This page contains a single entry from the blog posted on August 26, 2005 2:35 AM. The previous post in this blog was Jack Bog's Radio, revisited. The next post in this blog is The bishop strikes out. Many more can be found on the main index page or by looking through the archives.

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Friday, August 26, 2005

Half a story

The Oregonian has declared that the price tag on the City of Portland's quixotic attempt to buy PGE was $1.5 million. But if you read the story carefully, you see that there's plenty more that was spent, but that isn't included in this tidy figure.

The O reaches the $1.5 million by adding up $663,800, which it identifies as the cost of "its failed, four-month bid to buy Portland General Electric" (emphasis added); and "a 2002-03 go-around [which] cost the city $832,000." But wait! Even if those two figures cover all of 2002 and 2003, and the months of April, May, June and July of 2005, what about the period January 2004 through March 2005? Are you telling me the city didn't spend money on the PGE deal during that period? Hogwash.

Not to mention the fact that the figures appear to omit the cost of those salaried city staffers who spent major hours on the project. Commissioner Sten's time alone, at, say, one-third of his $89,000 salary, would be on the order of $30,000 a year, for something like three and a half years.

You pundits out there, please don't use the $1.5 million figure as authoritative. It's the product of bureaucratic obfuscation, lazy journalism, or both.

Another interesting wrinkle in the story was its mention of the concern, which I blogged about here, that the city could not have purchased the PGE stock without violating the state constitutional ban on state or local government's owning stock in for-profit corporations. Apparently the city's latest $663K worth of lawyers bought some sort of structure that the bureaucrats were convinced would "work" as an end-run around that law:

"We found the nature of the transaction to be very complicated because of the lack of clear legal authority to own stock," [city finance director Ken] Rust said. "It was a threshold question."

After extensive legal discussions, "we believed we had a structure that could work," he said.

Boy, for upwards of a half million bucks, you would hope Mr. Rust might be able to share that ingenious structure with us taxpayers, who paid for it. Do you think The O even asked him for it?

Maybe someone in city government who reads this blog can fill us in. Barring that form of enlightenment, we could try a public records disclosure request, but I wouldn't expect too much from that route.

Comments (41)

Further thoughts: The city might try to hide the structure on the ground that it's subject to attorney-client privilege. But I'm sure they showed it to the Enron bankruptcy folks, in which case any privilege may very well have been waived. If someone doesn't flush it out for me, maybe I will formally ask to see it.

I don’t think there is any mystery here, Jack. As was explained to me and discussed publicly, the plan was to create a stand alone entity that would purchase the stock. That entity would be controlled by the regional customers of PGE.

I will leave it to others to explain in more detail, but I raised the exact concern that you have, i.e., how can the city purchase stock if we are prohibited from buying stock. The answer I got satisfied my skepticism.

In fact I am so comfortable with the mechanism that would be created to purchase PGE if I thought two other votes existed on the council to condemn PGE I would introduce the resolution today.

Interesting. What's your point, Jack? Lawyers are expensive? I'd think that would be no surprise to you, particularly.

and hey Randy--have you got ONE other vote?

Lets just say that in politics, its a majority that counts...anything but that is just so much speculation.

And this new stand-alone entity would be free of the state constitutional prohibition on owning stock?

How does the city's money get into the new stand-alone entity? Loan?

Who creates the new stand-alone entity? The City Council? The state legislature?

If things are as nonmysterious as Randy says, I would love to see the documents that set this out in more detail.

If the city were going the condemnation route, there shouldn't be an issue with owning stock. It could just condemn the assets, which the Enron bankruptcy trustee was unwilling to sell voluntarily.

Seems to me that all the arguments for the city taking over PGE would apply equally well to Northwest Natural Gas.

Why stop at PGE?

"Why stop at PGE?"

Why, indeed?

Well. Rob, for an example, NW Natural Gas is not controlled by a corporation whose claim to fame is consumer fraud. NW Natural did not hype an energy crisis to create artificial shortages to frequently increase energy prices.

Additionally, NW Natural pays its taxes...as opposed to Enron which charges for them in their rates but then pockets the money.

Too bad you aren't as worried about the "little old lady's" Enron traders were caught on tape making fun of because of their fraudulent rate increases as you are of your poor corporate pals who have been caught with their hands in the cookie jar.

