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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Plan for public group to buy Avista has major obstacles

As darkness falls, the lighted sign on the Post Street substation glows brighter by the falls in downtown Spokane. The substation building houses machinery for the lower falls generating station. Washington Water Power is the name that Avista Corporation used for more than a century. (Jesse Tinsley / The Spokesman-Review)

The recent denial of a Canadian company’s offer to buy Avista may have added a new spark to a movement for a public-sponsored purchase of the Spokane-based utility.

But people familiar with the energy industry in the Northwest say the scope of any such effort would be unprecedented in recent history and face significant obstacles. No one, not even proponents, could point to an instance in which a public entity has taken over private utility with assets as large as Avista.

The utility announced this week it would ask the Washington Utilities and Transportation Commission to reconsider its decision blocking the proposed sale. In an email Friday, company president Dennis Vermillion argued it has a good track record of providing reliable service at reasonable cost and continued service by Avista is the right thing for customers and their communities.

Proponents of the nascent plan to form either a cooperative or a public utility district – or both – protested Avista’s sale to Ontario-based Hydro One. They had an informational meeting Thursday night and could hold another one in January.

Spokane County Treasurer Rob Chase, one of the chief proponents of a public purchase of Avista, contends that if the utility is willing to be purchased, maybe it should be purchased by its customers. It’s not clear yet whether the attempt would be made through an electric cooperative, similar to Inland Power and Light which serves many suburban and rural locations surrounding Spokane, or a public utility district, which is a special government unit that can provide electricity and other services.

“We’re still kind of in the exploratory stages,” Chase said.

But one thing is certain, he added: “It’s going to be kind of a tough go.”

Among the obstacles:

    Cost. Avista’s sale price in the proposed purchase by Hydro One was $5.3 billion. To finance that amount, any new entity would have to borrow money, either through bond sales or loans from organizations set up to assist public utilities, then add the cost of paying off the debt to their rates.

    Politics. The process of forming a public utility district can be cumbersome if county commissioners don’t support it, and so far Spokane County commissioners don’t. Supporters would have six months to get petitions signed by voters equal to 10 percent of the county turnout in this November’s election. The measure can only go on a general election ballot in an even-numbered year, so 2020 is the earliest that could happen.

    Size. A PUD can only cover a single county, while Avista has operations in Washington, Idaho, Oregon and Montana.

    Scope. A PUD is limited to delivering only select services, primarily electricity, water and telecommunications. It couldn’t operate Avista’s natural gas system or any of the subsidiaries that don’t deal with generating and distributing power.

Creating a PUD is complicated and expensive, Vermillion said, and as a government entity it would be prohibited from supporting community organizations the way Avista does. Most were created years ago, when conditions were different.

“Creation of a new government structure, that disregards the technical complexities of energy delivery and the caliber of people who have built their lives building this 129-year-old company, might be short-sighted,” he said.

Jim Lee, of the Citizens Institute for Public Policy, said the hurdles for a PUD are so large it might make more sense to first form a cooperative to raise the money to purchase Avista. Cooperatives are more flexible, he said, and could apply for loans from the nonprofit Cooperative Finance Corporation or sell bonds.

A cooperative in Washington also would have eminent domain rights that would allow it to acquire Avista by condemnation if the utility didn’t want to sell.

If an agreement to buy the company were reached, the cooperative could then sell off any subsidiaries not tied to the utility business to pay down debt, Lee said. Voters in Spokane and other counties now served by Avista could then set up a PUD to control electric service in their areas.

But most cooperatives also were formed decades ago for areas where service was lacking, and there’s never been a takeover of this magnitude by a new cooperative, said Kent Lopez, general manager of the Washington Rural Electric Cooperative Association.

“It’s been a real long time since an electric cooperative has been put together,” Lopez said.

The Anchorage municipal electric utility is being sold to a nearby electric cooperative after the transaction was approved by voters this year, but those are much smaller utilities and both are established entities, Lopez said.

On its website, the institute calls for a resolution to “convert” Avista to a cooperative or a PUD rather than sell it to Hydro One, but a fact sheet it mentions for that resolution isn’t yet available.

Interest in public control of Avista crosses political lines, Chase said, from libertarians like himself to progressives at the institute.

But to have any chance, they’ll have to convince a large swath of voters in the middle that they’d get better service, cheaper rates, or both, if they went through what could be a long, contentious and expensive process of setting up a PUD. There’s no road map to follow.

“There’s nothing that’s ever been attempted on this scale,” said Randy Hardy, the former Bonneville Power administrator, who now operates an energy consulting firm in Seattle.

While supporters point to several public takeovers of private utility service, they don’t involve the creation of a new entity that takes over a full investor-owned utility.

In the early 2000s, residents of Jefferson County were unhappy with rising electric rates. A citizen’s group approached the Jefferson PUD, which at the time was a water and sewer utility, to take over local electric service from Puget Sound Energy. Voters approved a proposition in 2008 and after two years of negotiations, purchased the local electrical distribution system for $103 million from PSE. That didn’t include any power plants because the PUD bought power from BPA, which gives the districts first preference for electricity from the federal dams.

Jefferson PUD had several advantages that made the purchase work, the utility said on its website: It was at the end of PSE service area where the utility was already contracting out some work, and the district was able to borrow money from a federal program when interest rates were at an all-time low.

In 1970, residents of Lane County, Oregon, began talking about forming a public utility because of high rates from their investor-owned utility, Pacific Power and Light. It took some 13 years, and 14 lawsuits, before the Emerald PUD, formed by a vote in 1978 and given authority to sell bonds in 1981, negotiated a sale price and became a utility in 1983.

In 1951, the city of Seattle’s municipal electric utility took over the electrical distribution inside the city limits from Puget Power, the forerunner of Puget Sound Energy. Electrical service had been installed neighborhood by neighborhood in Seattle by private companies beginning at the end of the 19th century, an article by Walt Crowley on HistoryLink notes, sometimes tied to trolley service. Competition started in the early 1900s from a city utility which started building dams for electricity for street lights. After decades of fights in the Legislature and at the ballot box, Seattle City Light won an election that allowed it to take over distribution within the city limits and Puget Power concentrated on the suburbs.

The last PUD formed in Washington was in 1984, in Asotin County, in response to high rates from a privately owned water system in Clarkston, the district explained on its website. After voters approved the district, it went through more than two years of court proceedings for condemnation to obtain the water system. In 1994 it purchased some underground electrical distribution lines and contracted with BPA for a golf course, which is its only electric customer.

“It’s very difficult at this time to form PUDs,” said George Caan, executive director of the state PUD association. “Most of them were formed in the 1930s and 1940s.”

At that time, some parts of the country, especially in rural areas, didn’t have electric service, Caan said.

“I don’t think you can go anywhere in the state of Washington and find electricity isn’t available,” he said. More recent PUD formations have revolved around cost and reliability of service.

To form an entity to turn Avista into a publicly controlled utility, supporters would have to show that the cost of borrowing money to buy up the 129-year-old company and the subsequent restructuring to deliver service through the cooperative or a PUD would mean lower rates, better service or both.

The Washington Utilities and Transportation Commission, which turned down the proposed purchase by Hydro One as not being in the best interests of Avista customers, also would have to approve the deal.