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Privatization of Puget Sound Delayed Until 2009

The $7.4 billion bid by a consortium of investment groups to take Puget Sound Energy (PSE) private will not close before early next year, according to a Securities and Exchange Commission (SEC) filing last Thursday by PSE parent Puget Energy. PSE is awaiting a decision from Washington state regulators, who were expected to act by now.

All federal and shareholder approvals have been obtained, so the focus is entirely on the state.

Puget Energy said in its SEC filing that its consortium of long-term infrastructure investors, Public Holdings LLC, has committed equity and debt financing in place to complete the merger and to provide "significant capital" for PSE's future needs.

"A merger proposal in Washington state has no statutory time deadline by which the [state regulators] are required to make a decision," the SEC filing said. "[C]onsidering the number of business days remaining in 2008, the merger transaction is now not expected to close this year. The merger agreement provides that the parties close 15 business days after all closing conditions have been met, including approval from Washington" state regulators.

As part of a power plant purchase announcement last Monday, a PSE spokesperson said there was no current indication of when the Washington Utilities and Transportation Commission (WUTC) would act on the deal. In July PSE and its new backers reached a settlement with major stakeholders in the case.

The consortium is headed by a North American unit of Australia's Macquarie Capital Group.

In addition to the global credit crunch, PSE is faced with overcoming the Washington Public Counsel Section in its Attorney General's Office recommendation that state regulators reject its settlement on the merger. PSE and its would-be owners responded aggressively last August, attempting to keep the deal on track.

The Public Counsel filed Aug. 5 with Washington regulators contending that the proposed settlement does not adequately answer all public interest concerns. Meanwhile, the WUTC held hearings on the question of whether the proposed merger would cause utility consumers harm. Final briefs in the case were filed in September.

PSE and the consortium have alleged that the state counsel was "undervaluing" recent modifications that were made in the original merger proposal. They reiterated that the state unit was the only opponent of the settlement. The state counsel's opposition is based on "flawed arguments," PSE and its partners argued.

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