Jeff Bull July 22, 2005 The particularly galling thing about the utility status quo - not to mention the discussion of expanding it - is that it deploys market mechanisms to run these necessary services - e.g. the corporations - but because these operate as regional monopolies, we lose the benefits of market forces.

JK: Why not dump the monoply? That's all, just remove the monoply.

That would allow Pcafic Power to extend their lines a few blocks to pick up a few more customers. Every day of every week of every month, year after year, or at whatever pace they desire. Since their service areas are adjacent to each other, Pac Power could just start spreading from their existing base. Of course PGE could do the same if the lowered their rates.

Then we would have real competerion. Thanks JK

As the editorial page of The Oregonian would have it, Enron's final farewell gesture to Oregon appears to have been --in a fit of contrition -- to save us from an outcome favored by . . . Portland's democratically elected leaders. Thanks Enron.

Enron found a convenient excuse in the petition being circulated by the libertarian party to nix the City’s plan. The libertarians, in earlier testimony supporting TPG’s bid for private ownership, argued that the robber barons had been misunderstood, and that private ownership of PGE would help (as the robber barons had helped) our economy retain its luster. Through the libertarians’ prism, throwing a roadblock in front of the city’s effort makes perfect sense.

The Westside Business Alliance raised the level of debate from what we were treated to on The Oregonian’s editorial page. They sweated out a comparison of four (4) different options for PGE ownership in a “White Paper” of . . . six (6) pages. Thanks business community, for doing the heavy lifting on this complex problem.

Strangely, the issue that wasn’t treated in the white paper and that was dismissed by The Oregonian was that of the City’s promise to deliver over $100 million in annual rate savings to customers. It was a delicate issue for The Oregonian, which was one of only two Oregon companies so married to the idea of private ownership that they supported TPG’s proposed purchase. Despite the findings by Goldman Sachs and by Citigroup – and despite The Oregonian’s own analysis on the news side of the paper – that the city’s promise to deliver these rate cuts was credible, The Oregonian’s editors now conclude that “it was never clear that . . . the city had . . . the ability to swoop in and slash rates at Oregon’s largest electric utility by 10 percent.”

Through The Oregonian’s prism, $50 million cost savings on capital structure, plus $70 million cost savings from not paying for federal taxes which never go to the feds, is just fuzzy math. Sending $100 million annually out of Oregon’s economy is a safe status quo if you prefer the “security and stability” of paying the highest residential rates of any of the Northwest’s ten large utilities (with, by the way, rate increases of nearly 10% scheduled by PGE by 2007). But The Oregonian is presumably pro business, based on the thinking that high costs of steel, cement, electricity, fuel or other basic inputs is good for our economy and local businesses. Deflationary policy anyone?

Out of all of this comes one simple conclusion: Portland’s current political leadership has the courage and the smarts to see past the doubt and distrust of those detractors who chose to have a voice in this public debate. Kudos to Potter and Sten (and others) who stuck their necks out and may never get the sort of credit that they deserve. That is leadership.

Farewell Enron. True to your values to the last.

It seems to me that Erik Sten's neck is waaaaay out there. Scary Potter cut way back on his bureau responsibilities so Sten could be free to pursue PGE. Erik isn't going to look very good come reelection time with twin albatrosses from the water billing fiasco and money expended in pursuit of PGE bending his neck down to his belt buckle.

Aubrey Russell wrote:

Out of all of this comes one simple conclusion: Portland’s current political leadership has the courage and the smarts to see past the doubt and distrust of those detractors who chose to have a voice in this public debate.

If this were so, condemnation would already be in process. Sten, Potter, and Leonard could make it so. At least one of them is not prepared to bear the slings and arrows of outraged privateers.

This is sad. The feasibility study for Clackamas county PUD [D Hittle & Assoc.] showed that we should be 1/3 under PGE rates by the tenth year of operation. This was a middle of the road figure. The Portland buy would have seen less advantage from the Clackamas River hydro facilities but more advantage from economy of scale and no need for rewiring. I think Portland's 10% savings figure is quite conservative.

Do "city limits" matter? It is taken for granted in so many ways, in the same way that a science book contains the accumulated knowledge from past tests of the scientific method or in the same way that elementary arithmetic is not challenged within an algebra problem. Dismissing the city limit boundary is like saying that the scientific method is itself wrong or challenging the notion that two plus two is four. The extraterritorial reach by the City, rather than a regional body matching the territory served by PGE, is just absurd.

