As part of a private equity company, Puget stock is no longer publicly traded
For over 100 years, the company we know today as Puget Sound Energy (PSE) and it previous incarnations were publicly owned corporations who traded publicly, were regulated by the Securities and Exchange Commission, and paid a steady dividend to their shareholders. Utility stocks are known as good, sound investments for retirees and pension funds because, in part, people pay their utilities (electric, gas, phone) even when they are unable to pay their mortgage or rent, so the dividend checks keep coming.
PSE ceased to be a public corporation on December 31, 2008, when they were sold to an Australian private equity company, The Macquarie Group. This sale was approved by the three Governor-appointed and Senate-confirmed members of the Washington State Utility & Transportation Commission (WUTC or UTC) over the strenuous objections of PSE’s ratepayers.
Allowing an off-shore leveraged buyout firm (now politely known as investment capital firms)
to purchase the only option we have to supply our electricity was both wrong and short-sighted. The privatization of what locals have for decades called “Puget” eliminated the safeguards inherent in public ownership of utilities.
How was this safeguard eliminated? Let’s follow the money…
The proposed purchase was announced Oct. 26, 2007, and approved by shareholders and the Federal Energy Regulatory Commission in April 2008. It was then passed on to the WUTC, which held a series of “hearings” before approving the transaction.
Puget Energy, WUTC staff, the Macquarie-led investment consortium and other interveners reached a settlement, filed July 23, 2008 with the WUTC.
On August 5, 2008, Simon Fitch of the Public Counsel Section of the Washington State Attorney General’s Office stated, “Puget customers and Washington’s economy are better off with what they have now —a publicly-traded, investment-grade utility with improving financial health and low business risk. Puget Sound Energy has not shown that it makes sense to burden this company with a dramatic increase in debt and financial risk,” he continued, “especially at a time when national and international economic conditions are so shaky.” Less than six weeks later, the financial markets crashed and sent the US economy into a steep dive.
The UTC held hearings Aug. 25–27 in Olympia to hear expert witnesses for and against the settlement and examined the testimony and evidence presented by Public Counsel and other parties. Olympian Sherri Goulet was there on August 26th:
“This event was attended by raterpayers from all over Western Washington to ensure that we were 100% against the sale of PSE to foreign owners. The hearing was held to allow citizen input. The room was packed and they shut the doors leaving hundreds of people in hallway. The only ‘supporters’ that were there were paid by PSE. Citizen input was ‘please do not sell PSE to a foreign corporation’. Public comment online was also in complete opposition to foreign ownership.
“… the UTC allowed their own agenda despite public protest. One of the attendees asked, ‘Do we need to get together as peasants with pitchforks?’ I was at the hearing and witnessed the UTC’s performance. PSE may be monitored by UTC for operation, but not for purchase. There was no democratic process. The UTC followed their own rules, which did not include majority input.”
On December 30, 2008, the WUTC voted two to one in favor of the sale. Governor Gregoire appointees Patrick Oshie, a Yakima Attorney specializing in Federal Indian Law, and Mark Sidran, former Seattle City attorney voted “Yes” while the lone “No” vote was by Commissioner Philip Jones, a Republican who also recorded a scathing minority dissent.
The WUTC report states:
“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… I reserve the opportunity to supplement this dissent upon reviewing the majority opinion in the form published in the order.” (emphasis added)
Also within this report:
Puget Holdings (aka Macquarie Group), founded in 2007, is a Delaware LLC with its principal offices in N.Y., privately held by a group of investment companies and fund managers, all of which maintain portfolios of infrastructure investments in the US, Australia, Canada and several other nations. The investment companies and fund managers represent primarily government and private company pension funds [in many countries].
“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).” UTC 12-30-2008
On December 19, 2008, UTC Commissioner Mark Sidran resigned. He had a history of stirring the muddy waters to suit the upper echelon, and his resignation just prior to the formal announcement of the sale of PSE went virtually unnoticed. The press release announcing his resignation went unpublished in the larger, more locally recognized media streams and could only be located in two small, non-local news sources. His quiet self-removal from the scene left many of PSE’s customers feeling sold out and suspicious.
The general consensus of over 1 million customers was probably best reflected by a comment made by David Goldstein (aka Goldy), in Seattle’s The Stranger:
“…why on earth would the state approve a highly leveraged buyout four cents on the dollar that delivers nothing to rate payers but a monopoly utility company with billions of dollars in new debt? Over the next few decades PSE could use its profits to invest in its existing infrastructure, to, for example, prepare itself to respond more quickly to mass outages like the one that knocked some of its customers off the grid for weeks following the 2006 windstorm. Or, it could invest its profits in building green generating capacity, like solar and wind farms.
“But instead, under the proposed deal, PSE will need to squeeze every penny it can out of ratepayers just to service its enormous debt. Rejecting this deal is just common sense.”
Macquarie Group borrowed over $4.2 billion to make the purchase. This will, of course, be repaid by PSE ratepayers over time. The Macquarie Group used Canadian pension money to buy the company, so the hundreds of millions in profits Puget Sound Energy pull out of our monthly rate payments are now going to Canada and Australia instead of to US shareholders and pensioners.
Why the UTC would go along with the deal and allow the sale of our local and most-needed commodity (after water and food) to be sold to absentee owners? We were set up from the get-go.
To be continued…in the next issue we’ll following the money on an adventure which will make your head spin. Mergers, acquisitions, SEC scandals and more are ahead on the gluttonous trail of truth and the environmental sludge it leaves behind…
Diane Frank is an independent publisher in Thurston County. Having grown up in a political household where both her grandparents discussed their work as union organizers with IBEW and UAW starting in the 1930’s, she learned to question the motivations of ‘leaders’ by following the money and power.