CLINTQN ST. QUARTERIY PULLING THE PLUG ON THE PRIVATES Rick Mitchell Prologue here as been a war going on in Oregon off and on for over 50 years. On one side have stood two large private utility companies; Pacific Power and Light (PP&L) and ^Portland General Electric (PGE), ^w ith their allies in the State legislature ■land regulatory process. Opposing these powerful interests has been a ^considerably less well-financed, r often-disorganized alliance of public power advocates including the Grange, a few labor unions, the left wing of the Democratic party, and, in recent years, anti-nuclear activists. The history of the war begins back around the turn of the century. In 1892, Portland General Electric was formed with the financial backing of a Boston bank and the infant General Electric Company. The following year, PGE purchased the city of Portland’s first and only municipally- owned electric utility, the East Portland Municipal Light Works. By 1907, PGE had merged with Portland Railway Light and Power, a holding company owned by Eastern investors that controlled nineteen companies, six power plants, and nearly fifty city franchises across the country. In 1909, Portland Mayor Harry Lane called the utility “ an arrogant monopoly” and suggested a municipal plant to meet the city’s needs. It seemed like a reasonable proposal on the face of it, yet public power proponents have been struggling to implement similar plans ever since. In 1910, Portland welcomed a second electric utility, the Pacific Power and Light Company. PP&L was the creation of another holding company, American Power and Light, which was in turn a subsidiary of the grandaddy of giant utility holding companies, the Electric Bond and Share Company of New York. AP&L also owned other Northwest utilities systems including those in Astoria, Yakima-Pasco, Walla Walla, Pendleton and The Dalles. In 1927, all of AP&L’s holdings in Oregon were reorganized under the administration of Pacific Power and Light, although publicly they continued to operate as independent companies. Following standard holding company practices, millions of dollars worth of new securities were issued each time the companies were reorganized or reincorporated, thus inflating their assets beyond any measure of their true value. The decade of the 1920s saw the increasing monopolization of the electric power industry, and it soon became a national controversy. By 1928, 80% of U.S. electric energy was controlled by sixteen giant holding companies. The financial precariousness of these empires was a major reason for the collapse of the stock market that led into the Depression. An investigation by the Federal Trade Commission in 1928 uncovered a wide variety of illegalities and abuses, such as “ padding operating expenses, entering into questionable transactions with subsidiaries, manipulation of security markets and milking of operating companies through excessive service charges.” In addition, the Federal probers uncovered “ an extensive public relations network sponsored by the pcwer companies that exerted an extraordinary influence over newspapers, political assemblies, school teachers and religious bodies.” Needless to say, until the Depression bankrupted many of them, the directors of the holding companies reaped huge profits. By the end of the ’20s, the controversy over holding companies and public power had spread to Oregon. In the 1930 election, the public development of hydroelectric energy became the major issue. A pro-public power Independent candidate, Julius Meier, easily defeated the Democratic and Republican candidates who were supported by the utilities. A statewide initiative providing a mechanism for the creation of People’s Utility Districts — publicly owned, locally- controlled utility systems — passed by a wide margin. Washington voters also approved a PUD law that year, but with a critical difference; Washington’s law was a single-stage — once voters approved a PUD’s formation, revenue bonds could be issued to finance it without a subsequent vote of approval. The Oregon law required a separate vote for bond issues. This gave the private utilities two chances to defeat every attempt at a PUD formation. The result is that 50 years later, over 75% of Oregon’s power is sold by private utilities, while in Washington, over 75% is provided by public utilities. Still, it’s a wonder PP&L and PGE survived the ’30s. As a result of the Federal Trade Commission’s investigation — which revealed $926 million in watered stock in Electric Bond and Share — thousands holders were wiped PP&L’s president PP&L’s subsidiary, of local stockout, including Guy Talbot. Northwestern Electric, alone had issued over $10 million in watered stock. In 1933, Charles M. Thomas, the state’s first Public Utilities Commissioner, gave a major speech at the Portland Civic Auditorium in which he laid out the complicated transactions the utilities were using to benefit large New York banks at the expense