The following are two article that appeared in this mornings newspaper.

Utilities' merger faces challenge 
PGE's dance card may take awhile to fill if its deal with Sierra Pacific fails

Wednesday, April 4, 2001



By Gail Kinsey Hill of The Oregonian staff 
If Sierra Pacific Resources leaves Portland General Electric at the altar,
other suitors may cool their heels awhile before proposing. 
Not only has the West's energy crisis apparently spoiled the pending marriage
of Nevada's Sierra Pacific and PGE, it has chilled a consolidation trend that
just a year ago was as hot as a starlet's love life . 
"I don't see any eager buyers out there," said Justin McCann, a senior analyst
with Standard & Poor's. "Things are pretty rocky at the moment." 
Still, possibilities exist. Analysts suggest that Northwest Natural Gas in
Portland, Puget Energy in Bellevue, Wash., and IdaCorp in Boise could be
interested in going after PGE if Sierra Pacific and Enron Corp., PGE's parent
company, part ways. 
On May 5, either Enron or Sierra Pacific can walk away from the transaction if
closing documents aren't signed by then. 
Officials from both companies have said they remain committed to the deal, but
they admit that changing regulatory and financial conditions make closure
unlikely. 
Houston-based Enron said it's prepared to wait patiently for another offer. 
"This is not a fire sale," said Mark Palmer, an Enron spokesman. 
Enron, an energy and trading company, bought PGE in 1997, eager to benefit
from markets that were being opened to greater competition and less government
regulation. But officials grew impatient with the plodding pace of
deregulation and decided to jettison such capital-intensive, slow-growing
assets as PGE. 
In November 1999, Sierra Pacific Resources announced plans to buy PGE for $3.1
billion in cash and assumed debt, an amount similar to what Enron paid two
years earlier. 
After more than a year of leaping regulatory hurdles, the deal appeared close
to completion. Then last summer, energy shortages and sky-high wholesale
electricity prices swept through California and the rest of the West. 
Wholesale prices, 10 times year-ago levels, have gouged Sierra Pacific's
bottom line. The company owns generating plants that supply electricity for
some business and residential customers, but it also buys on the wholesale
market. 
Sierra Pacific had intended to become increasingly reliant on the wholesale
market and to sell many of its generating facilities. The utility was to use
proceeds from the sales to buy down its debt and secure financing for the PGE
purchase. 
But the Nevada Legislature is close to slapping a moratorium on the sales of
any generating plants. Lawmakers worry that divestitures could pinch energy
supplies still further and roil wholesale markets for months to come. 
Sierra Pacific's weakened financial state also means that the federal
Securities and Exchange Commission likely won't approve the merger. The SEC is
the remaining regulatory body that must sanction the deal. 
PGE isn't in on the negotiations, but officials agree that the sale looks
shaky. 
"It's anyone's guess right now," Peggy Fowler, PGE president and chief
executive officer, recently told The Oregonian's editorial board. 
So far, talk about replacement bidders is more speculation than fact. Analysts
said a utility based in the West is the most likely scenario. 
"It's probably going to be somebody close by," said Doug May, a senior
portfolio manager with Wells Fargo Private Asset Management in Grand Junction,
Colo. "It's tough to come in from another part of the country." 
But don't rule out foreign companies, May added. When ScottishPower bought
Portland-based PacifiCorp in December 1999, it became the first foreign
concern to buy a U.S. electric utility. The merger stirred up talk of more
international linkups. 
Regionally, Northwest Natural's name comes up as a potential suitor. 
The Portland-based utility already works cooperatively with PGE in a number of
business arrangements, including a joint meter-reading program. 
"A lot of programs we're doing are the kinds of things other electric and gas
utilities are doing under one utility," said Mark Dodson, Northwest Natural
vice president of public affairs and general counsel. "I'm not at all
surprised people might speculate that we would acquire" PGE. 
Dodson declined to comment directly on whether Northwest Natural might try to
buy PGE. 
"As long as there's an agreement in place, it's inappropriate for us to talk
about it," he said. 
Officials of IdaCorp, a holding company whose primary subsidiary is electric
utility Idaho Power, also declined to discuss whether they have been eyeing
PGE. 
"We can't really comment on deals we might get into," said Russ Jones, an
IdaCorp spokesman. 
IdaCorp made an unsuccessful bid for PGE two years ago when Enron first
solicited offers, Jones said. But, he said, "I don't know the answer to
whether we'd be interested now. 
"If it becomes available," Jones added, "we'll probably investigate, as we
would with any other assets that might become available." 
Puget Energy, a holding company for Puget Sound Energy, also declined to
comment. 
"We never speculate on rumors," said Grant Ringel, Puget Energy's director of
corporate communications. 
Puget Sound Energy serves electric and natural gas customers in Western
Washington and is the result of the 1997 merger of Puget Sound Power and Light
with Washington Energy, the parent of Washington Natural Gas. 
The merged utilities, serving about 1.4 million customers, formed the largest
electric and natural gas utility in the Northwest. 
In the 1990s, as federal laws began deregulating electric power markets,
utility mergers became increasingly common. Industry executives and analysts
attributed the trend to increased competition and a drive toward greater
efficiency. 
"With deregulation, economies of scale are very important," said Wells Fargo's
May. "It's very difficult to do well as a small company. 
The trend has taken in couplings of electric utilities and natural gas
utilities -- "convergence" in industry parlance -- as well as linkups of
electric utilities. 
Yet, analysts note that the industry's consolidation has slowed of late. The
uncertain regulatory environment throughout the United States, the energy
shortage in the West and the electricity crisis in California are putting the
brakes on the trend, they say. 
"This whole California thing has made everyone very cautious," said Standard &
Poor's McCann. "People want to see the situation sort itself out." 


