Locals are in revolt against Puget Sound Energy
by Bob Simmons
“I’m not afraid of foreigners,” a Skagit County resident told Public Utility District commissioners in Mount Vernon, Wash., last Tuesday, July 29. “Some of my best friends are foreigners. It’s just this particular foreigner I’m afraid of.”
The “particular foreigner” is the Macquarie Group of Australia, which wants to buy out Puget Sound Energy, Washington’s oldest and biggest utility. The proposed takeover, which PSE consistently describes as a merger, has given new life to latent authority and ambition within public utility districts (PUDs) north and west of Seattle. The PUDs are positioning themselves for an attempted takeover of PSE assets in Skagit, Jefferson, and Whatcom counties and on Whidbey Island in Island County. Both sides in the coming public power fights turned up the rhetorical energy last week.
“The devil is in the details,” warned Gretchen Aliabadi, a spokesperson for PSE, “and there are lots of layers to this onion.”
Aliabadi made it clear that her company will do whatever it can to defeat any proposed PUD move on its service area. “We’re trying to protect our customers from making a bad decision without knowing all the facts,” she said, referring to public questions on the ballot in November.
Dean Boyer, a spokesperson for the Washington Public Utility Districts Association, puts it this way: “Who do you want controlling your electricity, the local commissioners you elect, who live in your neighborhood, or the officers of a private company controlled by a bank on the other side of the world?”
At last week’s meeting, all three commissioners of the Skagit County Public Utility District voted to ask the county’s electorate in November if they want their water-serving PUD to go into the electric power business. D. Hittle & Associates, an energy consultant hired by the district, concluded earlier this year that the move makes sense for Skagit PUD and its potential 59,500 power consumers.
Jefferson County voters will decide in November whether to have their PUD go after PSE’s assets and electrical customers in Port Townsend and other portions of the county. And a grassroots organization on Whidbey Island has gathered enough signatures to ask the Island’s voters to form a PUD for the express purpose of taking over PSE’s Whidbey operations.
Just to the north, commissioners of the Whatcom County Public Utility District are pondering a move to take over much of PSE’s service in that county. Since they’re already in the business (they have one electricity customer, the Conoco-Phillips refinery at Cherry point north of Bellingham), Whatcom faces a less complicated process than the other three. No public vote is required — the Whatcom PUD commissioners will decide whether to go after PSE’s operations in Bellingham and elsewhere in the county.
Although the PUDs have the authority to buy or condemn the assets of privately owned utilities, it hasn’t happened in decades. Assuming the voters approve the venture in Skagit or Jefferson counties, or formation of the new PUD on Whidbey Island, their commissioners and those of the Whatcom PUD may still conclude that this windmill is too big to tilt.
Talking with reporters, PSE’s Gretchen Aliabadi stresses the company’s size and clout. “We’re not huge in comparison to Consolidated Edison and some of the other national giants, but we’re big enough to bring such things as green power and conservation to the area. Those are expensive, but with our buying power we can do it. How’s a little PUD with 19,000 subscribers [meaning Jefferson County] going to spend hundreds of millions on a wind farm?”
The obvious answer is that they can’t. The not-so-obvious answer is that they don’t have to. Jefferson PUD counts on hooking up to the Bonneville Power Administration for a segment of BPA’s limited power supply that’s set aside for new, small PUDs. Whidbey Island would be similarly entitled. Skagit would try to condemn PSE’s power dams on the Baker River. The PUDs will, however, need to meet the state requirement that 15 percent of their power come from renewable sources, not counting hydroelectric power, and that could prove challenging in the start-up years.
The sustainable power requirement, approved as Initiative 937 [33K PDF] in 2006, exempts utilities of fewer than 25,000 customers. Jefferson County’s nascent PUD would have room for several years’ growth before it became subject to the “green power” requirement.
In the 70 years-plus since the Washington legislature gave public utility districts the authority to buy all or parts of a privately owned utility and serve its consumers, Washington has become one of the leading PUD states in the country. There are now 28 PUDs here, and 23 of them provide electricity. To get into the electric business, they need only the approval of a majority of the voters in the service area. The four incipient raiders of North Puget Sound believe their chances increased markedly with PSE’s publicized eagerness to be swallowed up by foreign investors.
However much fun the fall campaigns may be, the PUD’s don’t get to play. Once the takeover question’s been sent to the ballot, the PUD commissioners and their staff are required to stay out of the campaign and leave the politicking to citizen groups. PSE is not so constrained. It will spend whatever it can to defeat the public power initiatives. It’s unclear whether the company’s shareholders will absorb the advertising and campaign costs, or if those can be recovered from ratepayers as a business expense.
Even if it loses at the polls, don’t expect PSE to accept any PUD’s best offer for the transmission lines, substations, and power generation assets. Those transactions will live or die in court, in condemnation proceedings. Each PUD will need to fund a condemnation suit and convince a judge that it’s making a reasonable offer for a piece of PSE’s massive infrastructure.
The PUDs can sell taxable revenue bonds for buying the assets, and if they succeed they’re allowed to sell general obligation bonds — whose dividends are exempt from federal income tax — to pay operating expenses not covered by revenue from power sales. They’re exempt from property tax but generally pay a so-called privilege tax, roughly equal to what privately owned companies would pay in property assessments.
There’s no profit margin in PUD operations, a point the public power advocates will try to drive home during the fall campaigns. For this reason, they conclude, the PUD is bound to save consumers money over the long term. For example, the Skagit PUD’s consultant says the PUD could be selling electricity for 9.3 cents per kilowatt hour by 2010 and estimates the cost for PSE power to be 9.5 cents in that same year. Based on those guesses, the new PUD could save its ratepayers $182 million in the first 10 years of operation, even with the huge cost of buying PSE’s hardware.
PSE’s Gretchen Aliabadi thinks the Skagit PUD’s consultant figures are absurd. “For example, they value our Skagit County substations at only $8 million, when their replacement cost is at least $40 million,” she says. “We just hope our customers won’t vote without reading their reports.”
If the consultant’s appraisal figures are way off, it’s PSE’s fault, according to Skagit PUD Commissioner Jim Cook. “Early on they agreed to give us basic information on the value of their dams and substations, and everything. But when we got serious about it they suddenly slammed the door. We’ve done the best we could do [in appraising the assets] from every source we could find. We could have done a lot better if they’d talked to us.”
Cook, a retired logger who manages his own timberlands, finds the work involved in this phase of a PUD commissioner’s life to be more than daunting. “It’s like going fishing for trout and suddenly you’ve hooked a whale,” he observed. “You’ve got it hooked, but how on earth you gonna get it in the boat?”
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