Finally, it is interesting to me that people like you, Rob, continue to scream hysterically about a billing system that was screwed up in the water bureau but gloss over the nearly $100 million per year that Enron pockets that should have been paid in taxes.

The water bureau billing system screw up, at its worst, is chump change compared to the pillage and plundering the Enron continues to do on a daily basis.

And if you make the argument that this is some how government interjecting itself into the "free market"...please...PGE is a monopoly, the regulation of which is subject to debate.

"...to frequently increase energy prices."

meant to sy "...to fraudulently increase energy prices."

meant to sy "...to fraudulently increase energy prices."

Sy? You mean ...... "sigh?" ;=)

I'm one of the many you'll never convince of the wisdom of COP owning PGE, notwithstanding who owned it last. But for the moment nevermind. Outstanding vote against the tax abatement yesterday, Commissioner Leonard!!!

Randy writes: "Well. Rob, for an example, NW Natural Gas is not controlled by a corporation whose claim to fame is consumer fraud."

Randy: but if the city bought PGE, it would then STILL be controlled by an entity whose main claim to fame is fraud and deception!

Also - you make commit the logical fallacy called "fallacy of false alternative."

The choice is NOT between Enron and city of Portland. The choice is between distributing the stock to creditors vs. city of Portland. Nice try.

"My corporate pals?" Oh Randy.

Finally - how do you figure I gloss over the $100 million tax dodge? I've done no such thing. I'm on record saying that was outrageous, and supporting the legislative fix to it.

Your arguments boil down to: "Enron was bad so the only fix is city ownership."

Go ahead and scream about the evils of Enron all you want. That is just noise. Enron won't control PGE no matter what.

Finally, if criticizing the city for its water bureau SNAFU is "screaming hysterically," then I would suggest it is you who is trying to gloss over something.

(In fact I can't recall ever hearing you be very critical of the multi-million dollar waste of money. Hmmm.)

See ya Sunday!

Rob. You know that no commissioners ever criticize one other, thanks to the no-separation of powers doctrine where they serve as both the executive and the legislaturve at once. This is one of our "unique quirks" dating to the Progressive (Condemn & Confiscate) Era. Every other place it was tried it's been discarded because checks and balances actually work for the public good and without them, well, look at what we've got - the City that Works You Over.

Randy. Consider the Hawaii Gas Cap for COP. It goes into effect Sept. 1 and will prevent the gouging like we're having to put up with here. Please consider running for Gov. against Kulongoscopy on the Neo Condemn & Confiscate platform. We need you to chase the remaining non-public union jobs out of COP so The People can finally own and operate the means of production around here.

The form over substance crowd usually loses in court. Expensive lawyers love green guys like Sten. This reminds me of bogus KPMG tax shelters - clients really want to believe it's true.

"Randy: but if the city bought PGE, it would then STILL be controlled by an entity whose main claim to fame is fraud and deception!"

The difference, Rob, is that you consider fraud and deception by the city to be defined as us withdrawing from the JTTF, Portlanders voting to support gay and lesbian men and women who choose to marry and actually voting to support our public schools.

Sorry, Rob, your right wing agenda doesn't play here.

However, when I use the term fraud, it is in the legal sense, i.e., Ken Lay and company who illegally defrauded consumers
http://money.cnn.com/2004/07/08/news/newsmakers/lay/ .

If you spent a fraction of the time defending working class folks who are being exploited by Enron instead of being an apologist for elitist causes and corporate schemes, you would have at least a modicum of credibility.

Problem: Enron is bankrupt. It no longer exists. Whatever it owned now belongs to the people it owed money to. Do we even know who they are?

Jack, that is just factually wrong.

Enron may be bankrupt, but it is still very much alive and kicking.

It has proposed distributing PGE stock to its creditors…but that is far from a done deal.

Enron is not through working you over, either. If Portland offered just under $3 billion for it and they rejected it, guess what? They figure they can make a lot more selling the stock on the open market. And why would someone pay a lot more collectively than $3 billion dollars for a company? Because they will make a lot of money on the deal. And who will be paying that money? PGE rate payers.

There is no rationale that is reasonable for PGE to not be a public entity. Public Power models exist throughout this region and work well. The entity that has been developed to govern PGE has a board made up of each community served by PGE.

