Puget Sound Energy takeover seen as costly

PUD backers see bias in study

August 12, 2008 6:36 pm
This is one of the Puget Sound Energy substation that a proposed public utility district may have to purchase.
This is one of the Puget Sound Energy substation that a proposed public utility district may have to purchase.

UtiliPoint, Inc., an independent company hired by Puget Sound Energy, released a study Tuesday concluding a proposed takeover of the company’s electric utility business would cost the citizens of Whidbey Island $130 million and lead to an average 20 percent higher electric rates.

The study comes in the wake of a potential buyout of PSE by the Macquarie Group of Australia, which has public utility districts, or PUDs, in Skagit, Jefferson and Whatcom County positioning themselves for an attempted PSE takeover.

And a grassroots organization on Whidbey Island has gathered enough signatures to ask voters to form a PUD for the purpose of deposing PSE’s Whidbey operations.

“People need to know what they’re voting for, and this vote in November could give a PUD a lot of power,” Bob Bellemare, CEO of Utilipoint, Inc. said.

The wording on the ballot centers on authorization for the formation of a legal PUD to be governed by three board of commissioners. But it’s the phrase, “The district would have the powers provided in Title 54 RCW,” that has PSE rattled.

Commissioners would have the authorization to condemn PSE’s electric system, and authority to finance the takeover with revenue bonds without any additional public vote, PSE spokesperson Gretchen Aliabadi said.

Regarding Tuesday’s study, Bellemare said he estimated $86 million for the company’s hard assets, which include 10 substations, offices, transmission feeds; $10 million for start up costs; and $30 million “for going concern,” a company’s ability to stay afloat.

Although PUDs have the authority to buy or condemn the assets of privately owned utilities, it hasn’t happened in decades. Pat Harmon of Oak Harbor filed today to run as a District 1 commissioner, but admitted in earlier interviews that a business model may fall apart.

People for Yes on Whidbey PUD spokespersons issued a response to the study the day before its release, calling it “irrelevant and immaterial.”

“A PUD has to buy an existing system with low cost taxable bonds but it can pay to build a new system with even lower cost tax-free bonds!” Ed Jenkins wrote.

He continued with, “PSE is doing the same in Jefferson County and we can expect more of the same here on Whidbey. How much value does this study have aside from hopefully scaring you, nothing at all but here is the rub – you paid for it!”

Utilipoint recently authored studies for Jefferson and Skagit County, estimating takeovers in Jefferson at $77 million and Skagit for upwards of $1 billion.

Aliabadi said the Whidbey Island study is fair and accurate. However, it is only a preliminary look at the system. If PSE and a PUD system ever made it to a condemnation court proceeding, there would be a detailed analysis of the assets, including the billing systems.

“Creating a public utility from scratch does not make sense in this day and age,” Bellemare said.

You can’t just flip a switch, he said, and have a lineup of experienced crews and engineers. He estimated five to eight years for legal startup. In the process, a negative cash flow would increase costs to customers.

However, power advocates conclude money will be saved in the long-term because there are no profit margins in PUD operations. PUDs can sell general obligation bonds, whose dividends are exempt from federal income tax, to pay operating expenses not covered by power sales. While PUDs do not pay property taxes, the state imposes a “privilege tax” about equal to what privately owned companies would pay for property.

People for Yes on Whidbey PUD are counting on the Bonneville Power Administration for a piece of the limited power supply that is set aside for new PUDs. PSE spokespersons said this process is complicated, not guaranteed and could take several years. The 250 average megawatts (aMW) would be divvied up into four states, and already 40 megawatts are reserved for tribal utilities until 2021.

David Metheny, campaign director for People for Yes on Whidbey PUD, said the group will release their own preliminary study in upcoming weeks. Possessing only a meager budget, the study will be based on examples they extrapolate from other counties.

And if the measure is approved in November, the group vows to back away from politicking and leave the decision-making to PUD commissioners.

PSE, already facing challenges from three other counties, is likely to launch a public relations campaign to, as a PSE spokesperson said, “protect people from making the wrong decision.”