If you can get over the City of Portland wacko act, and look instead at an appropriately designed regional body then we could start delving into the details of FERC rulings and federal laws that have made a mess of regulated monopolies through de-regulation under the fluff that oligopolies won't act like a single monopoly. The claim of theoretical competition among utility oligopolists is nearly as clearly absurd as is the extraterritorial reach by the City of Portland. (A little class in price theory would clear that up real fast.)

My prior seemingly absurd postings on the City of Portland’s grasp for power would be that they should just start popping in poles and wires within the city limits. JK says attack the monopoly. The city could pop in poles just as easily as either PGE or Pacific Power, and thus compete too. I have argued that given the federal government's mandated allowance of price freedom by utility monopolists that this alternative method of attacking the monopoly is all that is left as a remedy to the exertion of a private monopoly power. The economics of putting in a parallel set of poles might be foolish (and they might not) but at least it would be more lawful than the more laughable over-reach beyond the city limits.

There is a reason PGE is called a regulated monopoly. Its territory is protected by state law. Although monopolies are generally economically destructive, experience has shown that multiple electricity providers don't work.

Also, there is nothing in Oregon law that prohibits a city from owning a utility that serves areas outside its borders.

Monopoly status is not the problem. Opening up territory to Pacific Power hardly solves the problem: they're also collecting federal and state income taxes that they don't really owe.

What a great choice !

This idea of "competition" is over-rated: Consider the big oil companies & how pathetically excited we get when we find gasoline that's 2c less/gallon across the street.

Do you really think Big Oil cares that you can buy from the Chevron or the Shell station?

Because the utilities are monopolies their customers have specifc options granted to them. Forming a PUD or some other public entity to buy the company and run it is one of the options. That option has been proposed.

So here we sit:

1) Still paying bogus taxes to PGE

2) Still paying rates that are based on the fraudulent rates from the 2001 energy crisis

3) Still having our [Oregon's] largest electricity provider owned by one of the biggest crooked corporations in history

4) Still vulnerable to losing the physical assets that ratepayers have paid for

5) Still vulnerable to losing the Pacific Intertie transmission line that creates $$ millions of revenue for PGE ratepayers every year

6) Still hearing from people "water bureau, water bureau, water bureau"

OK - Let's put this water bureau nonsense into perspective:

Cost of WB billing problem: $20 million (?) Cost of Enron's ownership: $ 1 billion +

1 billion = 100 million

That's $80 million more than the WB cost. Even if the WB cost were doubled, Enron still wins the contest.

And why do you know about the WB problem anyway?

Because the WB is a gov't run agency, which means its activities are relatively transparent. The Oregonian got ahold of the billing problem and had it on the front page of the Metro section constantly for MONTHS. That was all you heard from The O: water bureau. water bureau. water bureau. water bureau. water bureau.

So that's all anyone knows: water bureau

If only they'd done that amount of reporting during ANY of the PUD campaigns !

But no - ratepayers trying to save themselves from the ramifications of the largest bankruptcy in Oregon history doesn't warrant any reporting whatsoever.

And do any of you remember PGE's billing problem that popped up in Fall 2003?

No ?

Not surprising. It was reported exactly twice in the business section of The O.

What was it? PGE's new billing software (!) messed up the "catch up" calculation for all those customers who pay the same amount each month. Those customers weren't charged a "catch up" payment for 18 -24 months, so of course they were hit with a giant bill "out of the blue". (Like they didn't know one was coming eventually)

Remember this now ??? I didn't think so.

So here's the real question:

What now?

Appears that we're just going to let PGE be sold to some other batch of investors who are ready to make a bundle off our backs? After all - see how easy it is?

Voters don't have the good sense to help themselves. Politicians are just a little too shy to take the real serious step that would solve the problem.

Have any of the other cities or counties stepped up to the plate with an idea and spent any time or money coming up with a solution?

No, they didn't not. They are too busy sniping at the City of Portland.

If the cities and counties were truly concerned about regional control, they should have SUPPORTED THE PUDs. The PUDs were all about creating control on a county basis. Are they thinking they have some sort of control now?

Lest you're tempted to say yes, consider Enron's attempt to extort a non-refundable "deposit" from CoP.

As it is, everyone is fighting over the deck chairs on the Titanic.

