Background Note (April 5, 2005): Before PUHCA was enacted, Portland General Electric was swept up into the infamous Samuel Insull utility empire that resulted in the then-most spectacular collapse of a utility holding company in U.S. history. Partly as a result, PUHCA was enacted in 1935 to break up huge, multi-state holding companies. The owners of most utilities became “single state” holding companies to avoid regulation by the SEC under PUHCA. While the Oregon PUC has state law authority to turn down any bid to acquire an Oregon utility, it appears unlikely, as a practical (and political) matter, that any state PUC would be willing to completely stop such an acquisition if it were only a single component of a multi-state, multi-utility holding company merger or takeover.
March 11, 2005
Oregon Public Utility Commission’s Decision to Reject Attempted Acquisition of Enron-Owned Utility is Victory for Electricity Consumers
Statement of Lynn Hargis, Energy Attorney, Public Citizen’s Critical Mass Energy and Environment Program
The Oregon Public Utility Commission’s (PUC) unanimous rejection yesterday of a Texas investment firm’s attempted $2.3 billion purchase of Portland General Electric is a victory for Oregon ratepayers that illustrates the consumer-protection power of the Public Utility Holding Company Act (PUHCA), a law that President Bush has targeted for elimination as part of his energy strategy.
The Oregon PUC rightly concluded that the heavy debt resulting from the proposed leveraged buyout, in addition to the short-term ownership interests of the Texas Pacific Group, would have been harmful to ratepayers of Portland General Electric. But the PUC likely would not have been able to protect ratepayers in this fashion had it not been for the PUHCA, which makes effective state regulation of electricity possible.
Portland General Electric, Oregon’s largest investor-owned public utility, is owned by Enron Corp., which is now embroiled in bankruptcy proceedings.
Because of PUHCA, which limits the investments of large, multistate utility holding companies, Enron was required to either reincorporate in Oregon in order to buy Portland General Electric or submit to stringent financial regulation as a utility holding company under PUHCA. This Oregon incorporation allowed the Oregon PUC to impose strict limitations on Enron’s transactions with Portland General Electric. Also, Enron couldn’t buy another regulated utility and maintain its exemption from PUHCA regulation, so PUHCA limited the damage Enron could do.
Nonetheless, Enron got other exemptions from PUHCA for owning merchant power plants and power marketers (granted by Congress and by the Securities and Exchange Commission [SEC], respectively), allowing Enron (and other exempted companies) to engage in the abuses and manipulations of Western electricity sales in 2000 and 2001. The SEC ultimately found that Enron was not entitled to several PUHCA exemptions, but not until long after the damage had been done and Enron was already bankrupt.
The Oregon PUC’s decision to put the interests of electricity consumers ahead of the profit interests of an out-of-state investment fund was a major victory for electricity consumers, led by Oregon Citizens Utility Board against a large, well-financed buyout attempt. This victory should remind us all that rather than repealing PUHCA, we need strong enforcement to enable state commissions to be able to continue protecting electricity consumers.
Lynn Hargis is a former attorney for the Federal Energy Regulatory Commission.