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Puget Sound Energy, investors rebut criticism of takeover

By Ángel González Seattle Times business reporter July 2, 2008

The proposed takeover of Puget Sound Energy by a consortium of international investors met with a barrage of criticism last month from interested parties who said the $7.8 billion deal would undermine the company's financial standing. But today, Washington's largest utility and the investors offered new commitments and clarifications that they say will assuage those concerns — and sweeten the deal for customers.

In testimony to be filed this afternoon with the Washington Utilities and Transportation Commission, the investors — led by Australian bank Macquarie — promised the utility would restrict the payment of dividends if earnings can't cover interest payments.

The utility and investors offered $88 million in credits on customer bills over the next 10 years. They also said that taking the company private would save $12 million in administrative costs over the same period. Additionally, the utility promises to ramp up alternative energy investments with the goal of becoming carbon neutral by 2050.

"We think that we've not only been responsive to what they're asking — we went above and beyond," said Chief Financial Officer Eric Markell, The investors also seek to correct "misunderstandings" about the utility's post-takeover financial structure, said Andrew Chapman, managing director of Macquarie Capital Funds, a member of the Macquarie Group. In June the Attorney General's Public Counsel office, which represents customers, and the WUTC staff said that the highly leveraged acquisition would increase the utility's indebtedness. Both agencies opposed the merger on the grounds that a weaker Puget Sound Energy could result in higher rates for Washington customers.

Chapman said that some of the financing obtained by the investors would be used to pay Puget Sound Energy's outstanding debt. The total resulting debt level would be lower than what many critics indicated, Chapman said. Interested parties were also concerned that taking the company private would eliminate the reporting requirements it currently has to meet as a publicly traded firm. The utility says it is committing to filing the same reports after the takeover. The deal, proposed in October, was overwhelmingly approved in April by the company's shareholders, who will receive a 25 percent premium on the value of their stock when the deal was announced. The Federal Regulatory Energy Commission also approved the transaction.

But the WUTC has the last word, which it will give at the end of a lengthy, litigious examination with many parties involved — ranging from the Public Counsel office to the Industrial Customers of Northwest Utilities, which represents large firms such as Microsoft and Boeing. For the deal to be approved, the Commission must establish that Washington residents won't be harmed by it. The investors asked for a decision by Sept. 2, but the Commission doesn't have to abide by that deadline.

Ángel González: 206-515-5644 or agonzalez@seattletimes.com

Copyright © 2008 The Seattle Times Company