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UPDATE: PSE says takeover could cost $130 million

Let the numbers game begin.

Puget Sound Energy released a study by the consulting firm UtiliPoint International that says a proposed takeover of PSE’s electric utility business on Whidbey Island would cost residents of Whidbey Island more than $130 million and lead to an average of 20 percent higher electric rates.

In no time, backers of a Whidbey-based public utility district fired back, saying that the study is nothing but a scare tactic by the utility. The group also said the takeover cost is a high estimate.

But PSE’s consultant maintains that his estimate is realistic.

“The price tag, I find, is no scare tactic. It’s on the lower end. It’s actually conservative,” said Bob Bellemare, CEO of UtiliPoint, who authored the report.

PSE’s consultant said he reviewed the utilities inventory, dollar figures from comparable transactions, standard valuation in condemnation processes and more. And he has come to the conclusion that a potential public utility district and takeover of PSE’s electric system on the island “is an inefficient use of public monies.”

“Creating a new public utility from scratch does not make economic sense for the residents of Island County in this day and age,” Bellemare said.

The total of $130 million consists of $85 million for distribution infrastructure such as poles and lines, $3 million to $5 million for legal costs and the condemnation process, and roughly $10 million for the start-up of a public utility district, including a billing system, staff and offices.

But it doesn’t include compensation for severance and damages from stranded cost, which are long-term investments by PSE into the local system. It does not include the costs for PSE’s 10 substations or transmission system — the 115 kilovolt transmission lines that serve the Island -— or other forms of compensation that may be owed PSE.

Bellemare said including those factors would make the total takeover number skyrocket.

Ed Jenkins, a spokesman for “People For Yes On Whidbey PUD,” called the study irrelevant and immaterial.

“How much value does this study have aside from hopefully scaring you? Nothing at all,” Jenkins said, adding that the study is part of PSE’s public relations campaign against the local public utilities district.

Jenkins offered his comments before the study was released by PSE.

PUD backers have not released any numbers that reflect their estimates of how much it will cost to take over.

A few weeks ago, they announced their estimate that a property tax increase of about 2 to 4 cents would be sufficient to set up a new district and then they would finance the PUD with low-cost bonds until more revenue is generated.

Most recently, they said the courts would determine takeover costs.

The ballot measure slated for the Nov. 4 general election will ask the residents of Whidbey Island to form a PUD. Supporters say it will help lower rates and provide more local control.

If approved by voters, three PUD commissioners would be elected with the authorization to form a local utilities district, and potentially condemn PSE’s electric system. The board would also have the authority to finance the takeover with revenue bonds without an additional public vote.

PSE and Bellemare warn that voters should thoroughly research the PUD before voting for it, because the PUD commissioners would get significant power of local checkbooks.

“It doesn’t really tell you what you are voting for,” Bellemare said.

The reason why supporters started the push for independent power was dissatisfaction with PSE’s service.

PSE officials, however, said that they work hard to provide service to islanders.

“For decades PSE has been a valued member of the community in providing electric service to the residents of Whidbey Island,” said Sue McLain, senior vice president of operations for PSE.

“Our team is committed to continually improving our service. We respect the community’s right to research how critical services are provided.”

Jenkins said that’s not what he has experienced. He said response to power outages has been substandard, rates are high, and if the utility is sold to an international consortium, services will only get worse and more expensive.

“Additionally, PSE is spending money like a drunken sailor to try to convince us that they are relevant here and to drive up costs,” he said.

Local control would give Whidbey Island residents more input and lower rates long-term, and in fact many public utility districts offer lower rates, Jenkins said.

McClain said a public utilities district wouldn’t necessarily fix the problem.

“A government takeover is not the answer to lowering rates or improving service,” she said. “PSE has the employees, experience, economies of scale and regulatory oversight from the Washington Utilities and Transportation Commission to provide the reasonable rates and level of quality service our customers’ desire.”

Bellemare said the UtiliPoint model, which is based on a conservative set of assumptions, shows that a takeover will cost a minimum of $130 million and likely result in negative cash flow that would increase costs to customers.

The model also shows a “best-case scenario” where a Whidbey PUD creation and takeover would likely result in a minimum of 20-percent electric rate increase, he said.

PSE officials also warn that it will take years before Whidbey Island would have power provided by its PUD.

The report by UtiliPoint is available on www.PSE.com.

Michaela Marx Wheatley can be reached at 221-5300 or mmarxwheatley@southwhidbeyrecord.com.

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