IMAGE: JASON WALTON

Last week, WW reported that the country's second-largest credit-ratings agency, Standard & Poor's, let PGE edit three drafts of an S&P credit report PGE used to argue for higher rates before the Oregon Public Utility Commission.

The purpose of the edits, according to PGE's two largest customer groups—Industrial Customers of Northwest Utilities and the Citizens' Utility Board of Oregon—was to "manipulate" the ratings report so as to increase the chances of the PUC granting Oregon's largest utility a $143 million annual rate increase.

This week, Sen. Ron Wyden (D-Ore.) said he'll press the Securities and Exchange Commission to look at the matter.

"Sen. Wyden is concerned about the objectivity and independence of rating agencies as they provide what is supposed to be unbiased information to investors, regulators and consumers," says Wyden aide Geoff Stuckart. "We will ask the SEC to address the issues you raise."

Wyden wasn't the only reader troubled by the level of cooperation between PGE and Standard & Poor's.

Lynn Turner, who formerly served as the SEC's chief accountant, calls the story "disturbing."

"One must ask what was S&P thinking to permit this to happen, especially after the criticism they and other rating agencies have received in recent years,'' says Turner, now managing director of Glass Lewis, an institutional investment research firm headquartered in San Francisco. "Unfortunately, it appears that the lessons of Enron have failed to take hold at the top of S&P."

And Alex Pollock, former CEO of the Federal Home Loan Bank of Chicago, says the story illustrates the need for reform of the credit-rating business.

Pollock, now a fellow at the American Enterprise Institute in Washington, D.C., has testified in Congress that the ratings business is almost entirely controlled by Standard & Poor's and Moody's Investor Services. Both firms derive virtually all their revenues from the companies they rate—which Pollock and other critics say creates a conflict of interest—and are enormously profitable.

On Tuesday, The New York Times published a story about WW's inquiry with additional reporting that revealed Standard & Poor's officials held private meetings with each of the three Oregon PUC commissioners in August, a move that several spokesmen for other state utility commissions told the Times was "improper." (A PUC spokesman says the meetings did not involve PGE's rate-hike request.)

Standard & Poor's has declined to answer questions about why it allowed PGE to edit three drafts of a research report when the ratings agency's code of conduct calls for "both the substance and appearance of independence and objectivity." The company's code also says the firm "shall maintain editorial control at all times" of its reports.

Instead, the firm issued a statement saying it did nothing wrong or out of the ordinary.

Customer groups and the PUC staff disagree, arguing in legal filings in the current rate case that the ratings firm allowed PGE to alter a report to parrot the utility's argument for why rates should increase nearly 9 percent for the company's 791,000 Oregon customers.

"If what PGE and Standard & Poor's did is routine, the commission absolutely ought to investigate the relationship between utilities and rating agencies," CUB lawyer Jason Eisdorfer said at a PUC hearing Tuesday.

PGE's CEO, Peggy Fowler, declined to respond to questions emailed to her for this story. Instead, PGE spokeswoman Gail Baker issued this statement: "PGE has a professional relationship with all of the ratings agencies that report on our business. Like other companies and government agencies, we provide information to these agencies about our business environment and financial standing. All of the ratings agencies provide us their draft reports in advance to review the accuracy of the information included.

"We stand behind everything we have filed in our rate case with the Oregon Public Utility Commission as appropriate and accurate."

The utility's board members, who each receive $80,000 annually for their service, were less forthcoming.

Board Chairman Corbin McNeill, a retired Pennsylvania utility executive; David Dietzler, a retired Lake Oswego accountant; Mark Ganz, CEO of Regence BlueCross BlueShield of Oregon; and Siltronic CEO Neil Nelson all failed to return phone calls seeking comment.