No, it's not factually wrong. Do you understand what happens in bankruptcy? In bankruptcy, all of the assets of the debtor (here Enron) are placed in the control of a bankruptcy trustee, for the sole benefit of its creditors -- the people to whom the debtor owes money. The debtor company's shareholders typically (and in this case certainly) wind up with nothing. All of the managers are replaced, if that's what the creditors want. In this case, it is clear that the creditors are going to get the PGE stock directly. How "that is still Enron" is beyond me. It is Enron's bankers and other creditors who should and will own PGE.

If you want public power, put it up for another PUD election, and watch it go down, again and again and again. Next time, spend the $2 million plus on lobbying for real utility reform in Salem and Washington, D.C. It's may be equally fruitless, but it's what the public wants.

And as others have pointed out, if you're going to take over PGE, be sure to take over Pacific Power and NW Natural, too. The "evil" you're complaining about is private utility ownership, which (rightly or wrongly) is what the electorate in these parts clearly prefers.

There are so many problems that can and should be solved by the City Council. Electricity rates are not one of them.

You said Enron no longer exists. That, as I said, is factually incorrect.

And as I pointed out, there are distinctions between PGE, NW Natural and Pacific Power.

Enron is very much alive and is very much still of the culture to manipulate every possible thing and person to maximize its liquidity. If Enron had the ability to turn down $2.7 billion dollars it has the ability to do whatever it needs to get more.

And as far as we have more important things to do at the city, that is your opinion...and not one shared by me.

And as far as we have more important things to do at the city, that is your opinion...and not one shared by me.

I'd say rampant homelessness, the looming FPD&R disaster, police precinct closures and the early release of criminals are slightly more important than buying PGE.

There is also a legal distinction between Enron and the bankruptcy estate of Enron.

Anyway, Randy, you're not trying to make up with the Portland Business Alliance after the Alexan vote, are you? 8c)

Why not just change the Pacific Power franchise to allow them to start stringing wires in the PGE territory and let the free market sort it out?

As to Enron wanting a higher price becaus they can get more, won't a court sort that out if city condems them?

Thanks again for standing up for the taxpayer on the Alexan vote.


"Anyway, Randy, you're not trying to make up with the Portland Business Alliance after the Alexan vote, are you? 8c)"

When your in this deep, you might as well enjoy the water.

Randy is right that the Oregon constitution does not prohibit public ownership; if anecdotal examples serve as a guide.

The COP has an account in its own name that is entrusted to the Oregon Investment Council for investment in private enterprise. The COP even issued bonds to raise the funds.

The gains or losses on the investment fund are telegraphed directly to both the expenses and taxation for the COP. The City Auditor points only, in passing, to another branch of the COP that thinks that it is a wise decision to borrow and invest in the private sector.

If the DA applied the standard for commingling of funds as in Sabri then the ingeniousness of slipping the COP account (and PPS account) into the hands of the PERB, which can invest private money in private entities, before reentrustment to the OIC would not stop a local prosecution.

One way is for the City to form a mutual benefit nonprofit corporation (MBNPC), which does not have shareholders, to give it the funds necessary to acquire the PGE shares, and then to have the MBNPC acquire PGE as a cash merger with the MBNPC as the surviving corporation. The MBNPC would own all of PGE's assets. The city would be its only member but would not be a stockholder.


Your MBNPC could then dissolve and designate the COP was the non-profit to which the assets are distributed. State statutes don't require the government recipient of stock as a gift from liquidating that stock right away.

Interesting. Does the city have the power to "give" away $2 billion to a mutual benefit nonprofit corporation? How do the bond holders get paid?

The non-profit corporation issues the bonds, and repays them from its revenues from operating the electric company. (I surmise that the Eugene Water & Electric Board does the same thing.) And if the City can give money to Mr. Williams, I figure it can find a way to give some to a non-profit that it controls.

The non-profit corporation issues the bonds

Would the public buy $2 billion in paper from such an entity? EWEB no doubt has express statutory authority to do what it does -- would this thing? Sounds awfully sketchy, almost WPPSS-like. If I were the Enron bankruptcy trustee, I'd do exactly what the real one actually did.

Then there's the "regional" business that Randy Leonard was talking about here earlier today. Doesn't sound like a one-member mutual benefit corporation to me. Plus, can you even have a one-member mutual benefit corporation? Where's the "mutual" part?

