Is there anything on which the two sides agree?

Yes. For one, both sides agree that Proposition 1, if approved, authorizes but does not require the PUD to get into the public power business.

For another, both sides agree that the hard-nosed valuation work and negotiations that would produce an actual price tag on PSE's power network won't happen unless Proposition 1 is approved and the PUD moves to acquire the network. That process almost always takes the form of a legal condemnation action, and final valuation is determined in court. Not until then will the $40 million gap in valuation estimates - or many other questions - be resolved.

Finally, both sides agree there is a narrow window of opportunity for a new public power utility to secure cheap power. Both Bill Wise of Citizens For and PSE Chief Financial Officer Eric Markell used the term "once in a lifetime" to describe the current opportunity for low-cost hydroelectric power from Bonneville Power Administration (BPA). BPA has set aside 250 megawatts of hydropower for new public utilities, 40 of that reserved for tribes. BPA serves four western states. The first new PUDs that qualify to obtain power will get it on a first-come, first-served basis. Once it is committed it is gone.

How do PSE electrical rates compare to those of public utilities?

PSE charges more for power - 9 cents per kilowatt hour (kWh) - than any public utility except one on Orcas Island. Jefferson County residents pay PSE 30 percent more per kilowatt hour than Sequim residents pay the Clallam County PUD. If local residents paid Clallam County rates they would save $7 million per year, said Bill Wise of Citizens For. He calls that the "PSE tax."

PSE is currently seeking a 9 percent rate hike, which would make the rate more than 10 cents per kWh.

PSE's Chief Operating Officer Bert Valdman said rates fluctuate due to capital structure, and PSE has not always had the highest rates. PSE opponents say PSE, as a private utility, is required to pay shareholders and investors.

What will happen to PSE rates in the future?

They'll go up. How far is a matter of debate. According to PSE, it is investing in new energy generation sources and technology that should hold down the cost of power. PSE's Markell said rates should keep pace with inflation, now between 2 percent and 3 percent per year. According to EES Consulting, PSE has raised its rates an average 4 percent a year since 2002 - twice the national average.

PSE critics say PSE's rates might climb higher. Some of PSE's contracts for hydropower start expiring in 2011. PSE's single largest generating facility is the Colstrip Power Project, a coal-fired plant in eastern Montana. PSE is looking to add natural gas generating plants as well. Prices for coal and natural gas are both volatile and likely to rise. Carbon offset plans will also affect fossil fuel-based supplies.

PSE is also investing in clean power alternatives, notably wind generation, into which PSE has invested $700 million.

On the financial side, PSE is being purchased by the Macquarie Group, a consortium of pension funds from Australia and Canada, through debt. That will increase PSE's debt to more than $4 billion. Debt management could affect rates. A report from merger consultant Morgan Stanley, cited in the D. Hittle study, says PSE expects its rates to rise an average of 11 percent a year between 2009 and 2013.

What must happen for the PUD to take over the electrical network from PSE?

First, voters must approve Proposition 1. Then the PUD Commission would take a formal acquisition vote. That would probably lead to a legal condemnation action. A court would set PSE's price tag. PSE says that the legal process would be lengthy and could cost $3 million. The PUD would probably issue revenue bonds to finance the purchase of PSE's network. The PUD would work with the BPA to qualify as an electrical utility, would build up its staffing and expertise, and would develop a transition plan. The PUD already has an office infrastructure that handles billing and administrative duties, but a large staff would need to be hired.

From where would the PUD obtain power?

The PUD would buy all or most of its power from the BPA. The BPA offers a significant power discount to new public utilities. There is a BPA power substation near Fairmont.

How much would PUD rates be?

Both sides agree that PUD's power rates would rise at first. The rate level must be sufficient both to pay back the revenue bonds issued to purchase the PSE network and to pay for power. During the first three years of operation, the PUD would have to pay a market rate for BPA power - right now, 7 or 8 cents per kilowatt hour (kWh). PSE estimates that PUD rates would go up by 19 percent in the early period, although public power proponents dispute that study.

After three years of operation the PUD would qualify for the low-cost hydroelectric power that BPA has set aside for new public utilities. This power is among the cheapest in the country, generated by long-standing dams and the flow of rivers. BPA provides that Tier 1 power at its own cost to PUDs. Tier 1 power costs about 2 cents per kWh. Public power proponents say rates would fall and that within the first 10 years of public power, county ratepayers would save $50 million. The cost to PUDs for BPA hydropower has risen 2.4 percent per year since 2002.

"The PSE and the PUD rate differential gets bigger each year you move out" from the launch year of public power, said Bill Wise of Citizens For Local Power. PUD provides service at cost, with no profit incentive.