of local ratepayers. Thomas concluded his speech by calling for public ownership. Meanwhile, PGE (at that time known as the Portland Electric Power Company — PEPCO) had been sold to a different holding company. There followed a series of manipulative financial transactions involving the Chase Bank in New York and the Harris Trust in Chicago that resulted in their milking local investors, eventually forcing PEPCO into bankruptcy proceedings in 1934. In September, 1933, President Roosevelt dramatically and permanently altered the energy picture in the Northwest by approving the construction of a dam at Bonneville. Natunl- ly, the Bonneville project loomed large in Oregon politics. The promise of cheap Federal hydroelectric pcwer stimulated more attempts toward public power in the area. In 1934, the Oregon Grange sponsored ar initiative to create an elective state commission to transmit and distribute electric power. In what was to become a familiar pattern, the utilities waged an expensive campaign and defeated the measure. Between 1934 and 1940, 84 elections were held in Oregon and Washington on the question of establishing PUDs. As previously noted, most of those in Washington passed. Most in Oregon did not. Roosevelt was generally sympathetic to the idea of public power, and his appointment of J.D. Ross, former administrator of Seattle’s municipal power system, as the first BPA Administrator was a severe setback for the private companies. Ross promptly lowered wholesale electric rates between 2% and 37%. Bonneville’s 20-year maximum contracts required BPA approval of resale rates, and its public preference clause gave publicly-owned systems priority in access to BPA power. (The preference clause became crucial in 1967, when Bonneville first notified PGE and PP&L of its insufficient ability to continue to provide them with a total allotment of low cost hydro power, motivating the utilities to turn to more expensive coal and nuclear operations and creating the disparity in which Washington’s public power consumers now enjoy rates half that paid by Oregon customers. In May 1940, the Portland City Council placed a PUD measure on the ballot with the active support of the BPA staff. The private utilities were forced to fight harder than ever. PEPCO-PGE president Franklin T. Griffith argued in nearly 50 speeches prior to the election that a PUD formation would result in the loss of city tax revenues if the private utilities ceased business (an argument not heard mucti anymore in these days of tax write-offs — PGE paid $10.00 in state income tax in 1979.) PP&L president Paul McKee argued against the PUD as an erosion of the private enterprise system (an argument still very much in use — see the accompanying interview with PP&L vice president Glen Spicer.) A week before th e ^ election, the Oregon Journal and th e* Oregonian ran full page ads signed by “ prominent citizens” opposing the^ PUD. As a result of this massive c am - \ paign (the Federal Power Commission later charged the companies with excessive spending and accused them of transferring operating funds into political activities), the PUD proposal was voted down. It was to be the last serious challenge to the power of the private utilities in Oregon for nearly 40 years. Though PGE was forced into bankruptcy again in 1939, the company was able to turn the short-term power it bought from Bonneville into profits as World War II brought new industry and an expanded population to Portland. By the end of the war, both PGE and PP&L were rolling along quite profitably on Bonneville’s cheap hydro power. Their rates, while never as low as the public systems in Washington, were low enough to keep fied. cates can” most of their customers satis- Persistent public power advo- could be branded “unAmeri- and “ anti-free enterprise,” a dangerous charge in the post-war climate of McCarthyism. It was not until the early 1970s, when rising rates and nuclear power politicized the energy issue again, that public sentiment would begin to turn back toward the formation of PUDs. The 1980 Election With measures to form Public Utility Districts on the November ballot in 12 Oregon counties, the opposing forces are again joined on the electoral battlefield in mortal combat. Although the statewide Public Power Coalition is much broader and stronger this year than in previous elections, with increased labor support joining long-time public power advocates in the Grange (a rural organization with mass support from farmers), the Democratic Party, and a core group of youthful activists working ’round the clock with the media and door-to-door canvassing, PGE and PP&L will again outspend their opponents by an astronomical amount. And if their 50-year record in such situations is any indication, they will attempt to confuse the issue with misleading slogans and charges calculated to scare voters into acceptIllustrations by Phil Post 9
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