Potential owner of PGE eyes job cuts
A Jan. 5 article in Willamette Week brought to light a set of secret plans for major layoffs at Portland General Electric (PGE) if Texas Pacific Group (TPG) wins approval of its bid to buy the utility.
The plans were confidential documents requested by state regulators who sought to understand why an investment firm specializing in rescuing failing companies would be interested in a low-risk investment like an electric utility.
In November 2003, TPG, headquartered in Fort Worth, Texas, beat out a bid by the City of Portland to buy PGE from its bankrupt owner, Houston-based Enron. TPG would acquire PGE for $535 million of investors’ money (including $300 million from the Oregon Public Employees Retirement Fund); plus $725 million in loans from commercial lenders; plus the assumption of $1.1 billion in PGE/Enron debt.
Under state law, however, the sale must be approved by the Oregon Public Utility Commission (PUC), a three-member body appointed by the governor. PUC staff wanted to know why a company that specialized in the quick turnaround and resale of underperforming companies — like Continental Airlines, Burger King and America West Airlines — would be interested in a publicly regulated utility with a legal cap on rates.
“How did TPG intend to make money on PGE?” PUC staff wanted to know. TPG fought to keep its strategy secret, but PUC staff were able to require the release of that information, provided it was kept from the public, only seen by the commissioners and a set of “intervenors,” representing different categories of utility customers.
But the documents found their way into the hands of Willamette Week, a weekly newspaper distributed free in the Portland metro area.
Here’s what “The PGE Papers: The Secret Documents Texas Pacific Doesn’t Want You To See,” reveals:
TPG plans to sell PGE again within five years. In that time, it plans to slash PGE’s operations and maintenance budget, lay off as many as 120 of PGE’s 467 customer service workers, cut information technology and human resources spending by as much as $10 million a year, reduce officers and high-level managers, reduce PGE’s $180 million budget for routine capital expenditures by $15 million, and cut overhead (employees) as much as 50 percent at its Beaver Plant in Clatskanie. [That last group would include union workers, members of International Brotherhood of Electrical Workers (IBEW) Local 125.]
All told, TPG documents suggest it expects to make between $800 million and $1.2 billion in profit in five years. In its worst-case scenario, it would make $251 million in profit.
And then it would sell PGE again, most likely to an out-of-town utility. Right now it’s illegal for one utility to buy another, under a federal law called the Public Utility Holding Company Act of 1935. The law was passed in the wake of a series of financial scandals in utilities. It’s why local electricity markets aren’t dominated by a handful of giant national players, like most industries in the United States.
Recently, energy industry players have been pushing to repeal the law. And betting on that repeal is part of TPG’s business plan; TPG thinks PGE’s resale price will be higher if the law is repealed because there will be a wave of mergers, and local utilities will become hot commodities for national energy players.
None of this seems likely to benefit Oregonians.
Nearly every interested party is against it, including PUC staff and groups representing residential, industrial, and commercial power users, and the business community.
One party that has remained neutral is the union that represents about 700 of PGE’s 2,600 workers. IBEW Local 125 has taken no position for or against the Texas Pacific merger, judging that PGE will need its skilled members regardless of who owns it.
Still, Jim Sweet, a PGE employee who serves on the Local 125 Executive Board, said members are eager to know who they’ll be working for.
And Local 125 union organizer Steve Rose said the Willamette Week article has made his job easier. The union has been courting customer service workers to join, and that department seems likely to be hardest hit if the plans outlined in the article are implemented. Joining the union might offer the workers some protection.
The current union contract, the product of contentious bargaining and a near-strike last year, expires in February 2009. It would remain in force if PGE is sold, and while it contains no impediment to layoffs, it does contain language that forbids contracting out work done by union members.
“No one can predict the outcome of Texas Pacific Group’s proposed purchase of Portland General Electric, but one thing is clear: Change is coming regardless of the outcome of the TPG offer,” says Local 125’s Web site. “How would you like to be able to offer yourself some protection? Assure that the terms and conditions of your employment remain the same or improve?
“That’s exactly what PGE workers with a UNION CONTRACT enjoy, the knowledge that regardless of who purchases PGE, their wages, benefits and terms and conditions of employment are written down in a document that not only is honored by PGE, but will be honored by whoever purchases PGE. That document can only be changed in negotiations or by mutual agreement of the union and the company, period.”
Bob Jenks, executive director of the residential ratepayer group Citizens Utility Board, says electricity customers and workers still should be worried about TPG taking over PGE.
The TPG bid won’t benefit electricity customers, he said, and workers should expect the cuts that came to past TPG purchases to come to PGE. The supposed $43 million rate credit PUC staff squeezed out of TPG would be reduced by an offset, Jenks said, and in any event, given PGE’s $1.7 billion in annual revenue, $43 million wouldn’t even be noticeable on a bill. TPG’s claim that putting a few local business leaders on a board equals local ownership claim is a sham, Jenks said. And a company that plans to dump its purchase in five years isn’t going to be interested in building new electricity generating capacity, when it might take 30 years to recover such an investment.
It’s anyone’s guess what the PUC will decide. The TPG deal lost political support after its front-man Neil Goldschmidt was forced to step down. A separate investigation by Willamette Week in the spring of 2004 brought Goldschmidt down with career-ending revelations about his sexual abuse of a minor while he was mayor of Portland.
Jenks said he expects the PUC will make its decision later this month.
If the PUC rejects TPG, the City of Portland is likely to renew its bid, says City Commissioner Eric Sten.
Sten has been pushing a plan for public ownership and private management. PGE would remain intact and the City would arrange with existing PGE management to create a company to contract with the City to manage PGE operations.
Once owned by the public, it couldn’t be sold again.
Sten presented the plan to the Local 125 Executive Board in December. The board was also visited by a TPG representative, and continued to maintain neutrality.
Sten’s public ownership plan “brings powerful financial advantages,” he said, including cheaper capital — the city could issue low-interest bonds — and federal tax exemption. That would translate into a 10 percent rate cut for PGE’s 750,000 electricity customers, Sten said.
And cheaper power could stimulate a return to jobs among big power users burned by recent high electric rates.
“This could be one of the things that sets Oregon back on track,” Sten said.
A city takeover wouldn’t require the PUC’s approval, but it would have to win agreement of Enron’s board of directors and a committee of creditors acting through the bankruptcy court.
Last time around, Sten believes, TPG’s offer won out over the city’s because Enron’s interim management is philosophically opposed to public power.
The next time, if Enron balks, the City could force the issue with its power of eminent domain and condemnation. In fact, even if PUC approves TPG, the City could move ahead with condemnation. But Sten said there would first have to be public debate.
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