PORTLAND - A state judge has ordered a regulatory hearing into whether Portland General Electric, a unit of Enron, fraudulently collected more than $665 million from ratepayers to cover corporate income taxes that Enron never paid.
Because utilities are legal monopolies, the prices they charge are set by state utility regulatory boards. Federal and state corporate income taxes are some of the expenses to be included in rates paid by customers. Historically, the regulators assumed that whatever taxes were included in electric rates would then actually be paid by the utility or its parent, though the rise of tax shelters and changes in federal tax law have raised questions about whether that assumption remains valid.
The judge's order, made on Friday, comes as a group of Texas investors is trying to buy Portland General Electric under terms that would allow it to collect $92 million a year for taxes that it would not necessarily have to pay to the federal and state governments. The intended buyer, the Texas Pacific Group, has said that it will not promise to return to ratepayers any taxes it collects but does not have to pay.
An owner, like Enron, that can earn the 10.5 percent profit on investment set by utility regulators and then pocket the tax money as well could earn more than 20 percent annually on its investment in a utility.
Pamela Lesh, Portland General Electric's vice president for regulatory affairs, said state law entitled the company to collect money to cover the corporate income taxes that it would owe as a stand-alone company even if those taxes were never paid by its parent company.
The judge ruled in a case brought by Dan Meek, a lawyer who runs the Utility Reform Project, a local watchdog group. Meek said he expected the Oregon Public Utility Commission to find that PGE could be required to pay for taxes that the government may not collect.