Skip to main contentFor years, NW Natural has been overshadowed by Portland's other utilities--and thankfully so. While PGE's bankrupt parent, Enron, is forever in court and PacifiCorp's misadventures led to its acquisition by Scottish Power, the local gas company has largely avoided controversy.
But NW Natural's reputation will soon take a turn for the worse.
A nearly completed probe by the state Public Utility Commission details three NW Natural real-estate transactions that raise serious questions about both the company's treatment of ratepayers and its business acumen. "These might be honest mistakes, but there sure are a lot of them," says Jason Eisdorfer, a lawyer for the Citizens' Utility Board of Oregon. "It raises the question of how tight NW Natural's accounting controls are."
NW Natural was founded in 1859 as Portland Gas Light Company. Since then, it has grown to be the region's largest provider of natural gas, serving 580,000 customers in Oregon and southwest Washington. With 1,300 employees and annual revenues of $611 million, the utility, headquartered in Old Town, is one of the largest publicly traded companies in Portland.
As a regulated monopoly, NW Natural is overseen by the PUC, which sets the price of the gas at a level that ensures shareholders get a fair return and that ratepayers don't get gouged.
The PUC also ensures that customers pay only for costs that relate to getting gas to their stoves and furnaces. And that's the focus of the current investigation.
The simplest of the three transactions reviewed involves a piece of Old Town property that the company has leased to the city since 1999, yet has continued to account as an expense to ratepayers.
The second deal questioned was a 2000 sale of property to the Port of Portland that resulted in a capital gain of $1.4 million and triggered a $550,000 tax liability for ratepayers. A PUC staff report, written by senior economist Thomas Morgan, questioned whether NW Natural unnecessarily converted the land into a liability.
The third transaction is the most troubling. In November 1999, developer Brian McCarl approached NW Natural with an investment opportunity that would also fill the utility's parking requirements.
McCarl's company held an option on a former fish processing plant, occupying nearly a city block, at 301 NW 3rd Ave., near NW Natural's headquarters. In March 2000, McCarl and NW Natural, operating as equal partners, formed a limited liability company which bought the property for $1.83 million.
But while the partners' shares were equal, their split of the purchase price was not. NW Natural paid $1.5 million for its 50 percent interest; McCarl got his half for $330,000.
McCarl says he incurred significant costs arranging a new space for the previous owner and that he also converted the property into a secure parking facility for NW Natural. He acknowledges, however, that NW Natural's lease of parking spaces (at about $90,000 annually) more than covers his development costs. McCarl argues that the purchase was a bargain, which may be true, but on paper NW Natural paid nearly $600,000 too much. "We found their lack of due diligence astonishing," says CUB's Eisdorfer.
Still, utility watchdogs wouldn't be yapping if NW Natural had forced shareholders to pay for the deal.
But instead, the company placed the transaction in its "rate base accounts," which means NW Natural customers covered the cost. "If this were handled properly and were never put into rates, we might not care," Eisdorfer says. "The problem is when you do a stupid deal and you make ratepayers pay for it."
Morgan says PUC rules allow utilities to recover costs only on investments in real property--such as land and machinery--not vehicles such as limited liability companies.
NW Natural Senior Vice President Gregg Kantor says the company screwed up. "We should have had better controls," Kantor says, "and we're in the middle of addressing the problem." He says that the Fish Block is now appraised at far more than the acquisition cost but adds that the company does not know exactly why McCarl's share was so much cheaper than its own.
In a negotiated settlement with customer representatives expected to be announced by month's end, NW Natural will cough up about $1.25 million, which takes into account the property leased to the city, the parcel sold to the Port of Portland as well as the Fish Block deal. In addition, the company (rather than gas customers) will foot the bill for its own parking until 2013 and will hire an independent auditor to inspect its accounts.
Eisdorfer says the CUB is particularly pleased with the audit requirement. "I don't know how much confidence you can have in their accounting right now," he says.
WWeek 2015