Portland General Electric: An Enron Spinoff with Big Potential

The first thing you should know is that Portland General Electric Company used to be part of Enron. It was spun off as its own company this spring, and is being run by a set of people very conscious of the need to avoid any hanky panky, and I think it has the potential to do very well. But its former affiliation with Enron will almost certainly continue to affect the way POR is seen by investors, regulators, and customers alike. At least for another year or so, but once that is forgotten, the upside potential is big.

Based in Oregon, this company provides power to customers in Portland and Salem. The company generates about half of its power itself, from hydro sources as well as gas and oil plants. It purchases the other half of its power on the wholesale market.

The company has had a pretty rough first half of 2006. Its Boardman plant, which went offline in late 2005, required major repairs and didn't fully reopen until July 1. Although revenues were up 4% over the first half of 2005, income was less than half as much as last year. POR had raised its guidance for 2006 earlier in the spring, and then had to drop the estimates again later in the year. It did leave the guidance numbers for 2007 intact, however, suggesting the company thinks its problems are over.

I think this company could be ready for growth. The Portland and Salem areas are growing in population, which should drive up revenues. The Boardman plant is back on track, and they expect to open a gas-fired plant, Port Westward in Clatskanie, in early 2007. This will make POR less dependent on the wholesale markets and should improve profits on those increased revenues.

There are definitely risks here, however. For one thing, hydro power,while cheaper and greener than gas or oil power, is less reliable since it depends on snowpack and rainfall to feed the rivers. There are government-imposed caps on energy prices, which means any increased production costs can't be passed along to the consumers. The management of POR has requested a pretty substantial rate increase to start in2007, but this may not go over so well with taxpayers and regulators,particularly as many people haven't forgotten POR's connection to Enron.The problems at the Boardman plant suggest there may be other infrastructure problems that haven't been addressed.

This one is only for investors who can stomach a little risk and can swallow their discomfort at having anything to do with a former Enron company.

Type of stock: A spinoff electrical company that may be turning the corner after a rough year. A tainted reputation leaves POR with lots of upside as time makes investors forget the Enron affiliation.

Price target: The stock started in the high $20s after the spinoff this spring, and then dropped by several dollars due to the Boardman problems. It's trading around $24 now. If you can handle some risk, I'd pick it up if it drops into the low $20s, and hold it for at least nine months to a year.

POR Chart Since Spinoff

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