PUC Staff Urged to Use Leverage to Enforce the Law

Today Ted Sickinger of the Oregonian printed an excellent story, summarized at end of this post, noting that the public utility commission is "negotiating" to allow institutional investors in PGE to circumvent the law, as indicated by PUC analyst Bryan Conway. This is surprising and perhaps also a sign that the commission is still compromised by Neil Goldschmidt inspired utility interests, further compounded by Warren Buffett and his new considerable political clout via his ownership of Pacific Power. It was Buffett's lieutenant David Sokol who led the effort to repeal the Public Utility Holding Company Act (PUCHA) that previously prevented such ownership positions without adequate disclosure to the SEC.

What the PUC needs to understand is that ownership by hedge funds is very dangerous to PGE's long term stability given that it is not known what other investments they own and how they interact with PGE. For example, have they created derivatives based upon their shares, will they collapse due to subprime or other speculations and cause the stock to plummet, etc.? Or will they exercise board level authority via proxy and force a takeover by a related party.

The PUC has numerous tools, including the ability to punish PGE by pushing through a substantial utility rate reduction, in the event these institutional investors do not comply.

With Neil Goldschmidt back in town, one has to also wonder who is influencing these public utility commissioners, given that he and his former partner, Tom Imeson, anointed them. It is unlikely Goldschmidt is spending his days on the golf course.

Wednesday, September 12, 2007

TED SICKINGER

The Oregonian Staff

Oregon regulators say they're close to settling a dispute with a hedge fund that owns 7.4 percent of Portland General Electric Co. but has refused to comply with a state law requiring the partnership to seek regulatory approval of the investment.

Meanwhile, three more institutional investors have acquired stakes in Oregon's largest utility exceeding the 5 percent threshold that triggers a possible Oregon Public Utility Commission review. Collectively, those four investors own about 30 percent of PGE's stock.

Putin Sets Stage for Energy Sales in Russian Rubles

Russia now conducts most of its energy sales in US dollars and this has greatly benefited Europe in the form of lower energy costs as the dollar has depreciated. The declining dollar may also explain why Europe and other big purchasers of energy have not pushed to have more energy sales in Euros, which would clearly bolster the Euro's status as a global reserve currency.

As indicated in today's WSJ today, Putin has made it clear that he will anoint the next leader in Russia as he is term limited by Russia's constitution in 2008. Yesterday he dismissed the prime minister and cabinet in preparation for next year's election and, while he is harshly criticized here in the US, his approval ratings at home exceed 70 percent. Having made two trips to Russia in the last year, I can confirm first hand that he is quite popular, not because Russians love him but rather they are grateful for the increased stability his government has generated. Even Russian Alexander Solzhenitsyn, was one of the harshest critics of the former Soviet system, has publicly stated he strongly supports Putin.

Already an energy exchange is being set up in Saint Petersburg, Putin's home town, and clearly a key aspect will be the sale of energy in Russian Rubles, bypassing the Euro altogether, with the goal of making the Ruble one of the world's top reserve currencies. This is nothing short of astonishing given where Russia was in 2000 and from a theoretical standpoint, the Ruble could indeed be the key reserve currency within 5 years, even surpassing the dollar.

The reason is simple and that is that the Ruble is backed by hard assets including energy, minerals and other basic materials. The Chinese Yuan is backed by manufacturing with little hard assets and the Euro has benefited from greatly expanding the Euro zone economy every couple of years, a trend that has long term limits. The dollar is meanwhile being systematically debased by gross financial corruption and incompetence here at home.

What this likely means is that Putin will control interest rates here in the United States and in Europe based upon how quickly he devalues the dollar, i.e. sells energy in rubles.

A big beneficiary of Russia's new economic might could indeed be Germany as Russia rebuilds infrastructure using German talent, including the extensive base of Russian language skills from the former East Germany. Already former German President Helmut Schroeder is an official employee of Gazprom, the Russian state energy monopoly. Moving across to lead Gazprom would seem a natural for Putin.

Meanwhile here in the US Congress is debating the safety of Chinese toys, with lobbyists lined up on both sides. These likely include President Bush's brother, Neil Bush, who has been a paid lobbyist for China according to a disclosure in a divorce filing.

Perhaps the good news is that everything could change quickly here in the US with a new set of leaders. The one powerful advantage we do have is the regulatory system, including the SEC and Federal Reserve, that has historically bred confidence and trust in our financial system, and with that investment in dollars.

For the time being however, at least the next 18 months, the downward pressure on the dollar will likely continue and it is Putin's economic game to lose. Who could have possibly imagined that 6 years ago?

The following is the lead paragraph in the WSJ story. Most interesting that he is advancing a little known financial regulator. A smart move to further bolster the ruble would be to create an SEC like investor and consumer protection bureau as part of an overall reform effort.

By GREGORY L. WHITE AND ANDREW OSBORN
September 12, 2007 12:06 p.m.

