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This page contains a single entry from the blog posted on November 19, 2003 3:20 AM. The previous post in this blog was PGE sold -- to Goldschmidt!!!. The next post in this blog is Last chance lost. Many more can be found on the main index page or by looking through the archives.

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Wednesday, November 19, 2003

The PGE Deal

Now that the shock has subsided over the announced takeover of Portland General Electric by a group of institutional investors led by former Mayor/Governor/Transportation Secretary Neil Goldschmidt, it's becoming a little easier to take stock of what it will mean.

First and foremost: Neil Goldschmidt will soon own the nuclear waste pool at the defunct Trojan Nuclear Power Plant. I haven't checked my copy of the Book of Revelation yet, but as I recall, that's in there toward the end.

As noted yesterday, others will now join me in blasting Neil (as I have for some months now) for continuing to use the influence he gained in public service to line his own pockets. Enough about that for now, at least until he pulls his next stunt. (I note in passing that Governor Ted has now suddenly put him in charge of the state's public universities. Forgive me if I wonder how Neil, or his or his spouse's clients, are making money off that one.)

The good news is, the PGE purchase should put an end to the City of Portland's misguided effort to enter the electric utility business itself. Led by Commissioner Erik Sten, the city's crown prince of bad ideas, but aided and abetted even by his otherwise sensible colleague Randy "Howdy Neighbor" Leonard, this fiasco-in-the-making would have resulted in risk to the city's taxpayers and little benefit to its ratepayers. The final tally isn't in on what this quixotic adventure will end up costing the city treasury, but at last report it was $800,000. I'll bet it tops a million before Sten gives it up. And like his expensive prior campaign to force cable companies to lease their lines to other internet providers, what the city has to show for this amount of scarce change is absolutely nothing. Will somebody please run against this guy?

On its face, the deal as announced looks pretty good to me. PGE stays in private hands. It's run by a financially strong group headed by a couple of Oregon face cards, and so it should have the best interests of the residents and businesses of the region at heart.

But I say "should," because there's no guarantee. Goldschmidt's first and foremost legal duty as head of the new company is to maximize profit for the investor group, even when the public interest cries out against it. And although his presence at the top of this new electricity pyramid gives some observers comfort, I worry about it. This guy helped the Tram People put the screws to the Lair Hill neighborhood, and he'll do the same to the ratepayers if his investors (and his own wallet) tell him to.

Plus, there is no guarantee that the new owners won't sell PGE to the next bidder who comes along with cash in hand, even if the buyer is a known snake in the grass. Texas Pacific Group, the lead cash player in the investment group, has been known to turn some properties over quickly when a better deal appeared. Of the 50 companies TPG has bought into over its decade of operation, it's apparently sold out of 20 of them. Here the investors are paying $2.35 billion for PGE; if they're offered, say, $2.7 billion a few months after they take over, PGE could well be under yet another new management in short order.

Bottom line? I guess my reaction is one of mild relief, spiced with amusement but tinged with nagging concern.

Comments (5)

And if anyone is interested, the group first reserved the business name "Oregon Electric Utility Company" back on September 18:
http://sos-venus.sos.state.or.us:8080/beri_prod/pkg_web_name_srch_inq.show_detl?p_be_rsn=991518&p_srce=BR_INQ&p_print=FALSE

And then they they pulled the trigger on Monday November 17, and registered the company of the same name as an LLC:
http://sos-venus.sos.state.or.us:8080/beri_prod/pkg_web_name_srch_inq.show_detl?p_be_rsn=1002211&p_srce=BR_INQ&p_print=FALSE

So from this, I surmise that the planning went back at least to September.

Looks like the Schwabe firm did the legal work.

For a good background read on Texas Pacific Group's (TPG) history, check out this article from the June 2, 2002 S.F.Chronicle:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/06/02/BU13386.DTL&type=business

Among TPGs holdings are Denbury Resources, a Texas oil and natural gas company.
Also, TPG owns WITH ENRON the majority share of Verado Holdings Inc., which originally went public as First World Communications at $17 back on March 7, closed at $0.65 on Dec. 29 after hitting $37.13 on March 10. Verado stock is now trading at only 6cents/share....not a very good investment for those who put money into it: http://finance.yahoo.com/q?s=VRDOQ.PK

Interestingly, Denbury Resources had a business relationship with Enron where it has used Enron as some sort of energy hedging conduit---think tax break---that is, up until Enron went bankrupt--now they don't get the tax break.
Since then, Denbury's 2003 10-K and 2002 annual reports show they've had to stop taking credit for those. Two of TPG's founders and partners are board members of Denbury Resources: William S. Price and David Bonderman. Denbury also owns Genesis Energy, an oil and oil pipeline company based in Texas. Denbury is the biggest oil producer in Mississipi and does lots of offshore drilling.

First World Communications (later known as "Verado Holdings") of Greenburg, Colorado, at the time of its IPO in 2001 claimed primary shareholders as Enron and Texas Pacific Group:

First World Communications Major Stock Holders (After its 2001 IPO)

Donald L. Sturm: 5,000,000 shares "A"
18,591,682 shares "B" stock
Enron 3,000,000 shares "B" stock
Texas Pacific Group
13,097,166 shares "B" stock
----------------------------------------------------------------------
Clearly Texas Pacific is not Enron, but they certainly have had working and investment relationships in the past. I'm sure the web is much more tangled than these couple publicly displayed threads.

