MERCHANT bankers from Australia have offered a small box of concessions to win friends for their planned capture of Puget Sound Energy. Their little box has mollified a lot of folks, but it is not enough.
State utility commissioners Mark Sidran, Patrick Oshie and Philip Jones, who have full authority to put a stake through this takeover, should do so, in the name of the public interest.
As a Seattle City Light customer, I’ve got no skin in this game, but 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? Given the power to stop this deal, why wouldn’t we?
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 build 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. So common, that even the Times and I agree.
This is another side-affect of the depressed dollar, another by-product of the Bush Administration’s deficit financing of the tax cut for the wealthy. U.S. assets are available to oversees buyers at comparative fire-sale prices.
There is no compelling reason to be selling PSE to an overseas buyer. The company isn’t in financial trouble, it doesn’t need a “rescue”. The highly leveraged aspect of this transaction is just the final straw.
Don’t forget, PSE is seeking massive rate increases in both electricity and natural gas, in tandem with the takeover deal. By their own admission, they want to raise capital for future expansion from existing customers. That’s just plain wrong; investors, not customers, should put up the company’s capital. And at a time when retail banking customers are being paid less than 2% a year on their savings, PSE wants their existing return on equity of 10.3% raised. Move along folks, nothing to see here except unabashed greed! If the WUTC doesn’t protect PSE customers from this rape, then we need new commissioners!
In 1929, many stock investors were 95% leveraged.
In 2008, many hedge funds are 95% leveraged.
Are there multiple issues here?
a. foreign ownership
b. leveraged buy out
c. private ownership
Frankly, I do not understand the concept of a privately owned monopoly:utility. How does the free market work when there is no market? Is there something intrinsically more efficient about a privately owned monopoly vs. a public one?
Who do you trust more, Rupert Murdock or the facelss folks who run City LIght?
You expect Mark Sidran to act in the public interest? I’ll be nice and just say I think he is a rat fink.
I agree – A buyout of PSE is totally uncalled for and should be blocked. Who can we send email to or call to voice our opinions?
My bet is that Sidran and the commissioners vote this down – and in answer to Seattle Jew – I don’t trust foriegn private firms with monopolies over utilities – period.
This is a no-brainer – a leveraged foreign buyout of a company that doesn’t need it?
Juste parlez non.
Hedge funds are misnamed: they really should be called “high risk/high potential gain” funds. The average guy won’t even be allowed into a hedge fund ’cause he ain’t got the financial resources to take a 100% loss on the investment.
While the average hedge fund may use up to 95% leverage, according to Roger, the average Joe has about 0% leverage. Never borrow money to buy stocks – that’s a pretty good rule to follow.
Who’s gonna walk away with millions from the PSE buy-out? That’s the guy or gal you should be investigating.
@9 – I agree, good point.
Here a link that I ran across in ‘The Nation’. It is about a solar electricity plant that is under construction in CA.
@4 SJ, Washington has a long and colorful history of battles between “public” vs. “private” power. Public power won in Seattle and private power won in Spokane; which city’s electric rates would you rather pay? Oh, they’ll call it “socialism” — but the fact is there isn’t an electric utility in the Pacific Northwest that isn’t get government power from government dams. So, in a way, it’s all public power. It’s just that some utilities add-on private profit to your electric bill.
@4 (continued) But to answer your question, yes, all of the above. Except, I don’t think I’d agree with your implied proposition that all private power is bad. Public power isn’t automatically available everywhere. There’s nothing inherently wrong with private investors putting up the capital required for infrastructure and making a fair return in terms of the (very low) risks utility investors assume. Because it’s not practical to have competing sewers, water lines, or electric grids — utilities are extremely capital-intensive and duplicative infrastructure would be economically wasteful — utilities as a practical matter have monopolies and so the public, through the state, regulates the service quality they have to provide and the rates they can charge.
Here’s another link that I ran across in ‘The Nation’. It is about biodiesel that is made from plankton.
@6 Washington Utilities and Transportation Commission at https://fortress.wa.gov/wutc/home/PubInvolveWeb.nsf/docComtWeb
@9 “Who’s gonna walk away with millions from the PSE buy-out? That’s the guy or gal you should be investigating.”