PSE disputes that, saying unforeseen complications and costs could wipe out those projected savings. Purchasing Tier 2 power for the first three years, said UtiliPoint's Bob Bellemare, "could put you in a deep hole."

One part of the financial equation is the ultimate price to be paid for PSE's network. PSE's UtiliPoint study says the price should be more than $100 million. WPUDA's D. Hittle study says the price should be $67 million. The answer, which would be determined by a judge, is probably in between.

Would the PUD have a blank check to do whatever it wanted?

Once voters approve Proposition 1, the PUD has legal authority to proceed with acquisition of PSE's local network. Once the commission decides to move ahead, it would be entitled to launch a condemnation action and issue bonds to fund the legal action and the purchase of assets. The commission cannot raise property taxes beyond the 1 percent ceiling set by state law. The commission could set the rates it needs - it is not regulated by the state UTC. The greatest control over PUD spending, according to Wise, is that commissioners live here and are accountable to the voters.

Karen Waters of Strategies 360 responded that electing commissioners every four years represents "a long gap for a decision" by voters to remove someone from the commission.

What is the risk of a BPA power supply for the PUD?

PSE is now warning voters that the BPA power supply and rates are risky propositions. CFO Eric Markell targeted the BPA at the Sept. 25 forum, saying the BPA may have a riskier future than PSE.

"The future of PSE is not perfectly known, but it is pretty well known" based on long experience, he said. But the PUD would put "its fate in the hands of the BPA." BPA faces retrofitting costs on its older dams and the mothballing of its sole nuclear power plant, the Trojan facility on the Oregon side of the Columbia River near Longview. Other regions will compete for BPA's low-cost power, said PSE - although the three Washington counties, including Jefferson, are the only ones with a current public power initiative on ballots. Still, BPA's prospects and its wholesale cost for power, Markell said, is "far more risky" than the prospects for PSE.

A BPA spokesperson said the agency is confident it will be a reliable source of power.

"There is no question about BPA's ability to provide safe, reliable power to the Pacific Northwest," responded Katie Pruder of BPA. "Specifically with regard to new public utilities, BPA's record of decision on the matter firmly commits our agency to providing 250 average megawatts of power to new public utilities over the 20-year life of the Regional Dialogue Contracts. It is true that costs are rising in general to provide and transmit power, but that is true for all utilities across the country. With regard to system upgrades specifically, we have taken those into account in our budget forecasts, and those costs are already reflected in our rate projections."

What would the PUD acquire from PSE?

PSE owns and operates 40 miles of high-voltage transmission lines and 570 miles of distribution lines in East Jefferson County, according to Bellemare. There are eight substations and other substantial equipment such as transformers, along with household meters.

PSE also has a service yard and office near Four Corners, and it now has a new billing office in downtown Port Townsend in the Waterman & Katz Building.

According to PUD 1 Manager Jim Parker, if the PUD were to acquire PSE's network in this county, he could see using the Four Corners complex as a utility office.

What would be the local economic impact of public power?

This is the question that pro-Proposition 1 advocates most love to answer. Jefferson County electrical ratepayers paid about $30 million to PSE in 2007. A portion of that revenue stays here through the office PSE recently opened in downtown Port Townsend, in maintenance work and upgrades. PSE spent $5 million on a new substation in Chimacum, and a PSE official said another $4 million of improvements is in the pipeline. But PSE's in-county crews are shadows of a full maintenance staff of a decade ago. Most repair work is now subcontracted out to Potelco, an electrical repair contractor with offices in Kitsap County.

A local power utility would employ up to 67 people, according to the D. Hittle study done for WPUDA. Even Citizens For thinks that is a high number, instead expecting in the range of 50 new employees. The locally paid wages for that crew would be between $7 and $10 million per year. Operations would cost $6 million per year.

Why is all this happening now?

In late 2007, the announcement that PSE's board approved selling the company to the Macquarie Group generated a reaction to the prospect of the Northwest's largest private utility coming under foreign ownership. At the same time, the BPA was firming up its proposal to offer new public utilities low-cost hydropower. Grass-roots groups concerned about the sale of PSE formed, and connections were made with the WPUDA. In three counties - Skagit, Island and Jefferson - different forms of public power initiatives were launched.

What is going on with PSE's acquisition by a foreign company?

In late 2007, PSE announced it had entered into a sale and merger agreement with investors led by the Australian-based banking and investment firm called the Macquarie Group. The investors include Australian and Canadian pension fund managers. The agreement was for the group to purchase PSE for $7.4 billion. PSE's Chief Operating Office Bertram Valdman said the company is "delighted to have that interest" from big investors. The deal has already been approved by PSE shareholders, who would be paid $30 per share, and a federal oversight board. However it must still be approved by the state Utilities and Transportation Commission (UTC).