Meanwhile, the Oregon Investment Council (OIC) is invested into TPG to the tune of almost a $1Billion ( Neil Goldschmidt's wife on the OIC).
With TPG's $16B or so in assets, I guess we could positively look at this PGE buyout as 1/16 owned by Oregon's investors....but I doubt it.

TPG claims that unlike public corporations, they don't need to return profits and that they buy companies that are undervalued or underperforming and that they can add value to.
This could be good or bad. Good if this translates into lower rates for ratepayers and if PGE doesn't just get sold off again. Bad if TPG cuts payroll and service and spins off generation assets to a separate wholesale electricity entity. That could well be the way they would "add value" to their investment.

TPG has also just purchased Kraton Polymers for $770M:
http://216.239.37.104/search?q=cache:Ab66aOUKcyIJ:www.zurichna.com/sm/screamin.nsf/0/7C91BFDAB79C2F7B85256DDC0039C0B9%3Fopendocument%26ChangeMenu%3DNo+%22texas+pacific+group%22+scandal&hl=en&ie=UTF-8

Texas Pacific Group, a U.S. buyout fund, will buy chemicals maker Kraton Polymers Group from private equity rival Ripplewood Holdings LLC for $770 million. The transaction is expected to close by year-end. Ripplewood bought Houston-based Kraton Polymers for $520 million in February 2001 from Royal Dutch/Shell Group. Kraton Polymers, a chemicals company that makes products that enhance adhesives, asphalt and footwear, has 1,000 employees, annual revenue of more than $600 million and factories in Europe, Brazil, Japan and the United States.
''We are enthusiastic at the opportunity to acquire KRATON Polymers,'' Kelvin Davis, a partner in Texas Pacific, said. ''The company is a global market leader and has consistently demonstrated its ability to grow through innovation.

Recurring question I ask, Jack, is how can we be better off with power-hungry holding companies owning our electricity production than if we own it ourselves as a public power entity, either a PUD or MUD? Holding Companies can easily get over-invested and end up having to sell off assets. Enron's house of cards collapsed--so can TPG's.

We shall see.

-Myles

Miles: The PUD would have owned only distribution, not production. Corporations are evil, but the last time I checked they ran the world. I'm not interested in conducting a little socialist experiment with my electric bill or my property tax bill.

Jack, Jack, Jack-
you know the #26-52 property tax measure amounted to a piddly one-time 45cent average fee on a home. To argue that the PUD would tax homeowners in any substantive way misleads your readers and detracts from any real serious point you are trying to make.

Now, you think the PUD would've been a socialist experiment? So, let's see, your logic is that if PGE isn't owned by a private, for-profit entity, it's socialist...sorry, I don't buy it.

Further, the PUD could have made an offer, just as Portland has, for ALL of PGE's assets. It's a lie and distortion for you to indicate that it could not. The only thing that the PUD, City of Portland, Multnomah County, or any other public institution could not due by law is condemn thermo-electric generational assets. The law doesn't indicate that condemnation of generational assets would not be allowed, even outside the territorial bounds covered by the public entity.

Condemnation is a last threat. Portland's offer was to BUY ALL of PGE (except perhaps the Trojan Nuke money sinkhole), including its generational assets. The city's power to threaten condemnation of assets provided incentive to Enron to accept the very reasonable offer of $2.2B.

TPG's offer is only $150M above this. Goldschmidt is expected to be the CEO of PGE once the deal is done and Fowler will likely get a nice golden parachute (which you and I will pay for). With Goldschmidt at the helm, it will be a cold day in hell that PGE finally stops illlegally billing us for Trojan decommissioning charges, which they now do---that's $100's of million$. We'll see if the TPG/OEC/PGE will do as Enron and pay no taxes to either Oregon or the Feds.

Sorry my friend, I can't trust corporados as you seem to be able to do. TPG's own investment strategy is to build value into struggling companies and then either sell them or have them become publicly traded. They claim they don't need "operational profits". Sure, but what that means is we should expect yet another sale of our utility in 3-7 years to a bigger fish, for more money and more debt. At some point that debt becomes crushing.

To argue that somehow private owners paying a higher price of PGE will somehow be able to give us lower rates and better service than we could as local owners is a great laugh. Please Jack, keep these belly-rollers coming. I need a good laugh.

Remember: TPG's only been around since 1993. They have never run an electric utility before. Oregon Electric (Goldschmidt's new entity w/TPG) is new and has no experience running a utility.
These new owners have one expertise: venture capitalism.
They have one goal: building their own private wealth and bringing value to the investments and funds they control.

It is patently unfair for you and others Jack, to have tarred prospective Multnomah County PUD board members with the "inexperienced" brush and not do so with the TPG cowboys and their local Oregon shills. None of them know how to run a utility. Lack of experience doesn't matter--it didn't with us PUD candidates, and it doesn't for Neil G. Admit it.

Facts:
Oregon Investment Council invested $995M in TPG.
Diana Goldschmidt is on the OIC council.
Neil Goldschmidt (member of the secret Trilateral Commission) is fingered for CEO of Oregon Electric and PGE.
Goldschmidt, in clear conflict of interest, also helped kill the Multnomah PUD.

Q: How can we trust such nepotism, cronyism, lies and deceipt?
A: We don't have to--shutup and pay your bill.


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