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October 8, 2001 


Enron Exits Portland General (Again) 



By Jon T. Brock
Director, Strategic and Competitive Intelligence 


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[News item from PR Newswire] Enron Corp. (NYSE: ENE) announced today that it has entered into an agreement with Northwest Natural Gas Company (NYSE: NWN) for the sale of Enron's wholly owned electric utility subsidiary, Portland General Electric. The proposed transaction, which is subject to customary regulatory approvals, is expected to close by the fourth quarter of 2002. 

Analysis: Enron is attempting to sell Portland General again, this time to Northwest Natural Gas Company (NW Natural). Enron attempted to sell Portland General to Sierra Pacific in November of 1999. However, that sale did not complete apparently due to a delay in Nevada deregulation. Let's take a step back and look at the history of Enron's dance with Portland General. 

Enron originally confirmed that its "merger" with Portland General had closed effective July 1, 1997, approximately one year after it was announced. The $3-billion combination created an enterprise with a market value of approximately $12 billion. Enron issued 50.5 million new common shares to shareholders of Portland General, consolidated Portland General's debt of $1.1 billion and accounted for the transaction on a purchase accounting basis. 

The acquisition linked Enron and Portland General, a successful, low-cost electric utility operating in the fast-growing Pacific Northwest region. With ownership of approximately 5,000 megawatts of generating capacity and more than 38,000 miles of natural-gas pipeline worldwide in 1997, the combined company aimed to provide integrated energy solutions for wholesale and retail natural gas and electricity customers in North America and internationally. At least that was the plan. 

Enron also did an acquisition of a telecommunications firm based in Portland, Ore. that had links to Portland General. On Nov. 17, 1997, Enron announced the acquisition of OPTEC Inc., a Portland, Ore.-based provider of data communications integration and services. The acquisition was handled through FirstPoint, Enron's telecommunications unit at the time. It was originally part of Portland General. FirstPoint had announced in September 1997 an agreement with the Williams Communications Group unit of The Williams Cos. (Williams) and Montana Power's Touch America, to build a fiber optic network from Portland to Los Angeles. 

For those of us covering the energy industry, you will recall that 1997 was a period of energy "convergence." Utilities were expanding into telecommunications at a head-spinning rate and oil and gas companies were busy doing "strategic acquisitions." 

Williams had agreed to acquire Mapco Inc. for about $2.46 billion in stock and the assumption of about $1 billion in Mapco debt in November 1997. Also announced in the same month was Sonat Inc., known for its pipelines, agreeing to acquire closely held exploration and production concern Zilkha Energy Co. for $1.04 billion in stock. In June 1997, NGC Corp. announced that it had closed an acquisition of Destec Energy, Inc., a leading independent power producer, and had closed on the related sale of most of Destec's international projects and operations to AES Corp. for $407 million, subject to certain adjustments. The net cost of the assets to be retained by NGC, originally expected to be approximately $400 million, had been estimated to be in the range of $300 to $325 million, after the sale of certain non-strategic assets. Also occurring in June of 1997 was Duke Power Co. and Houston-based PanEnergy Corp. linking up in a "merger" that took approximately seven months to complete. Under terms of the agreement, shares of PanEnergy stock would be converted to 1.0444 shares of Duke Energy stock. Duke Energy would adopt Duke Power's present common stock dividend payment of $2.12 per share. 

So Enron was not alone in the "merger-mania" field of energy companies expanding their balance sheet with strategic assets. Two years later however, Enron decided to exit Portland General. Enron had decided to sell Portland General to Sierra Pacific. With the announced sale, Kenneth Lay, Enron Corp. chairman and CEO said, "The rapidly evolving competitive electricity market allows us to deliver commodity services and risk management products to our customers without requiring the ownership of a regulated electric utility." Jeff Skilling, then Enron's president and COO, also chimed in by saying, "In general, we would say that Portland General is not as strategic as it was before-when it had a strong wholesale business that we could integrate with our nationwide wholesale business." 

In the two years following the $3-billion purchase of Portland General, Enron found operating a strictly regulated electric utility to be frustrating. Oregon regulators approved the acquisition only after Enron agreed to cut power rates by $141 million, more than double what the company had proposed. Oregon regulators also rejected plans to sell Portland General's 14 power plants-playing havoc with Enron's asset management strategy. 

Nevada-based Sierra Pacific Resources agreed to buy Portland General in November 1999. It was to pay $2.1 billion, including $2.02 billion in cash. It also was to assume about $1 billion in debt and preferred stock. The deal was officially called off in April of this year although it had been considered dead months before. Sierra Pacific planned to sell some of its Nevada assets to raise cash for the deal, but Nevada's move to electricity deregulation was delayed, and Sierra couldn't carry out the sales. 

Enron begins to look for another buyer and has found Northwest Natural Gas Company. According to Enron, under terms of the agreement, Northwest will purchase Portland General from Enron for $1.875 billion. This is comprised of $1.55 billion in cash, $200 million in Northwest preferred stock, $50 million in Northwest common stock, and the assumption of Enron's $75-million balance on its customer benefits obligation, which was stipulated in its 1996 agreement to purchase Portland General. In addition to the purchase price, Northwest will assume approximately $1.1 billion in Portland General debt and preferred stock. 

According to Moody's this morning, Northwest plans to form a holding company (HoldCo) that will become the parent of Northwest Natural and Portland General. HoldCo plans to finance this transaction with a combination of about $1.5 billion of bank borrowings, about $250 million of common stock and FELINE PRIDES (a mandatory convertible hybrid security) to be sold to Enron, and about $150 million of common stock to be sold to the public. Consummation of this transaction is contingent upon numerous regulatory approvals, which are expected to take from nine to twelve months. 

Northwest principally is engaged in the distribution of natural gas. The Oregon Public Utility Commission has allocated to Northwest, as its exclusive service area, a major portion of western Oregon, including the Portland metropolitan area, most of the Willamette Valley and the coastal area from Astoria to Coos Bay. Northwest also holds certificates from the Washington Utilities and Transportation Commission granting it exclusive rights to serve portions of three Washington counties bordering the Columbia River. Gas service is provided in 96 cities, together with neighboring communities, in 17 Oregon counties, and in nine cities, together with neighboring communities, in three Washington counties. They serve more than 525,000 customers in northwest Oregon and southwest Washington. Portland General currently serves 730,000 customers and owns 2,015 megawatts of electric generation, split evenly between hydro, coal and natural gas. 

So is energy convergence over? Absolutely not! Northwest is obviously moving into power with this purchase of Portland General from Enron. And it is a good move for them. They are obviously the local favorite, have an established network in the states of Oregon and Washington, and already have commodity delivery experience in the natural-gas arena. As far as I can tell, there are no "strings attached" to deregulation of Oregon in order for this deal to go through like in the Sierra Pacific deal. Let's see if Enron can finally sell its regulated electric utility asset. It's been trying since 1999. 


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Copyright 2001. SCIENTECH, Inc. All rights reserved.



An archive list of previous IssueAlerts is available at
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We encourage our readers to contact us with their comments. We look forward to hearing from you. Nancy Spring  <mailto:nspring@scientech.com>

Reach thousands of utility analysts and decision makers every day. Your company can schedule a sponsorship of IssueAlert by contacting Jane Pelz  <mailto:jpelz@scientech.com>. Advertising opportunities are also available on our Website. 
SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this e-mail and include their full name and e-mail address or register directly on our site. 

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