Financial analysts say Enron's move sharpens its focus on high-growing, high-margin energy and communications businesses. "Enron can take that capital and put it in much higher growth prospects and do very well with it," says Donato Eassey of Merrill Lynch & Co. As electricity markets in the US become deregulated, the earnings of regulated utilities are expected to slump compared with the earnings from buying and selling retail electricity.
From the moment Enron announced its intentions to buy the Oregon utility in 1996, it began to butt heads with the state's Public Utility Commission. Enron proposed a restructuring plan that would free all customers to seek other suppliers and allow it sell off much of PGE's generation, including its low cost hydroelectric projects. But the PUC only passed a restructuring bill this year, and it will not take effect until October 2001 and then only for large customers. It rejected Enron's plans.
The going price for PGE is $3.1 billion, including $2.1 billion in cash and $1 billion in debt -- the same price paid by Enron in 1997. But in its acquisition, Enron had to grant $105 million in environmental concessions. Among these was a commitment to renewables.
By the time the sale to Sierra Pacific closes in about a year, $80 million of those concessions will still be owed. PGE's Kraig Arntson assures, however, that the company will continue to honour its commitments and, in fact, their cost is included in the sale price.
One of the commitments was the 24.5 MW Vansycle wind project in eastern Oregon. Enron sold the project to FPL Energy for develoment to avoid a conflict of interest. PGE now buys the full output. Another wind commitment, a 31 MW wind project at Columbia Hills, was stalled due to opposition from environmentalists. According to Arntson, PGE has looked at other sites, but has made no choice.
The same consumer and environmental groups who forced concessions from Enron, are now looking at the Sierra Pacific deal. But they say concessions for renewables may be more difficult because the utility is divesting itself of generation, so the incentive of placing renewable generation in its rate base and earning on it will no longer be available.
Jason Eisdorfer, attorney for the Citizen's Utility Board, said the Sierra deal may require more creative commitments because the company will have a foot in one regulatory regime that is deregulating and the other foot in a regulated market that will also soon change. "In the Scottish Power/PacifiCorp merger and the Enron/PGE merger there had been a renewable commitment," Eisdorfer said. "But since then Oregon has passed a restructuring bill, so it will be highly unlikely there would be a whole lot of rate-based resources available" from which to glean a renewables benefit.