Awesome Deal

Does this story ring a bell? Distressed electric utility looks for a buyer. Investment group thinks it looks like an opportunity. Investment group buys utility cheap and flips it quickly for a profit of 600 percent. Investors make out like bandits, or pirates. Ratepayers foot the bill.

If this story sounds a lot like what Texas Pacific was proposing for Oregon and PGE, there’s a reason…

For those who thought that Texas Pacific takeover of PGE might have been a good deal, here’s an object lesson about Texas Power Pirates from the pages of the New York Times.

New York Times, November 23, 2005, Market Place
The Deal That Even Awed Them in Houston
By SIMON ROMERO
HOUSTON, Nov. 21 - Texas Genco might lack the flash and fame of Enron, but its low-profile owners have managed to accomplish something rare in this swaggering city: a deal so ambitious in its scale that it has caused jaws to drop in Houston's energy circles while angering and perplexing people who are feeling the sting of surging electricity prices.

The buzz in Houston these days is over the $4.9 billion in profit that four elite private equity firms - the Texas Pacific Group, the Blackstone Group, Kohlberg Kravis Roberts and Hellman & Friedman - stand to make from selling an electricity company for $5.8 billion.

Lured by deregulation of the electricity industry in Texas, the investors acquired the electricity company Texas Genco, which owns several power plants in the Houston area, just last year with $900 million in cash. Now, they are selling it to NRG Energy of Princeton, N.J., for a gain of $5 billion, a flip that will be one of the most lucrative private equity investments in recent memory.

"This part of the deregulation process has transferred billions from ratepayers to investors," said Clarence L. Johnson, director of regulatory analysis at the Office of Public Utility Counsel, a state agency in Texas created to represent the interests of homeowners and small businesses on utility issues. "It seems extraordinary, doesn't it?" (more)

http://www.nytimes.com/2005/11/23/business/23place.html

Although the Public Utility Commission for the moment has nixed the Texas Pacific deal for PGE, there remains virtually no defense for the customers of PGE. We are hostages to the goodwill and common sense of the PUC.

State Sen. Ryan Deckert, D-Beaverton, sponsored a bill to authorize a state purchase of Portland General Electric if necessary to protect the public and Oregon businesses from exorbitant power rates. The bill passed with strong majorities in both the Senate and the House. Governor Kulongoski vetoed the bill (SB 1008).

Closing another door to the public interest, Enron's unethical machinations prevented any fair hearing for a City of Portland purchase of PGE.

Simple arithmetic tells us that a deal like the Texas Genco deal would be a disaster for Oregon. If PGE is sold to an investment group and flipped for $5 billion in profit like the above example, the new investors will want a return of at least 12 percent on their investment. PGE has about 500,000 accounts. The average cost to the customer would be $1200 per year, $100 per month over and above what you pay now.