Electric utilities are regulated business; regulation involves the government; the government is infused with politics; politics can be nasty – just ask Texas Pacific Group.
If Texas Pacific weren't led by David Bonderman – not known for shying away from a fight – the firm's attempt to purchase Portland General Electric from bankrupt Enron would likely have crumbled months ago.
In December, advocates for the Oregon Electric Utility Company – backed by the private equity firm – argued before the state's Utility Commission that a proposed $2.35 billion (€1.77 billion) purchase of Portland General Electric would have a “net benefit” for the utility's customers, as is required by state law when a utility changes owners.
The private equity firm's critics, including the whole of the Commission's staff, say Texas Pacific will saddle the utility with debt, slash costs and cash out at the earliest opportunity, benefiting Oregon power consumers not at all.
Of course, Texas Pacific got off to a bad start in the Beaver State. Its platform company was originally to involve a managerial and financial contribution from the former governor of Oregon, Neil Goldschmidt, who led the state from 1987 to 1991. A year later, accusations surfaced that Goldschmidt's wife Diana had, as member of the Oregon Investment Council, voted to commit $300 million to a Texas Pacific fund on the same day that her husband was tapped to lead the utility platform for the firm. (A source close to Texas Pacific says the vote on the day in question was to increase a pre-existing commitment to the fund.)
FROM BAD TO WORSE
The Goldschmidts and Texas Pacific vociferously deny that Mrs. Goldschmidt had any knowledge of the firm's plans in Oregon or with its former governor when she voted to approve the capital commitment.
Nevertheless, Diana Goldschmidt was forced from the Investment Council and the state attorney general launched a formal investigation.
Making a messy situation worse, Neil Goldschmidt stepped down from his post at Oregon Electric Utility last May after admitting to carrying on a sexual relationship with a 14-year-old girl while he was mayor of Portland in the 1970s.
Texas Pacific regrouped. It named a new chairman of its platform company, Peter Kohler, president of Oregon Health & Science University. It redoubled its efforts to convince the people of Oregon and the utility commissioners that its buyout of Portland General Electric would be good for consumers.
In documents filed with the commission last November, Texas Pacific partner Kelvin Davis argued that its proposed rate credits would mean a saving of $43 million for consumers. The firm also promised significant liability protections, heavy involvement from community leaders and an extension of service-quality mandates, not to mention an end to the uncertainty of Enron ownership.
Texas Pacific has presented itself as a firm with expertise in turning around the operations of troubled companies, most notably Continental Airlines.
The firm's proposed buyout has been met with much skepticism. Critics argue the rate credits are measly. A spokesperson from a group called Industrial Consumers of Northwest Utilities was quoted in newspaper The Oregonian as saying: “This is a risky deal by a company that has no utility experience, that is going to bring in a lot of debt and that is going to be a short-term owner.”
In the December hearing, commissioners questioned Oregon Electric Utility representatives repeatedly about how the proposed buyout would save consumers money. At press time, commissioners were expected to announce their decision in January.
In the meantime, buyout-firm bashing continues. A consumer advocate was recently quoted as saying of Texas Pacific: “They are interested in one thing: making a lot of money in a short period of time.”
At the very least, Texas Pacific might want to include this statement as a testimonial in their next PPM.