Regulators to scrutinize proposed sale
The proposed sale of the state’s largest utility will have to pass muster with state regulators who must be convinced that the $7.4 billion deal for Puget Energy will not disadvantage consumers.
They’ll be asking many questions, ranging from what kind of profit margins the new owners are looking to earn, to how they will follow through on the utility’s commitment to improve service after severe wind storms.
“This is potentially a very significant change,” said Simon ffitch, chief of the public-counsel office of the state Attorney General’s Office. “The state of Washington needs to be satisfied that this really is in the public interest, not just the investor interest.”
Tim Sweeney, a spokesman for the state Utilities and Transportation Commission, said that the sale would not be approved if it appeared that the takeover itself would cause rate increases.
“There is a ‘no-harm’ standard, and that would be looked at as part of the review,” Sweeney said.
The company won approval to raise electrical rates 3.7 percent on Sept. 1. Starting this month it lowered natural-gas rates by 13 percent.
In December, Puget Energy is scheduled to make another request for a rate increase that reflects increasing capital costs.
But company officials say that the new rate proposals will not reflect acquisitions costs resulting from the proposed sale. Thus, they say that customer electrical rates would not be affected by the sale.
“We will remain a regulated utility, and the commission will determine what [rate increase] is prudent or what is not,” said Martha Monfried, Puget’s director of corporate communications.
The utility commission’s review also will include issues such as how the company’s transformation from a publicly traded company to a private company will affect the disclosure of financial information, according to ffitch, from the Attorney General’s Office.
Another concern would be the rate of rate return sought by the private investors, and whether that would lead to additional pressure on rates, ffitch said.
In other buyouts in recent years, new owners have sometimes sought higher rates, said Robert McCullough, a Portland-based utility consultant. He cited ScottishPower, which purchased an Oregon utility, PacifiCorp, in 1999, and made requests for increases that were rejected by Oregon regulators. The company ultimately was resold.
“There was an element of naiveté,” McCullough said. “They basically wanted a higher rate of return.”
In Oregon, investors who seek to acquire a utility must demonstrate a net benefit to consumers - a different standard than Washington’s ‘no-harm’ test.
In 2005, the Oregon Public Utility Commission rejected a buyout offer for Portland General Electric by Texas Pacific Group amid a controversy over the amount of debt that would be used to finance the deal.
Dan Meek, a Portland public-interest attorney, says that the proposed Puget Energy buyout could also raise concerns of a leveraged deal that would substantially increase the utility’s debt load.
Puget Energy officials say that the takeover will create a more robust company better able to handle major investments required for the future. They say rate increases proposed in the future will not reflect the expense of takeover debt.
“This will be business as usual, only better,” said Puget CEO Steve Reynolds.
Seattle Times business reporter Drew DeSilver contributed to this story.
Hal Bernton: 206-464-2581.