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.

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.

OIC Hosts NW Natural CEO Mark Dodson

In June the Oregon Investment Council held its annual planning session and included a special presentaiton from NW Natural CEO Mark Dodson on Carbon limits and other energy topics. This is the same Mark Dodson whose firm NW Natural tried to acquire PGE with funding from the Texas Pacific Group. In addition, the law firm at which Dodson was managing partner prior to joining NW Natural, Atre Wynne, shared office space with Neil Goldschmidt and his partner Tom Imeson and did most of the legal work in Texas Pacific's separate later attempt to acquire PGE a second time.

The June 27, 2007 meeting minutes also note that a key topic was "socially responsible investment" and "sustainability" issues.

It was not disclosed whether OIC Chairman Solomon, a practicing CPA, does tax work for Dodson or any other executives at NW Natural. What is known is that NW Natural and Warren Buffett's Pacific Power have expended considerably time and energy in trying to upend a law that prevents utilities from charging ratepayers for taxes that they do not ultimately remit to the various taxing authorities. In addition, Dodson and Buffett tried to unseat Senator Vicky Walker form Eugene even though the legislation she sponsored was widely praised as an outstanding reform to the system.

Oregon Investment Council: Structure, Members and Board Minutes

Today Oregon PERS is one of the nations largest public pension funds, with more than $70 billion in assets. In Oregon the administation of PERS is handled by the PERS administrative board yet the investments are managed by a separate board, the Oregon Investment Council (OIC). This link shows the members on the OIC in addition to minutes from recent OIC meetings. The council has 5 voting members, four appointed by the Governor, and the State Treasurer by position. The SEC has no oversight of public pensions, even though they are now 8 of the nations 10 largest investments pools, CalPERS alone having more than $150 billion.

It is noteworthy that the current OIC Chairman, Dick Solomon, has no biographical background information listed. Solomon is a practicing Certified Public Accountant serving many local top executives, including the previous OIC Chair Gerard Drummond, a former Pacific Power executive,for whom he had prepared tax returns for many years. Traditionally, this was considered an unacceptable conflict of interest between accounting and investing activities. Only when CPA's goes on to receive appropriate credentials in the investment industry is it considered appropriate yet Solomon has no such credentials or experience.

Prior to serving on the OIC, Solomon served on the Oregon College Savings Plan board. During his tenure on this board he and State Treasurer Randall Edwards, when faced with choosing a new key vendor due to the dismissal of Strong, they chose Oppenheimer over Vanguard. This was very unfortunate because the choice of Oppenheimer set up a system in which most participants are fleeced by investment advisors earning large commissions. A key selling point of the Oppenheimer program was its offer to provide $300,000 in free television ads, those would be the ads State Treasurer Randall Edwards appears in.

Today most credible advisors in Oregon recommend the Nebraska, Iowa or Nevada college savings plan, forgoing the small tax benefit to Oregon residents of the Oregon Plan. While Solomon and Edwards may argue that Vanguard choices do exist, one need only look at where the dollars have gone overall to see the influence of Oppenheimer's high fee program.

Solmon's candidacy to be on the OIC and later appointment as Chairman was aggressively championed by one of Oregon's most powerful Lobbyists, Len Bergstein. Berstain is a regular election day contributor, on the Democratic side, to the State's leading media outlets, including KGW TV and the Oregonian newspaper.

Bergstein also launched Neil Goldschmidt's campaign for Governor in the 1980's while leading his public relations company, NW Strategies. Another major contributor was the local office of Arthur Andersen, where I worked at the time. The managing partner of the office was Harry Demorest who was added to the Oregon investment council after Neil Goldschmidt's wife Diana and his best friend, Gerry Bidwell, were forced to resign over conflict of interest issues.

Bergstein has also done work for local utilities and supported acquisitions, including Warren Buffett in his takeover of Pacific Corp. While Buffett is served by Omaha public power and enjoys electricity rates considerably below market averages back home in Omaha, he is enjoying high profits off Oregon ratepayers and using these funds to finance several new coal plants in Utah, Pacific Power's second largest region behind Oregon.

There is currently no requirement in Oregon that investment firms who go before the OIC for contracts to manage funds, at times exceeding $1 billion, disclose who their lobbyists are.