The unasked question
The Oregonian ran a pretty big spread yesterday comparing the competing takeover plans for Portland General Electric. In particular, they held up side by side as potential purchasers the City of Portland and a possible new public entity to be created by the Oregon Legislature.
There's a lot of good food for thought there, but a key question didn't get asked very forcefully. That has to do with operations. Let's start with the basics: If PGE is publicly owned, who will actually operate the electric utility? Not the City of Portland or the new state-created public body. Under both plans, a private company will handle the day-to-day functions of the power business.
Proponents of the "public" power plans are slow to mention this truth: The shareholders of that private company are going to make a lot of profit.
Sure, there will be competitive bidding for that contract, but any electric utility operator putting in a bid will demand cost plus profit. It's likely to be a long-term deal. And the incumbent will have a major leg up on any bidding come renewal time. The slogan that private profit will be eliminated is simply misleading.
Of course, there will be additional private hands in the public pockets if either plan goes through. How much profit would Goldman Sachs earn from the sale of the bonds? How many millions would lawyers be paid to cut the myriad deals on the city's or state entity's behalf? The city has $2 million in its current budget for these transaction costs. At last report, the city had already spent around a million more, and so we're headed into $3 million territory, and so far, all we've done is make a hostile bid.
But most importantly, how many millions of dollars in private profit will the operator of the "public" utility earn, year after year? That's the $2.5 billion question that isn't being asked often enough.
To answer this question, it would be nice to see a comparable public-private hybrid operation to use as a model. But I don't know if one exists. Has this kind of arrangement ever been tried before?
One nice thing: No more "phantom" taxes, charged to ratepayers but not paid to the state. But will the private operator be able to pull a similar stunt in the "cost plus" contract?
The city tells us not to worry about these things. There will be plenty of bidders for the operations contract, and none of the bidders will want too much profit. In this, of course, the commissioners are just speculating, and repeating what Goldman Sachs has told them. High-priced consultants have grossly erred in predicting similar results for the city before.
Is PGE the next PGE Park -- an unmitigated financial disaster for Portland taxpayers? We've got Erik and Tram Adams back at the table, just as they were with the stadium, only now there are lliterally billions at stake.
I'm glad that the robber barons of Texas Pacific have been sent on their way. But at the thought of the city taking over, as a taxpayer I'm very afraid.