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Assertions, the Golden Share Was Not a Condition Ofthe 1997 Enron/PGE Merger Transaction" and in Fact, PGE Did Not Create T

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Assertions, the Golden Share Was Not a Condition Ofthe 1997 Enron/PGE Merger Transaction assertions, the golden share was not a condition ofthe 1997 Enron/PGE merger transaction" and in fact, PGE did not create this golden share mechanism until after Enron declared bankruptcy. Once Enron declared bankruptcy in 2001, PGE worked with S&P to develop a structure to avoid future downgrades ofPGE's bond ratings. PGE opted to issue one share with special voting rights with respect to any voluntary action by PGE regarding bankruptcy. PGE chose the holder ofthe share; neither the Oregon Public Utility Commission ("OPUC") nor its staff directly selected the shareholder. In 2002, OPUC approved PGE's application seeking authority to issue the single share of $1.00 par value Junior Preferred Stock in order to further insulate PGE from the effects of the Enron bankruptcy. 80 Thus, CPB is mistaken when it claims: "In fact ... as the DPS Staffs Policy Panel testified on cross-examination by the CPB, it was the existence of a golden share provision that was the entire reason why Portland was not dragged into the Enron bankruptcy" (CPB JB at 17). This misses the key point: because the so-called "golden share" provision in Oregon was not implemented until after Enron filed for bankruptcy protection. what the case actually shows is that state regulators have the means and ability, even after a holding company bankruptcy, to work cooperatively with a utility to protect itself from the effects of a parent's bankruptcy. Staff's third and final example claims that an LPE mechanism was required as a condition of the Mid-American Holding Company C'Mid-American") and PacitiCorp merger 79 In the merger order, POE was directed to maintain its own long-term debt ratings and preferred stock ratings for as long as it had preferred stock outstanding; to maintain the common equity portion of its capital structure at 48 G/o or higher unless a different level was approved; and to file information and disclosure notices for affiliated interest transactions. The Joint Petitioners are committing to many similar conditions here (Joint Petitioners IE at 5; 73; 78). POE was not, however,required to create a golden share mechanism. In the Matter ofthe Application ofEnron Corp/or an Order Authorizing the Exercise oflrfluence Over Portland General Electric Company, OPUC Order No. 97-196 (June 4, 1997). 80 Portland General Electric. OPUC Order No. 02-674 (Sept. 30. 2002). 64 (Staff IB at 38). Staff's discussion overlooks key distinctions between that proceeding and the present case. In the Mid-American/PacifiCorp case, the special purpose entity was created to include standard provisions for separating corporate entities, including provisions for separate books and records, financial statements, and arm's-length relationships with affiliates (Joint Petitioners IB at 75-76). The special purpose entity was not controlled by a third-party appointed by a regulatory commission or its staff. Notwithstanding the significant distinctions between the present case and Staff's few examples, discussed above, Staffengages in classic hyperbole when it asserts (without record citation) that a "golden share" is "now standard in the utility industry" (Staff IB at 38). Far from being standard, the golden share as proposed here has been implemented only in GridlKeySpan. That golden share requirement was imposed not as a general protective measure, but due to specific concerns about the financial condition of National Grid. Staffacknowledges that Iberdrola is investment grade today, but it contends that this status "is no guarantee of future performance" and advocates imposing a golden share measure in case "the financial health of Iberdrola were to deteriorate" (fd. at 150-51). This reasoning incorrectly implies that a golden share is an appropriate general merger condition. In truth, imposing such an intrusion into utilities' governance is the exception, not the rule, and the Commission never has indicated that the "unusual" conditions in the Grid/KeySpan case generally apply to all mergers. As Staff itself states, the conditions required for merger approval "vary depending upon the nature of the entity that is being transferred" (fd. at 31, n.2I). In the present case, an LPE or golden share measure serves no purpose and may create unanticipated problems and costs for Iberdrola and ratepayers. Staff has not provided support for its position that an independent director or shareholder would not create legal or 65 financial burdens or hinder the ability of the utility to conduct business. In fact, Staff inexplicably recommends further allocating matters of corporate governance to a third-party to oversee compliance with dividend and money pool restrictions (ld. at 152). MI suggests that it agrees with this approach (MIIB at 43). Neither party has offered legitimate support for such intrusions, and the Commission should reject Staff's golden share proposal. Moreover, the Joint Petitioners have already committed to