Staff of the UTC and the state attorney general's office initially opposed the merger as risky for ratepayers. Both cited the fact that the merger would be funded with debt, adding $1.6 billion of new debt on top of PSE's existing $2.6 billion of debt, for a debt total of $4.2 billion. PSE "has not shown that it makes sense to burden this company with a dramatic increase in debt and financial risk," said Assistant Attorney General Simon Fitch, "especially at a time when national and international economic conditions are so shaky."

Following weeks of negotiations, in July the UTC staff announced it would now support the merger based on a list of 63 conditions and commitments made by PSE and Macquarie. One of those conditions was to reduce the new debt by $200 million. But the attorney general's office, which was party to the negotiations, refused to sign on, said the shift was negligible, and still opposes the merger as a bad deal for residential and small business ratepayers.

The UTC, a three-member commissioner appointed by the governor, is expected to make a ruling in October or November.

Because it is already a highly leveraged company, Macquarie Group's stock plummeted during the third week of September.

Bill Wise has argued in forums that Macquarie's pending ownership of PSE is a primary reason to switch to public power. If Macquarie's financial troubles expand, he said, the conglomerate could break PSE into smaller pools of assets - water rights, dams, wind power farms, fossil fuel plants - and sell them off. "We end up holding the bag," said Wise. "We end up holding the debt."

PSE officials have countered that such a sell-off is unlikely and that the current PSE management will remain in place.

Isn't this a big job for a little public utility?

There are 22 counties with public power utilities, many in rural counties. The public power movement was launched in the 1920s, often led by farmers and their granges, to bring power to rural counties ignored by private utilities.

Those PUDs have decades of experience and almost universally offer lower power rates than does PSE. Jefferson County would have to hire its help from the outside, a task that PSE representatives say won't be easy. PSE says public power proponents are taking a very optimistic view of all the technical and financial mechanisms working out. "A little mistake can lead to huge costs," said Markell.

PSE Vice President Phil Bussey said voters should take a harder look at the local PUD. "Why vote yes on this without knowing the true cost of acquiring the system, without knowing what the PUD's plan is to operate and maintain the system, and without knowing if the PUD can get BPA Tier 1 power?" he asked. It seems, he said, "like a drastic step" to take with so many unknowns. In contrast, PSE has more than 100 years of experience and a strong record, he said.

Wise, however, said the PUD would get help from the WPUDA and neighboring PUDs that now operate utilities. All three counties with land borders to Jefferson County - Clallam (30,000 electric customers), Mason (36,000 customers) and Grays Harbor (39,000 customers) - have PUDs. Two of them already serve hundreds of Jefferson County households south of Mount Walker or in the West End. "We're just as competent as Mason or Clallam counties," said Wise. "The competence thing is just another scare tactic."

The current Jefferson County PUD has nine employees including Manager Jim Parker. It manages water systems that serve 3,200 people and septic fields that serve 200 people. It is just completing a new $5 million public water system on Marrowstone Island that can serve 800 meters. It has actually reduced its property tax by 10 percent.

Of managing an electric utility, Parker said, "I don't think it's rocket science." It is a delivery utility service that follows the same business path as the PUD's current task of delivering water. In some aspects, water is more complicated than electricity delivery, Parker said, given that it must be chemically treated and most of the delivery network is underground.

The PUD would have to expand dramatically to become a power utility. According the D. Hittle report, which public power proponents think may be on the high side, it would employ 67 new employees and have more than  $30 million in annual revenues. Other predictions say some 50 new employees would be needed.

Parker said that in the short term, the PUD could do the same thing that PSE does - hire contractors from Kitsap County to help maintain the network.
PSE says that is a risky proposition because there is a shortage of qualified linemen. "It's going to be a challenge to recruit people here," said Bellemare. "You're going to be doing a significant amount of outsourcing for the first five years or so." PUD's Parker acknowledged that hiring linemen quickly would be a challenge.

Does the PUD really want to do this?

"We don't care who wins," said PUD Manager Jim Parker. "If it happens it happens, if it doesn't it doesn't." He reminds people that the PUD did not seek Proposition 1. Instead it came from a citizen initiative. That fact makes him smile at PSE's yard signs warning people to "Stop Another Government Takeover."

Parker also noted that approval of Proposition 1 does not mean the PUD will elect to takeover PSE. "It could just be putting up a solar panel or working with the Clallam PUD," he said.

PUD commissioners have not taken public positions on Proposition 1, except to say they will study hard and move slowly. "No one wants the PUD to make a large move," said PUD Commissioner Dana Roberts.