Come On, PGE, It's Not <em>That</em> Complicated
Randy Leonard
Thank God for Blue Oregon.
If it wasn’t for this forum, I would be left with issuing a press release in response to PGE’s statement yesterday that complained
“We are disappointed Commissioner Randy Leonard is communicating his concerns about these financial matters to the media… In his media outreach, Commissioner Leonard has extracted certain pieces of information and has jumped to what we believe are erroneous conclusions.”
Fortunately, because Blue Oregon exists, I can use this space to explain “these financial matters” -as PGE euphemistically refers to their various tax schemes- that I and others have been discussing with the coummunity this past week.
As you may be aware, Willamette Week’s Nigel Jaquiss reported in last Wednesday’s WW edition that a number of irregularities are apparent from documents delivered to the city by PGE. Those documents were delivered to the city in response to a resolution passed by the council over two months ago that requested financial information from PGE that could be the basis for the city setting rates for PGE customers within the city limits of Portland. Additionally, Mr. Jacquiss acquired some emails between PGE managers that were obtained by Dan Meek, a local attorney, who is suing PGE on the grounds that PGE improperly charged ratepayers for taxes that PGE did not pay but, instead, converted the taxes collected from ratepayers into PGE profits.
And for the record, I have engaged in zero "media outreach". Every comment made by me regarding PGE has been the result of the media contacting me, not me contacting them, and asking me for a response to public documents they have acquired...documents not obtained from me or my office.
If PGE's talking heads are suggesting that I employ their strategy of covering up what I suspect is improper use of ratepayers money, they can save their breath.
At issue is $909 million (that’s right, just shy of $1 billion) in money paid by ratepayers to PGE that improperly ended up as profits. Of that amount, I will discuss here two separate transactions. One for $96 million in money that PGE collected for state and federal taxes and the other for $7 million in taxes collected for the Multnomah County business income tax.
We have discovered that PGE kept $96 million of the $671 million they collected from ratepayers for state and federal income taxes. PGE has consistently claimed that they acted as only a pass through and that they sent the tax money to ENRON in Houston, Texas.
It was Enron, PGE has asserted, that never paid the state or federal taxes with the money sent to them by PGE.
We now know that is not true.
PGE executives have told me that the $96 million is really "deferred taxes" that will be paid at some future date. When asked when they were going to pay the $96 million in “deferred” taxes, a PGE executive said she could not commit to that.
As the old saying goes, I was born at night, but not last night.
If history is any indication with PGE, in the year PGE intends to pay the $96 million of so called "deferred taxes" they will jointly file with their parent company, ENRON, and claim losses in other operations which will offset their $96 million tax liability. Thus, as their pattern of conduct indicates, that $96 million in rate payer money allowed for tax obligations by PGE will turn into profit rather than taxes paid.
However, as devious as it is, that scheme will not threaten anyone at PGE with going to jail.
They could only hope that all of their transactions were so. In my opinion, that may not be the case.
In a series of emails in 2001, PGE officials "magnanimously" decided to unilaterally pay more income taxes to Multnomah County for 1999, 2000 and the remainder of 2001. There is no evidence to suggest that money was either demanded by or owed to Multnomah County. However, PGE unilaterally decided it would increase its wholesale profits attributed to Multnomah County from 26% to 55%.
In a telling exchange of emails between PGE employees Jim Barnes and Marcia Romito, PGE's motives, in my opinion, are highly suspect:
"What is the affect on tax expense and revenue for 2001 and 2002?" Jim Barnes asks Marcia Romito in an October 26, 2001 email.
"No effect on tax expense, I calculate additional revenue of $551,000 for taxes collected in 2001. I will have to get a forecast for 2002." Ms Romito responds.
Clearly, Blue Oregon readers, this exchange reveals that the retroactive collection of taxes by increasing from 26% to 55% the amount of wholesale revenue generated within Multnomah County was done solely to increase profits. The emails reveal PGE knew that the Multnomah County tax would be passed onto ratepayers. Further, PGE managers knew that they would collect the tax and that it would never actually be paid to Multnomah County.