MOSCOW -- Russian President Vladimir Putin unexpectedly replaced his long-serving prime minister with a little-known financial regulator, fueling intrigue as the Kremlin gears up to ensure triumph in the coming parliamentary and presidential elections.

New Independent Party Emerges in Oregon

It is great to see a new political party in Oregon, The Independent Party, that will allow independent voters more choice. It's motto is not left, not right, just common sense. This party will be able to field a candidate in all the statewide elections, the most high profile of which will likely be a moderate Republican, John Frohnmayer, in the race for US Senate.

Union Chief Under Fire for Wrong Reasons

Today the Oregonian ran a story by reporter Jeff Mapes about SEIU President Joe DiNicola, Mapes noted that:

"The largest union for state employees in Oregon is embroiled in a messy political and legal struggle over a claim from its elected president for nearly $110,000 in back overtime pay. Outraged members of Local 503 of the Services Employees International Union, including several board members, launched a recall campaign against the president, Joe DiNicola. In turn, DiNicola is seeking a court order charging that union and government resources are being used to aid the recall, which SEIU denies. He also has filed a civil rights complaint charging he has been discriminated against for making his wage claim."

Rather than engage in a conflict my advice would be for SEIU to cut the check for $110,000 with the stipulation that DiNicola advance two initiatives.

The first would be a natural for him, a tax auditor, and that would be to raise a discussion regarding the most abusive corporate tax loophole in 25 years, one that has both decimated union ranks through non sensical mergers and also short changed investors alike. Steve Duin referred to this tax loophole in an opinion piece and I also wrote about it in an article titled the "Amazing Carry and Tax Loophole Inside PERS" or Brainstorm NW magazine. If DiNicola is successful in closing this loophole the union could theoretically justify writing him a check for every dime it has and kissing his feet in gratitude because the net impact would be the preservation of millions of good jobs, a disproportionate share being union jobs.

The second recommendation to SEIU would be to encourage DiNicola to be more aggressive in representing issues key to domestic job growth at meetings of the Oregon Investment Council. This was not mentioned in the article by Mapes yet perhaps DiNicola's most important activity of all is attending the monthly OIC meetings on behalf of SEIU, where the $70 billion of PERS investments gets awarded to various managers.

TPG's Attempt to Purchase PGE - Extensive News and Commentary Archive

The following 142 page report chronicles news stories and related commentary surrounding the Texas Pacific Group's bid to acquire Portland General Electric. The purpose of this archive, with dates ranging from August 26, 1998 to October 25, 2005, was to provide material to various parties involved in defeating the proposal. It is especially useful using key word browser searches, for example searching using the term, David Bonderman, CEO of TPG.

Included in the report is extensive commentary regarding Neil Goldschmidt's business practices because Goldschmidt was the point person for TPG. This includes his involvement in Renaissance Capital, a credit card company, for which he was paid $6 million as a board member. During this period interest rate ceilings were lifted in Oregon due to a succesful lobbying effort and what resulted was explosive growth in predatory lending.

Vicky Walker - Utility Tax Reform Leader Runs for Secretary of State

State Senator Vicky Walker wrote an outstanding piece of legislation that closed a much abused loophole that had allowed electric utilities to bill ratepayers for taxes yet not remit those taxes to the respective federal, state and local taxing authorities. For her good work, Warren Buffett and other utility executives contributed heavily to unseat her in the last election yet she narrowly won. Walker is now running for Secretary of State.

As a strong advocate of a transparent free market based economic system, it continually astounds me why so many consumers, for purely partisan political reasons, do not support public power. Businesses, churches, schools - they all use power and the benefits of structurally reducing this cost via a not for profit structure makes complete sense. Warren Buffet could not buy his local utility because it is Omaha Public Power. Is that not the definition of irony.

Frankly, I was disappointed that Intel., Oregon Steel and other industrial users did not step up to lead the formation of a private cooperative given the public's concern over the City of Portland operating PGE.

PGE's largest shareholders are now a Caymen Island based hedge fund. One would thing that after the Enron debacle, PGE was Enron's largest subsidiary, that the community could step up. Of course what made this difficult was Neil Goldschmidt leading the effort to defeat public power prior to his being proposed to be CEO of the new PGE in the proposed buyout by the Texas Pacific Group and later resigning form everything due to a personal scandal.

Longview Fibre Agrees to Sell

Longview Fibre was a great company with good management and I was squarely against this merger, blocking the first attempt by a Portland based private equity firm, Obsidian Capital. This attempt was blocked by involving the SEC and a proxy rule that prevents special shareholder meetings that do not disclose all material facts surrounding its purpose. This would include the source of financing by Obsidian and it was clear they were unwilling to disclose this. Obsidian had attempted to force the meeting using a Washington State law that requires a meeting if 10 percent of shareholders call for one.

The good news is that the later takeover by a Canadian firm was at roughly a 30 percent higher price for the stock. This article, Fibre agrees to sell, is the last of several in the Longview Daily News that featured my comments regarding this situation.