Having established on Sunday that public ownership of Portland General Electric should be accomplished by a regional authority and not by the City of Portland acting alone, I'll continue by describing how the Willamette Regional Electric Corporation (WREC) should go about buying PGE.
The first question is the price. That one is easy. Enron was willing to sell the company for $2.3 billion last year, and it's reasonable for WREC to offer, and Enron to accept, $2.3 billion for the company this year, possibly with a little increase.
The second question is where to get the $2.3 billion. The cities and counties in PGE's service area have some money available, but I don't imagine that they have $2.3 billion or anywhere close to it available in spare cash. I think that raising the money through bonds will take too long and be too contentious to work. Assuming that the local governments can put $300 million or so into the pot on their own (which I think they can), where can they find the other $2 billion?
There's one obvious source with billions to invest: the Oregon Public Employees Retirement Fund (OPERF), the part of the state treasurer's office that invests state and local government contributions to the Public Employees Retirement System (PERS). OPERF has $49 billion in assets and is a long-term investor.
As I understand the PERS reforms and the effect of the Supreme Court's PERS decisions, PERS needs to accrue earnings at 8% per annum for its Tier 1 participants. If it earns less than 8% then it has to make up the deficit by charging its employer participants. But if it earns more than 8%, it has to credit the excess to the Tier 1 participants, instead of reducing the premiums it charges the employers. Therefore PERS (through OPERF) should finance the purchase and charge 8% interest.
Eight percent is no bargain today. WREC could probably borrow on the commercial market for less. However, WREC's participants need to have OPERF earning 8% on a chunk of their contributions for the next 20 years or so, or they will make up the difference, meaning that the cities and counties will be paying eight percent to PERS one way or the other, and charging their residents for it. Why not collect it through electric rates instead of taxes?
Would OPERF make this investment for a private buyer? We already know the answer to that; OPERF was willing to be an investor in the Texas Pacific purchase of PGE, though not as much as 42 billion. OPERF should be willing to put more money into PGE if the buyer is a consortium of PERS employers instead of a private buyout firm. And the participants should be pleased to have OPERF invest their money in a public buyout.
In a later post I'll talk about how the local governments can buy PGE without violating the constitutional prohibition against investing in corporate stock.