The element that could make this particular transaction criminal in nature is whether or not the increase of wholesale profits attributed to Multnomah County from 26% to 55% was in fact appropriately earned within Multnomah County. If it is in fact not appropriate, I suspect possible criminal conduct as a result of PGE officials fraudulently increasing profits for the sole purpose of levying a tax that PGE officials knew would not be paid but would, rather, be kept by PGE as profits.
It is important to note that PGE management officials received substantial bonuses from ENRON after this scheme was hatched and implemented because of PGE's increased profitability.
If this complicated series of transactions ends up being legal, then these email exchanges,
at a minimum, reveal a pattern of deceit by PGE officials to cynically manipulate our tax laws so as to increase their profits no matter what the negative impact was on Portland's businesses and citizens.
At the very least, this manipulation of tax law shows that PGE's culture fits hand in glove with ENRON's disgraceful business practices.
It should also be noted that even if there is no criminal misconduct in any of these transactions, those same transactions may well be the basis for the City of Portland adjusting the rates downward if the total rate of return earned by PGE was inappropriately based on the collection of taxes and other improper PGE financial transactions.
This entire community owes local attorney Dan Meek a debt of gratitude for his persistence in getting to the bottom of these financial maneuvers on the part of PGE executives. Without his lawsuit and the subsequent uncovering of PGE’s internal communications, the city would not be able to ask the questions we currently are.
I will leave you all with one final thought.
If a large sum of your money ends up missing and someone else ends up with it and their explanation is that “it is really complicated for me to explain to you how I ended up with your money”, it is probably not as complicated as they would like for you to believe.
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Dec 3, '05
Dear Commissioner Leonard Thank you for dispelling some of the smoke and mirrors Enron/PGE has hid behind. They have a war chest of funds spent spinning P.R. I worked in the metals industry when Enron Bought out PGE in the late 90's. They paid off the regulators to raise rates dramatically for the metals industry. This region saw massive lay-offs in that industry in the late 90's after the rates rose. I grew up in Portland and my grand parents and great grand parents owned PGE stock. It started out as a local project to provide jobs, services and modernize the region. It was a community effort. Enron used campaign donations and corporate spin to create an illusion. They manipulated the books and regulating committees so they could steal the goodwill and capital of years of efforts from our community. We used to have the lowest rates in the nation, we used to have stronger industry, it angers me that large corporations like PGE/Enron still control mainstream media to the point that a local weekly has to do the research. The media is supposed to be our watchdog. That dog is licking the hand of corporations like Enron. We need your honest criticism.
Dec 3, '05
This entire community owes local attorney Dan Meek a debt of gratitude for his persistence in getting to the bottom of these financial maneuvers on the part of PGE executives.
I couldn't agree with you more! Without Dan Meek and the Utility Reform Project, along with my good friend Ken Lewis, we would not have seen the genesis or passage of SB 408. Ken contacted me in May 2004 and asked me to draft the bill that ended up being SB 408. I asked Sen. Metsger to join with me on the bill and together we worked tirelessly for its passage to put an end to this scam. Joining us were business and consumer groups who had been paying millions to PGE, PacifiCorp and others, for taxes these utilities neither owed nor paid.
During the debate on this bill in committee and on the floor of the Senate and House, it was clear the utilities were trying to create the illusion that "taxes are so complicated...they are difficult to understand." And the utilities continue to confuse the issue today as they try to undermine our accomplishments in the rulemaking process with the PUC as we implement SB 408.
It is really quite simple, however: investor-owned utilities should not be allowed to collect taxes they neither owe nor pay. As Commissioner Leonard points out, WW's cover story, written by Nigel Jaquiss, reveals emails that show "...a pattern of deceit by PGE officials to cynically manipulate our tax laws so as to increase their profits no matter what the negative impact was on Portland's businesses and citizens."