sufficient protections and measures on the issues of dividend restrictions and money pool arrangements (fee discussion infra below). G. Dividend Restrictions Proposed By Staff Are Excessive I. The Risks Staff Identifies To Validate Its Proposed Conditions Are Exaggerated Staff asserts that its recommended dividend restrictions are required for approval ofthe merger to prevent Iberdrola from draining the capital ofNYSEG and RG&E in the event of unforeseen circumstances that create financial difficulty at lberdrola, or if Iberdrola simply decides to enhance its dividends to its shareholders (Staff JB at 145). MI also insists that NYSEG and RG&E should be prohibited from issuing dividends unless they meet or exceed a threshold credit rating (MI JB at 44). As is the case with the other financial protections Staff proposes, Staff lifts its "[rnjore rigorous" dividend restrictions directly from the Commission's order approving the Grid/KeySpan merger Uti at 145-46) without justificarion." These arguments present another instance in which Staff concocts a speculative parade of horribles and ignores fundamental differences between the Proposed Transaction and GridlKeySpan. There is no need for Staffs additional restrictions beyond those to which the Joint Petitioners have committed. It is unfair for Staffto demand the same invasive protections that the Commission ordered in that case because the Proposed Transaction simply does not carry the BI See also NG/KS Order, supra note 10, at 124-25. 66 same financial risks as the Grid/KeySpan merger (Joint Petitioners IB at 57-59). That Staff would have the Commission shoehorn its approval of the Proposed Transaction into conditions designed for other parties in an unrelated proceeding is fundamentally unreasonable and once again contradicts its own acknowledgment that the conditions required for approval "vary depending upon the nature of the entity that is being transferred" (Staff IB at 31, n.21). Staffcontends that the Joint Petitioners misunderstand that the purpose of dividend restrictions is to ensure that cash is conserved during difficult times (Id. at 145). It is actually Staff who misunderstands the Joint Petitioners' point, which is simply that lberdrola's current dividend policy helps the company avoid difficult times in the first place. 82 As the Joint Petitioners have emphasized, Iberdrola's dividend policy is an integral part of its Strategic Plan that the credit agencies have assessed as part oftheir analyses that led to lberdrola's "A" category credit ratings (see, e.g., Tr. 555). lberdrola's dividend policy therefore does protect the financial health of the company by contributing to its continued growth. If Iberdrola decides to enhance its dividends to shareholders, it will and must do so prudently. Staffs speculation that Iberdrola will drain the capital ofNYSEG and RG&E is unwarranted, and disregards not only Iberdrola's intentions, integrity and historical practice globally, but also the Commission's ongoing ability to utilize its regulatory powers to ensure that the operating companies provide safe and reliable service.v' 82 MI also expresses speculative concern that those policies could be changed in the future (MllB at 44). 83 Cases 92- W-0583, 26569 and 28476 - Jamaica Water Supply Company, Order Amending Orders Dated February 27 and 28, 1974 in Cases 26569 and 28476, To Modify the Company's Common Stock Dividend Restrictions (Sept. 18, 1994) (restricting dividends up to the parent because of concerns about safe and adequate service). 67 2. The Joint Petitioners Already Make Adequate Commitments To Mitigate Staff's Concerns Staff proposes five conditions related to dividend restrictions for NYSEG and RG&E (StafflS at 143-44). These conditions are unnecessary because the Joint Petitioners have committed to the following dividend restrictions: (I) NYSEG and RG&E will maintain their respective dividend policies with due regard for the financial performance and needs ofNYSEG and RG&E, irrespective of the financial performance and needs oflberdrola; and (2) Iberdrola will report to the Commission in the event that the dividend payout for any year is more than 100% of income available for dividends calculated on a two-year rolling (eight calendar quarter) average basis (Tr. 556-57). These restrictions fully mitigate Staffs unjustified concerns. Staffalso insists that its proposed conditions remain in place as long as IberdroJa or any successor holding company ;s the ultimate parent ofNYSEG and RG&E (Staff JB at 145). Whatever conditions the Commission ultimately requires, the Commission should retain the flexibility to revisit these conditions or grant an exception. Staffs proposed perpetual restrictions are unwarranted. H. Joint Petitioners Have Committed To Conditions That Meet Staff's Money Pool Concerns Staffproposes several rules for money pool transactions (StaffIS at 146-47). This issue is not contested because, as even Staff acknowledges (id. at 147), the Joint Petitioners have already generally accepted Staffs proposed conditions. No money pool currently exists for Energy East, NYSEG and RG&E; thus, there is no real debate on this issue with respect to Iberdrola.
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