PSE's labyrinth ownership deal

IN a few weeks, three appointed state commissioners will make a decision profoundly affecting the Puget Sound region and its residents, corporations and future. The decision is who — or what — will own the company that distributes much of the region's gas and electricity.

The company is Puget Sound Energy, based in Bellevue. It is now owned by public stockholders. The three utility commissioners — Mark Sidran, Patrick Oshie and Philip Jones — are now judging a proposal from the Macquarie Group Ltd., a merchant bank in Australia, to buy out Puget's shareholders and replace them with a handful of Australian and Canadian investors.

State law makes Sidran, Oshie and Jones the guardians of the public interest in this matter. It grants them full authority to say yes or no.

We have said before they should say no, and we say so again. A leveraged buyout of Puget is not in the public interest. We can't see that it's in anyone's interest — that is, anyone around here — except a handful of senior executives who get large payouts if they are let go; CEO Steve Reynolds, who will get $9.6 million even though he stays; and shareholders, including Reynolds and the others, who will be paid $30 a share for a stock previously trading under $24. Some shareholders live around here, though most of Puget's shares are held by institutions.

Puget's 1 million power customers and 735,000 gas customers are all around here. They will continue to pay bills to PSE. After the takeover, there will be four shell companies over PSE, each holding shares in the one below it, with the acquisition debt loaded on one of the companies above PSE.

The separation is called "ring fencing." It aims to make the people at the bottom look safe. Their gas and electric rates will remain regulated by the state — indeed, by the very same Sidran, Oshie and Jones. The new debt is not supposed to be the ratepayers' worry, except for one thing: They are the ultimate source of payment.

Puget's directors argue that foreign ownership will be good for customers because the new owners are more eager to invest money in Puget than Americans are. We think Puget has been doing all right with American investors. Less than a year ago, Wall Street bought a block of new Puget shares at $23.67 a share, a price that was supported by Puget's solid, tax-favored dividend.

But Macquarie offers $30. Why, if Puget is such an ugly duck, do the Australians offer a 20-percent premium for it? Macquarie's man at the hearing in Olympia, Christopher Leslie, answered: because Macquarie wants control. The Australian merchant bank, he said, is "not interested in small minority positions in institutions where we have no influence."

For influence over a power company whose customers are all here, an Australian merchant bank is willing to pay a premium of $6 a share for 130 million shares. Do the math: It's a heck of a premium.

This deal is in somebody's interest, big-time. We ask again, publicly, whether Sidran, Oshie and Jones truly believe it is in the interest of people around here.