Well, $2 billion is a lot of paper to try to flog, but the public buys revenue bonds, where the source of repayment is a particular project such as a hospital, a toll road, or taxes from an industrial plant, and where repayment isn't guaranteed by any government entity. For an 8% return I think the public would buy a good-sized slug of revenue bonds secured by PGE's (or the new corporation's) revenues.

I wonder about the city's plan to have 100% of the purchase price raised through bonds, though. Could PGE, right now, sell bonds equal to 100% of its net worth? Some of that debt would be junk quality, wouldn't it? And given the legal and political uncertainties created by the city being the real party in interest, the bondholders would likely have charged a premium interest rate.

The other item that the bondholders would have been all over was the operating contract between the new entity and whichever private company was actually going to operate the utility. I doubt the bonds could have been sold until there was a good idea of who was going to run things, how the operations contract was going to work, and how the PUC was going to view that relationship for ratemaking purposes -- all major uncertainties at the point at which PGE walked.

P.S. Industrial revenue bonds are often not tax-exempt.

Suppose the deal is that the current PGE team of officers continues to run it, but with a board selected by a mix of public agencies. Management could stay in place. The debt financing might be split into two or three slices as you suggest, with 70% being senior debt at about 5% if it qualifies as municipal (tax-exempt) debt, the next 15% being at about 7%, and the last 15% being at 9%. Rates are cheap now, even for junk bonds. I've suggested that PERS is the logical buyer for most of the debt, and PERS can accept an 8% return.

Sounds plausible. I wonder if this is what they had in mind. An old guy like you wouldn't have been in on the real deal, would you?

Not exactly, but I was able to work out how to make it legal for a lot less than $663,000.

For edifying me, maybe I should buy you $6.63 worth of a beverage at some point.

I'd be delighted. We've had lunch together on occasion, though it's been a few years.

Jack, I have seen you say on this post a couple of times that Enron is bankrupt so the no longer have any power. Do you understand that there is more than 1 form of bankruptcy for a business?

Yes, this is a Chapter 11. But the old Enron managers are gone, the shareholders will get nothing, and the debt holders will get PGE. For the city fathers to say "Enron is still screwing the ratepayers" is fantasy. "Enron" as we knew it is long gone. It poses no more threat to ratepayers than the people who are now taking over Pacific Power -- maybe even less.

Isaac: you referred to, "...revenue bonds secured by PGE's (or the new corporation's) revenues."

Actually, I believe revenue bonds are secured by profits, or at least excess of revenue over operating expenses.

Given COP city councilmen talking about how much money RATEPAYERS would save under city ownership, leads me to think Jack is right - WPPSS and junk bonds come to mine.

The problem I see reading Mr. Leonard's posts on this thread are that he seems to have no understanding of how the stock or bond markets work, or how business works. And why should he? He's been a public employee most of his working live, hasn't he?

BTW, Jack, when some kind of offer to buy PGE is floated, then turned down, is it the creditors turning it down? Or the bankruptcy judge? It's not 'Enron,' anyway.

There is a list of creditors somewhere on the Web - I found it months ago, but didn't save the link.

Gee, Comrade Leonard, your remarks on Enron are pretty deceptive. You say: ...Ken Lay and company who illegally defrauded consumers
http://money.cnn.com/2004/07/08/news/newsmakers/lay/ .

Kenny Boy is going to the Big House for stock fraud and insider trading, not for anything to do with "consumers" and the California Energy Crisis. California created a flawed pricing structure for their spot market power exchange, and their Public Utilities Commission refused to approve long-term contracts between wholesalers and retailers. This created an opportunity for gaming the system that was too juicy for Enron or any of the other wholesalers to pass up, given that Clinton's regulators were asleep at the wheel. The stock fraud and the California deal were unrelated.

The voters of this area are never going to give the Supervisors a $3 billion opportunity to create patronage jobs and public employee union featherbedding. They just proved they can't be trusted to play straight when there's an opportunity to grandstand no matter how many promises they've made, and they've built the silliest transit system in the nation.

Running an electric utility is a technical job, one in which lots of decisions have to be made about capital investments and payoffs in more efficient or less efficient generation methods. The Supervisors aren't up to the task, so if the system can't be de-regulated it should be managed by a competent private company that has an interest in serving all the people, not just the union faithful.


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