Steven Reynolds, the CEO, stands to make an $8 million bonus which is contingent on the buyout going through, plus McQuarrie has agreed to pay his income taxes on the bonus. The shareholders will get a 30% premium over the market value of their stock, and as Reynolds is a large shareholder, he’ll make additional millions in capital gains.
The relevant question, of course, is who pays for this. And the answer is, the people buying PSE can recoup their money from only one source — the customers.
7 Mark Sidran? Oh, yeah…he was the guy who ran for mayor telling everyone how he was going to hassle all the music clubs. Seems he was at least a little more up front about what he wanted to do, unlike the guy who got elected.
Hedge funds in the energy business. Can you say “Enron”? I KNEW you could!
Seattle City Light is perhaps a little unique among municipal power systems in that it owns a hydro project whose capacity serves a major portion of its needs. Most of the other large systems in the state, public or private, are delivery systems for power generated by the BPA dams.
There are certainly private interests that would drool all over themselves at the prospect of selling the cheap-to-produce power from the BPA or the Skagit project at national market rates. If our present civic leaders manage to screw up badly enough to be tossed out in a taxpayers’ revolt, look for a new right-leaning City Hall to start making noise about how much better off we’d be if City Light was privatized.
That “4 cents on the dollar” crack is simply wrong. I realize you’re just restating the newspaper’s claim, but it’s still wrong. The buyers agreed to put an additional $200 million investment into Puget Energy, which would work out to about 4 cents on the dollar. That is in addition to the $3.4 Billion investment originally proposed.
There are legitimate concerns raised in the PSE case, but it’s silly to talk about 95% leverage when the actual number is under 50%.
Kinda makes you wonder what things could’ve been like if WPPSS hadn’t failed……..
Oh yes, the PSE customers are gonna get screwed BIG TIME if this buy-out is allowed to take place. Including my elderly Aunt and several cousins living in the Burien area. I so hope somebody can pull the brakes on this scam!!! It’s just another Enron type deal in the making.
I worked for Seattle City Light for 30 years before retiring in 2001. Constant rumors and concerns over the years that the City Council would sell us out, chop the head off the “Golden Goose” and collect short term profit. Perhaps the City Council & Mayor were always afraid that the Citizens would revolt & come after them with pitchforks & flaming torches. Whatever, so far that has kept them in line.
Many of the people helping to keep them in line (remember the Streetlight lawsuit?) are retired City Lighters who also just happen to be ratepayers too.
Around 1999 IIRC, I remember when the Local 17 crews I worked with were saying that PSE was somehow departing with their Union workers, many lineworkers and substation constructors, to save some money. I asked “How can they do that?” Was told that they were cutting crews, calling them in as needed as ‘contractors’. I asked “What happens during storm outages?” Well, the people can just wait in the dark, if the ‘contractors’ are otherwise hired elsewhere or on vacations, out-of-town, etc.
Problem with ‘contractors’ is that they don’t have to CARE. Can do sloppy work and don’t have to work around the results – like, be in the vicinity when exploding porcelain bushings (picture shrapnel) starts flying.
People might b!tch about City Light being a monopoly, but now in this PSE situation I bet MANY people would prefer to be paying the rates we SCL customers do.
As far as the WPPS goes, SCL managed to avoid or extract itself as much as possible. So we didn’t take NEARLY the amount of rate hikes that other communities got stuck with for years!
A bit of folklore. We City Lighters always called J.D. Ross the “Father of City Light”. If you ever get a chance to go up and take the CL Skagit Tours, I highly recommend. The water is kind of weird green turquoise colored, beautiful but odd looking. Fantastic scenery.
Anyways, the story goes that at the time the license for the Skagit was coming due and previous owners weren’t able to cut the check for whatever reason. City Council was endlessly haggling (as per the usual). Finally, J.D. Ross jumped on the train racing straight back to the east coast, many days travel, barely made the deadline that day. He took his own money to make the payment to purchase the license. THAT’s what got SCL the access to the Skagit. The man was light years ahead of his time!
Here’s some interesting history:
http://www.answers.com/topic/seattle-city-light