Global investors to buy PSE for $5 billion

Report reviews PSE 2006 storm response

By Mary L. Grady
Mercer Island Reporter

Puget Energy announced last Thursday that it is to be sold. The Bellevue-based Puget Energy (the parent-holding company of PSE) said its board had agreed to sell the utility to New York-based Macquarie Infrastructure Partners, a multi-national group that invests in toll roads and utilities.

After being a publicly-traded company listed on the New York Stock Exchange since the early 1900s, the utility and its profits will go private and be managed by an owner without ties to the region.

The buyers will offer shareholders $30 a share in the buyout, which represents a 30 percent premium over the share price last Thursday of $24. The purchase will bring $5 billion to the company, which it needs to find renewable energy resources and strengthen its aging utility grid.

PSE will continue to be headquartered in Bellevue and few changes are expected for employees or customers in the short run. Macquarie has made similar deals in Canada, England, Hawaii, Pittsburgh and companies in New England. The new owners view the purchase as an investment that will yield a return for investors. “We don’t plan to make any changes at all at PSE,” said Christopher Leslie, chief executive of Macquarie Infrastructure Partners, in an interview reported in the Seattle Times last Friday.

“We don’t have employees. We’re not the neighboring utility. Combining work forces and eliminating redundancies is not the story. Our interest is to grow the business.”

Thousands of investors in the Northwest and across the country own PSE stock outright or through mutual funds. The utility, which delivers both natural gas and electricity, serves more than a million customers in 6,000 square miles in 11 western Washington counties. The company has over 5,000 employees.

The buyout comes after the company is still evaluating how it responded to the record-breaking storms that occurred one after another last winter in the Puget Sound region. On the morning of the worst storm, Dec.15, some 700,000 homes and businesses (affecting more than one million people), were without electrical power. Some 2,000 lineworkers from as far away as Missouri, California and Alaska came to help.

After the storm, PSE called in an independent consultant to evaluate the utility’s response to the storm. The report was completed in July by a firm called KEMA. The report, “Storm Restoration and Readiness Review,” indicated that the utility had excelled in many areas, but failed its customers in others.

The report found that:

  • PSE employees performed well in difficult conditions.

  • Acquired sufficient outside help.

  • Capabilities to collect, manage and disseminate information were overwhelmed by the storm.

  • Processes for emergency planning and information were limited in ability to scale up to a storm of this size.

    The KEMA report recommended that PSE:

  • Should improve the company’s damage assessment.

  • Needs to invest in better methods for communicating specific information to customers regarding service restoration times.

  • Must “harden” the system (improve interagency coordination to clear blocked roads, widen rights-of-way through increased tree trimming and continue on-going vegetation management programs).

  • Further explore the conversion of power lines from overhead to underground.

    Since completing storm repairs, the utility has been working with the City of Mercer Island to determine what needs to be done to improve reliability. According to Rich Conrad, city manager, Mercer Island approached the utility and asked them to identify the areas of the Island that would benefit the most from undergrounding. PSE chose three areas where they would recommend replacing the overhead system. They are along East Mercer Way from S.E. 53rd Street to S.E. 68th Street and west along S.E. 68th to Island Crest Way and to the substation near the South end fire station.

    According to PSE tariffs, the city would share in the cost of these improvements, which city engineer Glen Boettcher said, will cost “a few million.”

    “The complexity and cost of this would make this a major undertaking for the city,” said Boettcher.

    The project would likely be done in phases, Boettcher continued, and work would probably not begin until next summer. But before that happens, the City Council must decide if and how the Island share of the undertaking would be funded.

    The city’s engineering staff is preparing a briefing for the City Council staff to take place in December.

    Since final storm repairs were completed early in the year, PSE has cleared vegetation around the South end substation. Crews are presently working with the city and land owners to take down 13 trees that threaten power lines in the 8400 block of East Mercer Way.

    Despite planning underway on the Island by the utility, there is more to do.

    State regulators want more from PSE on what they plan to do next, given the results of the KEMA report.

    Last week, PSE made a presentation to the Commissioners of the Washington state Utility and Transportation Commission (WUTC) on the KEMA report. Commissioners wanted specifics on what PSE will do with the information in the report, said Tim Sweeney, a spokesperson for the WUTC.

    The utility was directed to come back to the regulatory body by Dec. 1 with a point-by-point analysis of the findings of the KEMA report — what PSE agreed with and what they did not and why— and a list of specific actions that will be taken to improve storm readiness, he said.

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