Joan Wrote:

Cost of WB billing problem: $20 million (?) Cost of Enron's ownership: $ 1 billion +

1 billion = 100 million

That's $80 million more than the WB cost. Even if the WB cost were doubled, Enron still wins the contest.

Confidently defending the Water Bureau billing fiasco with a second grader's grasp of mathematics.....

I'm not sure my irony-meter registers that high.

Yes, she underestimated the relative size of Enron's cost to us by $900 million. Dismissing her point because she minimized her argument maxes out my irony meter.

Tom

"Also, there is nothing in Oregon law that prohibits a city from owning a utility that serves areas outside its borders."

There is law that protects the electoral rights of people that find themselves outside of the City of Portland. Suppose that any local government or PUD (that exists now or in the future) decides to condemn the poles and wires outside of the City of Portland. Such action would threaten the revenue stream upon which the City of Portland wants to pledge as collateral for the revenue bonds to buy PGE.

A pledge is like collateral for a loan to cover for lack of payment for some other reason, regardless of that other reason. The collateral is the revenue stream alone. If the City of Portland were in a bankruptcy proceeding of its own and the holders of PGE revenue bonds would have to assert contract rights, negotiated by the City of Portland, against the folks outside of the City of Portland. The mere fact that these outsiders were the subject of the contract between the City of Portland and the bondholders would not make them parties to that contract.

The proposed deal makes reference specifically to revenue bonds. Your argument must factor in the right of the folks outside of Portland to simply choose their own path to obtain electricity, and without any dedication of a portion of their electricity bills to cover for the City of Portland. It would not mean squat later whether the City of Portland announces today their claim to have such power over their neighbors or not.

Portland could try, I suppose, to pledge such electricity revenue as it may obtain from sources beyond the city limits for delivery to the bond holders. Yet such a bond would not itself alter the City of Portland’s power over its neighbors, nor can the bondholders themselves obtain such an extension of reach vicariously through the involvement of the City of Portland.

Simple analogy. I contract with you to build you a fence with wood from Parr Lumber. I build your fence with wood from Home Depot. Does either Parr Lumber or Home Depot have a contract with the you? You could try to sue me for using wood from the wrong place, but you could not join either Parr Lumber or Home Depot in the suit.

The folks outside of Portland are not on the hook to cover for a deal that Portland chooses to make, even if Portland pledges to turn over such revenue it might obtain in the future. The collateral, to the extent that it covers revenue derived from beyond the city limits is thus worthless as collateral by itself . . . it has value only to the extent that the City of Portland would thereafer use every bone in its body to retain control of electricity generation and delivery to the region beyond its city limits (to assure the collection of revenue). That is some mighty odd collateral.

Ron,

You posit many hypotheticals, some of which are not possible, some of which are beside the point.

PUDs cannot condemn publicly owned property. I doubt that one city could successfully condemn proprty owned by another city.

Utility infrastructure has value. If it WERE condemned, the settlement would go to pay bondholders. If your scenario were a possibility, no bank would issue Portland the bonds to buy PGE.

Voters outside Portland would have no less say under Portland ownership than they would under private ownership.

paul gronke wrote:

Let's not lose Ron Ledbury's point in the conversation. Perhaps it's just that I agree with him. What doomed this, it seems to me, is the poor relationship between Portland City government and the large metro area.

TC: My experience with governments during the PUD efforts makes me think no government official wants any other government official to have influence over her domain. Portland, Gresham, Beaverton, Salem: the identitiy of the other body doesn't matter, the otherness does.

paul gronke wrote:

Did the City did the necessary spadework to build a regional authority, one that would unite Clackmas, Washington, and Multnomah counties? I don't know the answer, but I fear it's "no."

TC: Eric Sten certainly tried.

paul gronke wrote:

It's too bad. While I am leery of public takeovers, the evidence on PUDs seems to be pretty convincing: they are a cheaper and more efficient way to deliver power. This opportunity is gone, and is unlikely to return.

TC: There is no reason that another PUD effort cannot happen. I would support a PUD that coincides with PGE territory. This would make moot several of the arguments Enron and PacifCorp used against the county-based PUDs. Of course, Enron, or whoever owns PGE at the time would spend $ millions to confuse and mislead voters, just as in the past. I wonder if all those leaders who said they supported a public PGE, if only Portland were not the owner, would actively support such a PUD. My guess is that they would not, especially once PGE's hit men, er, governmental relations representatives worked on them a while.

