How can regulated utilities create value? Each of five key options present their own risks. Which way should management go?
The CEO Forum: The Ultimate CEOs: Peggy Fowler
President and CEO, Portland General Electric
Fortnightly: Could you tell me a little bit of the history that led Portland General Electric (PGE) to be acquired by Enron a few years ago, and what you hoped to accomplish back then?
Fowler: Well, certainly, I would say I was not in charge of the company then, but I was president of the company, so I was closely involved in working with the board. I’ll give you the perspective of PGE and I’ll also give you Enron’s thought at the time. The environment at the time was the assumption that deregulation was going to happen and that there would be transmission companies, distribution companies, and generation companies. Particularly at the time, I think people were looking at the California market. And probably from PGE’s perspective, it was an opportunity for the shareholders. Enron was willing to purchase PGE to prove their model of deregulation. Their assumption was that the Oregon Public Utility Commission would allow them to sell the generating plants to the market and they would no longer be regulated. Then they could prove that model down into California. I think that was the concept at the time. Obviously, the world changed from that. To begin with, Oregon regulators had no interest in letting Enron sell PGE’s generating plants. So, essentially, Enron lost interest in us. They bought us in 1997 and in 1999 put us up for sale. Sierra Pacific was going to buy us, and that transaction might have been completed had it not been for the California energy crisis and the financial situation they got into. Then Northwest Natural was going to buy us. But it was a stretch for them anyway because of their size as compared to PGE’s size. With Enron’s bankruptcy, [Northwest Natural] became concerned about some of the potential liabilities. Although Enron was willing to hold them harmless for most of those, I still think they were cautious, and rightfully so, given the change in the economy. The downturn impacted all of us.
Fortnightly: Certainly things in 1997 were very different in the way the world viewed Enron and how things were going on in the economy. However, do you see any similarities between now and then in terms of the reason utilities are pursuing mergers?
Fowler: Even back then the belief was that a company our size couldn’t survive, because there was no opportunity for growth—we’d only be a distribution company essentially. You wouldn’t have the opportunity to invest in generating plants or anything else. You couldn’t have return or growth for your shareholders because that was all going to be done in the market.
Fortnightly: What is your view of today’s arguments that say you need economies of scale to meet investor expectations as interest rates rise?
Fowler: They keep saying that. The problem is—and everybody knows this—the cost to customers right now is really the cost of generation. It used to be that maybe three-quarters of the customer’s bill was actually the