You can reach Gail Kinsey Hill by e-mail at gailhill@news.oregonian.com or by
telephone at 503-221-8590. 

Wholesale market bright for PGE 
The utility reports $1.17 billion in revenue in fiscal 2000 from reselling
electricity 
Wednesday, April 4, 2001



By Gail Kinsey Hill of The Oregonian staff 
Enron Corp. views Portland General Electric as a sluggish asset, weighted down
by regulatory laws and political uncertainties. 
Maybe so. But PGE posted healthy financial gains in fiscal 2000, benefiting
from the region's energy shortage and spiking wholesale electricity prices. 
Revenue from wholesale power sales jumped to a record $1.17 billion last year,
more than triple the 1999 wholesale sales figure of $355 million. Bottom line:
PGE recorded earnings of $139 million in 2000, up 10 percent from 1999
earnings of $126 million. 
"It was a banner year for us," said Jim Piro, PGE's chief financial officer. 
The utility's financial strength should continue, even if a pending sale to
Sierra Pacific Resources falters, according to analysts. 
"I don't think PGE will be tainted as an asset" if the utility again is put on
the block, said Doug May, senior portfolio manager for Wells Fargo Private
Asset Management in Grand Junction, Colo. 
In contrast with PGE, Sierra Pacific suffered from high wholesale power
prices, reporting losses of $39.78 million in 2000, a sharp decline from 1999
earnings of $51.75 million. 
Utility-owned hydroelectric and coal- and gas-fired generation plants supply
about half of the electricity that's needed to serve PGE's 725,000 business
and residential customers. The company buys the rest of its power on the
wholesale market. 
Until last summer, wholesale prices remained relatively stable. Then, pushed
by electricity shortages and California's botched deregulation plan, prices
soared: from between $20 and $30 a megawatt hour to more than $200 a megawatt
hour. The market became so volatile that on some days short-term, or "spot"
prices, spiked above $600 a megawatt hour. 
Soaring prices cut into the financial reserves of utilities caught short of
power and forced to the market for last-minute buys. But PGE, with experienced
wholesale traders and a conservative purchasing strategy, had secured
long-term contracts as a hedge against the market. The approach kept spot
purchases to a minimum. 
In fact, PGE bought more electricity than its customers could use. The "long"
position allowed PGE to resell the electricity -- California was among its
customers -- for a tidy profit. 
"We were fortunate to be in a good situation last year," Piro said. 
Wholesale electricity sales accounted for 52 percent of PGE's operating
revenue last year, a turnaround from prior years when retail sales dominated
financial returns. 
Wholesale sales proved so lucrative that PGE withdrew a request to raise rates
by 16.5 percent. The utility may raise rates late this year, officials said,
or if cash continues to pour in, it may issue refunds to customers. 
PGE's expenses also have gone up dramatically. The utility spent $1.5 billion
on electric power and fuel purchases last year, up from $654 million in 1999. 
? Top   ? Print