Ron,

If you should run into a statute that allows one government to acquire the property of another through eminent domain, let me know. I will propose that Clackamas County condemn the Bull Run reservoir, which is, I am sure you realize, within Clackamas County.

Um, 1 billion is 1,000 million, not 100 million. That little zero makes a big difference.

Tom,

It should go without saying that I never implied that one governmental entity could assert eminent domain authority in the geographic territory of another. That being said, there is an exception to every rule, and here that would be stuff incidental to an utility enterprise. The Bull Run point is good one, and could be focus of legislative action at the state level, but the likely rebuttal would be to simply adjust the county line notwithstanding whatever the Clackamas County voters would authorize. When Clackamas County has more residents and voters then that issue could have a different outcome, via the legislature.

(That is the short answer. If you want the long one just ask, for fear that the readers will just drift off . . . or worse, rebel . . .)

Ron,

If...

"Suppose that any local government or PUD (that exists now or in the future) decides to condemn the poles and wires outside of the City of Portland. Such action would threaten the revenue stream upon which the City of Portland wants to pledge as collateral for the revenue bonds to buy PGE."

...was not referring to other juristictions condemning parts of PGE after Portland bought them, then I imagine you meant they might condemn before a Portland purchase. In this case, Portland would not need bond proceeds to buy those assets, and would therefore not need the revenue derived through those assets.

So, I still don't see the relevance of your hypothetical scenario.

My discussion of Bull Run was meant to illustrate the can of worms that condemnation of public property would open.

According to Liz Trojan of the Oregon Public POwer Coalition:

"According to Randy there are two votes on City Council for condemnation. We need one more vote. Randy says to call 503-823-4000 and urge Mayor Potter to support condemnation"

Tom,

That quoted section was part of an effort to isolate out the issue of just the revenue stream and the revenue stream alone, as the bonds would be called revenue bonds. Such an issue could be addressed without having to address, academically, the reach of the CoP in owning a utility beyond the city limits. (It was a new, perhaps clearer, angle otherwise I would have just been repeating myself. One of the disputes among the justices in the Oregon SC case on WPPSS was the ordering of the issues to be address. This is just an alternative angle, one that could resolve the matter at least as to the bonds but is sufficient itself to kill the whole CoP deal. The CoP could get around this point by issuing Full Faith and Credit bonds with voter approval within the City of Portland; which would likely fail and is why the tactical position is to craft a "revenue" bond alternative. The resort to such "revenue" bond mechanisms is all the rage across this state.)

You jumped to the notion of one city selling property to another after they have condemnd it. Our cities are non-profits.

Perhaps you need to read my longer rebutal from before here (a temporary posting on a temporary test site). The link above makes reference to Metro as a regional body (relative to the UGB) that may serve as a useful example for addressing a regional goal.

As to the new effort to condemn by the city . . . you miss the essentials. The condemnation would have to be confined to the poles and wires within the city. Even a bum such as myself can stroll into court to stop any effort beyond that. (We might still get to the point I had raised much earlier that the CoP could just start popping in a parallel set of poles and wires, thus attacking the issue of "monopoly." The feds would be powerless to halt such construction, and their competitive pricing philosophy is premised on competition. Let the feds eat their words, with a little bit of competition. It would bring us all the way back to the whole point of granting an exclusive franchise to begin with, to avoid the inefficiency and waste of having 2, 3 or more, parallel sets of wires criss-crossing our streets.)

Ron,

My statement was not about public entity A condemning the property of public entity B within the territory of public entity B, but about the ability of public entity A to condemn the property of public entity B regardless of the property's location.

As to Portland's ability to condemn PGE property outside the city limits, I doubt PGE and the House Republicans would have gone through the time and effort of HB 2356 [2003], which would have prohibited the condemnation, if it were not needed to stop Portland. The bill, by the way, died in the Senate.

Tom,

The definition of property does not change based upon who owns it.

Try applying the individual right to just compensation in the context where the property being condemned is owned by a governmental entity. It just does not make any sense.

<h2>HB 2356 (2003) is superfluous. But, lawyers can often bring action or advise someone to take certain action based merely on whether they could, with a straight face, argue that there is at least a plausible argument, on the very cusp of irrationality, to support their position. I would not read too much into the introduction or ultimate fate of HB 2356 (2003). It might have cleared up certain misconceptions upon which Erik has lived under for the last few years. Had it passed then perhaps a regional effort could have been the focus of Erik’s drive.</h2>