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State regulators approve Puget Holdings LLC’s purchase of Puget Energy

Dec. 30, 2008
Docket Number: U-072375

OLYMPIA, Wash. – State regulators today approved the sale of Puget Energy and its wholly-owned electric and natural gas utility subsidiary, Puget Sound Energy (PSE), to New York-based Puget Holdings LLC, a transaction with an estimated value of $7.4 billion. The sale is subject to 78 commitments and conditions to protect customers and the public interest.

In a 2-1 opinion, the Washington Utilities and Transportation Commission (UTC) approved a multi-party settlement, concluding the, sale of PSE is “consistent with the public interest” and will not harm ratepayers, the legal standard for approval of such sales. The commission noted, “[W]e arrive at the same conclusion reached by those parties representing environmental interests, low-income customers, industrial and large commercial customers, and the commission’s independent staff: the settlement is consistent with the public interest and the transaction should be approved. The settlement was supported by the commission’s staff, Industrial Customers of Northwest Utilities, Northwest Industrial Gas Users, The Kroger Company, The Energy Project (representing low-income customers) and Northwest Energy Coalition. It was opposed by the Public Counsel Section of the Attorney General’s Office.

“The commission will continue to regulate PSE’s natural gas and electric rates, services, facilities and practices just as it does today,” UTC Chairman Mark Sidran and Commissioner Patrick Oshie said in their written majority opinion. “The commission will continue to exercise all its power of oversight and authority to protect consumers and the company in order to ensure that PSE continues to provide safe, reliable service at reasonable rates and of the quality the public expects.”

Commissioner Philip Jones opposed approval of the sale, and filed a separate dissent. Jones said, “The settlement agreement in its current form creates too much risk, and potential harm, for ratepayers and stakeholders. I believe the settlement has been overtaken by market conditions that require further exploration on a full record that carefully analyzes critical aspects of the proposal under the reality of extremely adverse financial conditions that exist today. The proposed agreement sets forth a capital structure with excessive debt for Puget Energy and PSE, and creates a privately-held investor consortium that lacks sufficient transparency compared to the status quo. I believe this increased incremental debt load creates undue risk for ratepayers by requiring PSE to create sufficient cash flow to service the substantial amounts of new debt to be issued by the holding company and it will place great pressure on the commission to approve the necessary large and frequent rate increases on a consistent basis." Commissioner Jones also said, “I reserve the opportunity to supplement this dissent upon reviewing the majority opinion in the form published in the order.”

Responding to Public Counsel’s and the dissent concerns that the transaction is a risky, highly leveraged private equity buyout that will reduce the commission’s ability to effectively regulate PSE, the majority observed, “this is an almost entirely inaccurate description of the transaction under the Settlement.” The majority noted, “[I]t is not a ’highly leveraged’ buyout,” adding that there is “substantially less leverage” (20%) in this transaction than in others that have been approved by the Commission. Further, the investors buying PSE are comprised “overwhelmingly [of] government and private pension funds and endowments,” which can provide “assured access to a highly stable source of significant amounts of” to help fund the billions of dollars of infrastructure investment PSE requires in the next few years, during a period of uncertainty and turmoil in the financial markets relied upon by PSE.

In sum, the majority found that “the nature and quality of these investors, their multi-billion dollar equity stake in Puget Energy, their deep pockets, and their commitment to fund PSE’s ongoing capital needs all are factors that suggest improved access to capital relative to the status quo. When combined with the settlement’s [other] provisions which protect PSE and its ratepayers from any financial or other risks inherent in the corporate structure of the new ownership…it is clear the transaction does not harm the public interest.”

The 78 commitments and conditions detailed in the order protect customer service, safety, reliability, resource adequacy including energy efficiency and conservation, support for low-income customers, and environmental stewardship. Several commitments protect customers from rate increases that otherwise might result from the transaction, including providing up to $10 million in rate credits per year for 10 years. There are comprehensive protections against financial risks associated with the purchase’s financing or distress at other affiliated companies, as well as protections for PSE should it face financial difficulties, such as minimum equity requirements and limitations on dividends. The majority specifically found that, “There are commitments that fully protect and indeed enhance the Commission’s regulatory authority and control over [PSE], including access to all necessary information.” Responding to concerns about “local control”, the commission noted that the full preservation of its regulatory control over PSE and commitments to maintain PSE’s headquarters and local management in the region and to set a minimum number of local residents on the boards of directors provides as much or more “local control” as exists today.

In its order, the commission acknowledged the substantial public opposition to the sale but said it would not be appropriate to let that consideration drive its decision considering the judicial nature of its decision making process. The commission determined that “the clear weight of the evidence, precedent cases and applicable law compel us to conclude that the settling parties are correct – the transaction does not harm the public interest. Indeed, we believe that the transaction not only does no harm, it offers affirmative benefits to ratepayers and to the region.” Moreover, the commission’s regulatory obligation is “to balance equitably the interests of ratepayers, shareholders and the broader public based on facts, law and informed judgment, and without regard to politics or popular opinion.”

Parties to the case have 10 calendar days to ask the commission to reconsider or clarify its decision, or if no such request is made, 30 calendar days to appeal the ruling to a superior court within Puget’s service territory.

Bellevue-based PSE is the state’s largest electric and natural gas utility, serving more than one million electric and 737,000 natural gas customers, primarily in Western Washington.

Puget Holdings is a Delaware limited liability company, with its principal offices in New York, privately held by a group of investment companies and fund managers, all of which maintain portfolios of infrastructure investments in the U.S., Australia, Canada and several other nations. The investment companies and fund managers represent primarily government and private company pension funds.

Puget Holdings will buy all the outstanding common stock of Puget Energy for $30 per share. Puget Energy common stock will no longer be publicly traded. The transaction is funded with $3.4 billion in cash, $2.6 billion of assumed debt held by PSE and $1.45 billion of newly issued debt, approximately $600 million of which is used to replace or refinance existing debt held by PSE and $850 million of which is net new debt held by Puget Energy (from which PSE ratepayers are shielded by commitments in the transaction).

The proposed sale previously received approval from the Federal Energy Regulatory Commission, the Federal Communication Commission, the U.S. Department of Justice, the Federal Trade Commission, the U.S. Committee on Foreign Investments, and the board of directors and shareholders of Puget Energy.

The three-member commission is the state agency in charge of regulating private, investor-owned electrical and natural gas utilities in Washington. It is the commission’s responsibility to ensure regulated companies provide safe and reliable service to customers at reasonable rates, while allowing them the opportunity to earn a fair profit.


Editor’s Note: To view the order and the dissent, visit

Staff contact: Marilyn Meehan
Posted/updated: 04/16/2009


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