Arizona denial of utility sale may be of interest in Oregon
By Gail Kinsey Hill, The Oregonian, Portland, Ore. -- Dec. 22
Arizona regulators on Tuesday denied the sale of Tucson Electric Power to Saguaro Utility Group, a private equity partnership led by buyout king Kohlberg Kravis Roberts & Co.
Repercussions of the vote could filter through to Oregon, where utility
regulators are deciding whether to approve buyout firm Texas Pacific Group's
proposal to acquire Portland General Electric from Enron for $2.35 billion.
Although details differ, the fundamental concept in each deal is similar: A
limited-liability corporation created and financially backed by a large buyout
firm would acquire a local electric utility. In each case, regulators and
consumer groups have expressed concerns about a debt-heavy financing package and
a corporate structure that limits financial disclosure, among other aspects of
the deals.
Investors also are watching regulators' handling of the deals. Until
recently, private-equity investment companies have ignored regulated utilities
because they lacked big-profit potential. The interest from KKR and Texas
Pacific could mark an acquisition trend, experts say, as investment firms seek a
few low-risk acquisitions to anchor their portfolios.
Critics and advocates of Texas Pacific's proposal took different views of the
significance of the Arizona decision.
In Arizona, "They looked at this model and the evidence, and they
rejected it," said Bob Jenks, executive director of the Citizens' Utility
Board in Oregon, a consumer watchdog group. "They saw that it didn't make a
lot of sense, and it didn't have many incentives."
Jenks and other consumer and business advocacy groups have asked the Oregon
Public Utility Commission to reject the Texas Pacific proposal. The PUC staff
also has recommended denial unless Texas Pacific agrees to additional conditions
designed to protect PGE finances and to reduce rates for the utility's 755,000
customers.
Texas Pacific shrugged off the Arizona decision.
"It has no bearing on our proposal under review here," said John
Mangan, a spokesman for Oregon Electric Utility, the limited-liability
corporation created by Texas Pacific to carry out the purchase and to serve as
the holding company for PGE.
"There are significant differences" between the two proposals,
Mangan said. "Oregon Electric's has substantially more benefits for
customers and significantly fewer risks."
Texas Pacific is one of the country's largest investment firms, with $13
billion under management.
KKR, with equity investments topping $18 billion, is considered the leader in
the buyout industry.
UniSource Energy Corp., the parent company of Tucson Electric and UniSource
Energy Services, on Dec. 29, 2003, first filed its request to be acquired by
Saguaro Utility Group in a deal valued at about $3 billion.
UniSource can request reconsideration of the commission's denial. In a
statement issued late Tuesday, UniSource said it was reviewing its options.
KKR was not immediately available for comment. In a brief interview last
week, KKR founder George Roberts downplayed the significance of the draft order
from Administrative Law Judge Jane Rodda.
"Her concerns are not reflective of reality," he said.
Saguaro Utility Group also includes investors J.P. Morgan Partners and
Wachovia Capital Partners. Saguaro was to buy all UniSource stock and take the
company private.
UniSource subsidiaries serve 550,000 electric and natural gas customers in
Arizona.
The Oregon PUC is expected to issue a ruling on the Texas Pacific proposal by
the end of January.
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