The
Oregonian
Enron Pockets PGE's Tax Payments
02/03/02
JEFF MANNING and GAIL KINSEY
HILL
Portland General Electric collected more than $357 million from ratepayers during
the last four years to cover its federal income tax bills. The money ended up
in the coffers of its parent company, Enron, which reportedly paid no federal
income taxes in the last three years.
Enron paid just $17 million in federal income taxes for 1997, the year it bought
PGE, and no federal income taxes in the three following years, according to Citizens
for Tax Justice, a public interest group that advocates tighter tax laws.
In the years it owned PGE, Enron reported more than $2.68 billion in profits.
With big losses elsewhere in its organization and tax-shelter subsidiaries in
the Cayman Islands and other tax havens, Enron was able largely to avoid federal
income taxes.
Nevertheless, Enron's Portland electric utility continued to send huge tax checks
-- $89.3 million a year on average -- to its parent company from 1997 to 2000.
The Oregon Public Utility Commission allows the utilities it regulates to consider
tax liabilities as part of its cost structure in setting its rates to consumers.
In this case, because PGE is a subsidiary, the utility sent its payment for taxes
to its Houston-based parent.
Ken Canon, director of Industrial Customers of Northwest Utilities, said state
regulators should reconsider the way taxes are included in rate-making. The method
may have worked with locally based utilities, he said, but it may treat ratepayers
unfairly when owners are based outside the state.
"This is a new dynamic -- outside companies owning local utilities," Canon
said. "The question the PUC has to ask is whether we're using Oregon customers'
money to help subsidize the money-losing activities of Enron."
Today, Enron is bankrupt and mired in a national scandal. Thousands of employees,
including hundreds in Portland, have been laid off. Others have suffered devastating
losses to their retirement savings as Enron's stock has crashed. PGE is looking
to its much-smaller cross-town neighbor, Northwest Natural Gas Co., to buy the
company, rescuing it from the chaos of Enron's bankruptcy proceeding.
PGE officials confirmed that it sent the tax payments totaling $357 million
to Enron, which filed a consolidated return for all of its holdings. What happened
to the money then is Enron's concern, not PGE's, they said.
"We were following the letter of the law," said
Scott Simms, PGE spokesman.
Enron officials did not return phone calls.
Other critics question whether the Oregon Public Utility Commission, whose charge
is to set utility rates and protect the interests of ratepayers, should have
allowed the payments.
"PGE's rates were constructed anticipating that $90 million a year would
be paid in taxes," said Dan Meek, a Portland lawyer and utility consumer
activist. "That wasn't happening here. Enron was pocketing the money. I
wonder why no one at the PUC stepped in."
PUC officials said PGE taxes were handled appropriately. Utilities are allowed
to collect sufficient revenue to cover costs, including taxes, said Marc Hellman,
administrator and finance policy analyst for the PUC.
"I don't think there's an issue there," Hellman
said.
Ever since Enron and PGE began negotiating
their merger in 1996, both proclaimed the benefits to ratepayers. PGE executives
and state regulators repeatedly spoke
of the rigid "firewalls" preventing high-flying Enron from taking undue
advantage of its Portland operation.
In the 41/2 years Enron has owned PGE, it has received at least $608 million
in profits and taxes from the Portland utility.
To cover PGE's federal income tax bill in 1997, the company sent $119.5 million
to Enron. The parent company, in turn, paid a total of $17 million in federal
income taxes.
In the following three years, PGE sent $73.9 million, $81.6 million and $82.1
million, respectively, to cover its tax liability.
Enron paid no federal income tax in any of those years, according to Citizens
for Tax Justice, which on Jan. 17 released a detailed analysis of Enron's tax
payments based on the company's own financial statements. The 23-year-old nonpartisan
group's analysis has been widely cited.
The money PGE paid for federal taxes came directly from ratepayers, Simms confirmed.
In the fall of 2001, PGE raised rates 31.5 percent for residential users and
50 percent for commercial users.
In addition to the tax money, PGE paid $251 million in profits to Enron from
1997 to the third quarter of 2001.
Enron did its best to "pick PGE clean," said
Erick Johnson, a Portland lawyer who represents utilities but does not represent
PGE or Enron.
There is apparently nothing illegal about the Enron-PGE arrangement. Losses
elsewhere in Enron's vast and tangled corporate structure offset the taxable
income at PGE, said Bob McIntyre, director of Citizens for Tax Justice.
Tax benefits from the company's employee stock options, 401(k) contributions
and benefits from more elaborate tax strategies netted Enron a federal income
tax rebate of $396 million from 1998 to 2000, according to data assembled by
McIntyre's group. Enron's estimated 800 tax shelter subsidiaries established
in the Cayman Islands and elsewhere were among those strategies.
Corporations have become increasingly aggressive in avoiding taxes.
"The last couple years have been pretty evil," McIntyre said. "The
pressure from the corporations and their accounting firms has been intense."
Jeff Manning can be reached at 503-294-7606 or by e-mail at jmanning@news.oregonian.com.
Gail Kinsey Hill can be reached at 503-221-8590 or by e-mail at gailhill@news.oregonian.com.
Copyright 2002 Oregon Live. All Rights Reserved.
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