilities Commission did a great job," Sten said. "It was a landmark decision, and frankly a little courageous. It's not their typical approach."

Sten said the city would begin talking to creditors immediately.

"To be fair to all parties and be certain we can deliver this quickly, we will be working to get all the parties to come together and end this once and for all," Sten said.

The decision was hailed by at least one consumer group, Utility Reform Project. The group said that with the OPUC’s decision, the city of Portland should move immediately to buy PGE. The group warned that the Texas Pacific plan "is not dead yet" because the investment group can rework the deal to satisfy the OPUC's concerns.

"The city team should get on a plane for New York City now and deal directly with the Enron bankruptcy creditor’s committee,” said Portland lawyer Dan Meek, a spokesman for the Utility Reform Project. “Only the city has the financial resources and the fortitude to buy PGE for the public."

Ruling's findings

In its 76 page ruling, the OPUC detailed why it Texas Pacific’s bid could not be accepted.

"The Commission is denying the application because it found that the potential harms of the transaction outweigh the potential benefits," said the OPUC.

The OPUC also said it "could not conclude that customers would be better served by this acquisition than they would be if Portland General Electric remained a separate and distinct entity. Accordingly, the application, as presented, does not provide a net benefit to PGE’s customers."

"The high debt percentage would likely result in lower credit ratings for PGE than it would in the absence of this transaction," the OPUC ruling stated, adding that lower credit ratings could translate into higher electricity rates for customers.

The OPUC did not issue any recommendations on what Texas Pacific could do to demonstrate its offer was in the interest of PGE customers.

“We could not address them without substantially rewriting the application and frankly, that’s not the commission’s role,” Beyer said.

U.S. bankruptcy judge in New York approved a reorganization plan by bankrupt Enron to sell off PGE in July. PGE is the last of Enron’s chief assets; the energy giant declared bankruptcy in 2001 following one of the worst corporate scandals in U.S. history.

The Texas Pacific bid was dealt a setback last summer, when OPUC staff recommended that the commission reject the sale. The recommendation came even though Texas Pacific offered a $43 million rate cut to help sweeten the deal.

The city of Portland in 2003 offered $2.33 million to buy the utility, but Enron rejected it, according to published reports. Three state legislators also plan to introduce a bill in the Oregon Legislature that would give ratepayers in PGE’s six-county service area a say in running the utility, if it becomes a public corporation.

Beyer said the OPUC did not take a look at any proposals from the city or any other government agency because it never received any purchase offers. Even if the commission did, it cannot rule on a government proposal because the commission’s task is to review corporate proposals only.