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Fortnightly Magazine - January 1 1997

Ever since word hit the street last July that Portland General Electric Co. (PGE) would merge with gas industry giant Enron, the news has been rather one-sided. It's been "Enron this" and "Enron that." From reading the papers one might think Enron, with its strong reputation as a commodities trader, was buying an entire electric utility simply to take a bigger position on the NYMEX futures market. Going "long" on electricity, you might say.

So it came as no surprise the other day when I picked up the first-ever issue of Portland General's brand-new company newsletter (Energy Access, Vol. 1 No. 1, Nov/Dec 1996), and discovered that PGE had devoted its cover story entirely to commodities trading. PGE had even thrown in a attractive photo of a trading floor, showing a roomful of traders surrounded by a battery of telephones and computer screens.

Being a skeptical sort, I questioned who was behind the story. Heck, I figured the photo was faked, that Enron was already taking over to manipulate public relations. I suspected that the photo actually showed Enron's trading floor, filled with Enron employees.

So I picked up the phone and called Elaine Donaldson, public relations director at Portland General. She told me that Portland General indeed managed its own trading floor, and in fact was the first electric utility in the nation to do so. She also directed me to Paul Koehler, PGE's manager of wholesale markets, who proved kind enough to stay a few more minutes in the office at the trading floor on a December evening to talk about commodities trading at PGE, when he probably needed to be out finishing up his holiday shopping.

"Yes, Enron has expertise in commodities trading, but that's not the reason we're merging," said Koehler. "Frankly, we're just combining two very innovative companies.

"We designed our trading floor back in 1994, and opened it in February 1995, I think. A lot of it (the idea for a trading floor) was driven by the Trojan nuclear plant closure in January 1993.

"It had quickly become apparent to us that we were sitting on a pile of commodity risk," says Koehler, talking about the Trojan plant. "[So] we visited Enron. We visited Electric Clearinghouse. We asked them how they managed their commodity risk." As things turned out, Portland General ended up being "pretty instrumental," as Koehler claims, in convincing NYMEX to design its futures contract to trade at the California-Oregon Border (COB).

Was it proximity to the NYMEX COB contract that drew Enron to PGE? Koehler didn't say, but he noted that the NYMEX contract opening "has had a huge effect on the business."

In the end, as Koehler explains, Portland General shifted strategy and moved away from "hard" assets: "We didn't replace it with [Trojan] generators. We decided to purchase off the market. We traded a resource asset position for a market position."

Maybe it was Portland General, making itself attractive, just as much as it was Enron, looking for a match.

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