Macquarie-led takeover target may have to sell assets

Puget Sound Energy, the target of a $7.4bn Macquarie-led takeover, may have to sell some of its power assets thanks to a ballot measure passed Tuesday in one of the Washington State utility's 11 service counties. The deal is still expected to go through unimpeded by the measure.

Once it is in the hands of a Macquarie-led consortium, Puget Sound Energy, may be forced to sell some of its assets, thanks to a ballot measure passed in one of 11 counties served by the Washington State utility.

With 100 percent of precincts reporting, voters in the state’s Jefferson County approved a ballot measure to extend electric authority to the county’s public utility district (PUD). The PUD now has the authority to force Puget to sell its electric assets to the county through a condemnation process. Similar measures in two other counties failed.

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The ballot outcome will not impact the Macquarie-led group’s $7.4 billion proposed takeover of Puget, according to a spokesperson for Puget. But the election result highlights some of the regulatory risks inherent in public utility deals of this nature.

“There are 23 PUDs in Washington State that are electric utilities. Almost all of them got into the electric business by taking over the assets of a private electric utility,” said Dean Boyer, a spokesperson for the state’s association of PUDs.

Boyer said the proposed sale of Puget to the Macquarie consortium brought talks of giving the PUD electric authority “to a head”.

For Puget, the impact would likely be minimal. The utility has 17,500 electricity customers in the county and serves more than one million electricity customers across Washington.

The impact would also not be immediate. Jefferson County will have to perform feasibility studies and other regulatory proceedings that will take two to three years to complete before it takes action to acquire Puget’s assets, according to the spokesperson.

More uncertain is whether Puget will be able to get fair value for any assets it is forced to sell in Jefferson County. The Jefferson County PUD came up with an initial study that valued the assets anywhere between $30 million and $66 million, whereas Puget’s analysis showed that the distribution system alone is worth $77 million. Once all the assets are considered, the total value exceeds $100 million, the spokesperson said, cautioning that “these are all initial numbers”.

The ballot outcome also calls into question whether other counties will follow Jefferson’s lead.

“There had to have been some concern on the part of Puget that if two or three of these efforts succeeded it could face similar revolts down the road from some of its other service territories,” Boyer said.

Puget spent about a million dollars in the three counties battling the ballot initiatives.

Last year, a Macquarie-led consortium offered $30 per share to acquire Puget Sound Energy in a deal valued at $7.4 billion. The consortium is made up of Macquarie Infrastructure Partners, the Canada Pension Investment Board, the British Columbia Investment Management Corporation, Alberta Investment Management, the Macquarie-FSS Infrastructure Trust and Macquarie Capital Group.

To date, the deal has gained all necessary regulatory and shareholder approvals with the exception of the Washington State Utilities and Transportation Commission (UTC), which last month asked for additional briefs in the matter before issuing a final order on the deal.

The state Attorney General’s Public Counsel has urged the UTC to not approve the deal, arguing that it exposes Puget’s customers to too much financial risk due to the $1.6 billion of additional bank debt that the utility would have to take on in addition to its existing debt.

Despite this, the commission is widely expected to approve the merger, Boyer said.