If you have read the book or seen the documentary, The Smartest Guys in the Room, you likely watched in horror as Enron traders sat on their own trading floor, laughing and swearing about the havoc they created in California by manufacturing an energy crisis that led to rolling blackouts and devastation for many unsuspecting citizens. It was pure, unmitigated greed. PGE has long hid behind the cloak of Enron's misdeeds by laying blame at the feet of Kenny-Boy and his friends. These emails, now exposed through Dan Meek's lawsuit, show that PGE officials are really no better than the boys at Enron.
My advice to the City of Portland: "Go get 'em!"
Dec 4, '05
Dan Meek has certainly been an eternal white knight jousting with the forces of monopoly utility evil. That's just the way Dan is, thank goodness. What has surprised me is the small group of elected officials - Randy Leonard, Eric Sten, vicki Walker, and Rick Metzger [am I forgetting someone?] who have stood up to PGE publicly. That is very difficult and risky work. The utility's political power is immense. I have had many elected officials express their anger with what PGE has done but who have refused to do anything about it. Others who I know to be intelligent and informed have made ridiculous excuses for supporting the utility status quo as they accepted campaign contributions from PGE and its cronies.
Politics can lead to much compromise with powerful interests at cost to the public good. It's gratifying to see officials willing to face into the stiffest political wind and speak for the people.
8:53 a.m.
Dec 4, '05
Thank you Commissioner Leonard! This is a very complex and "twisty" issue. I very much appreciate you working to unravel it for those of us in the layperson sector...wondering what the heck happened.
To echo Tom Civiletti, it takes courage to stand up to energy companies and do the right thing. I recently wrote about the way Idaho Senator Larry Craig is screwing around with NW salmon to appease his energy company benefactors. Perhaps these sorts of discussions will lull some of our more complacent politicos out of their energy company financed stupor.
Kudos to Meek as well. Perhaps he'd be a good AG for Oregon.
Dec 4, '05
Thank you, Dan and Randy! You exemplify the Portland spirit: smart, tough, and fair.
We live in a culture that has slipped badly into unquestioning solicitude of powerful corporations. It's encouraging to see lonely warriors taking on those in business and government that cheat, bully, and steal from the people.
Dec 4, '05
""""As you may be aware, Willamette Week’s Nigel Jacquiss reported in last Wednesday’s WW edition""""
It's Nigel Jaquiss.
no 'c'
And great story by our local Pulitzer prize winner.
Dec 4, '05
Thanks, Steve. I fixed it.
Dec 6, '05
The City of Portland is hot on the trail of Waste, Fraud, and Abuse at PGE/Enron. Never mind that the Public Utility Commission and FERC have jurisdiction over electric utilities. Never mind the appearance of "sour grapes" after the City's failed attempt to acquire PGE. Never mind boys and girls, because Commissioner Leonard is looking to harpoon his first whale.
As for the pursuit of Waste, Fraud, and Abuse inside City and County Government? Silence. On the disconnect between citizen's expectations and the City's ability to meet them: zilch. Concerned about the Council's inability to prioritize public safety ahead of political correctness? Nope: not gonna do it. Wouldn't be prudent. Nothing but pain and self doubt down that rutted road. Been there, done that. Nothing but red herrings those waters, and he's looking for the Devil Whale.
Commissioner Leondard's zeal for accountability can only be unleashed on his political enemies, and PGE is at the top of the list. The Condo Class and public employee unions have nothing to worry about. Thar she blows!
Dec 6, '05
"Commissioner Leondard's zeal for accountability can only be unleashed on his political enemies, and PGE is at the top of the list. The Condo Class and public employee unions have nothing to worry about."
Mr. Moby, as soon as you can show me that ANYBODY ELSE in Portland -- whether they be unions or condo builders -- is capable of ripping us off to the tune of nearly a billion dollars in a few short years, I'll start paying attention to your nutty chihuahua fits.
Dec 9, '05
Is that Crispin Glover is that stock photo? Is he working for PGE now?