Puget Sound Energy owns the power plants on the Snoqualmie Falls.  Puget Sound Energy generates 42 percent of its electricity from hydroelectric power.

Macquarie Group to Buy Puget

Puget Energy Inc. agreed to be taken private by a Macquarie Group-led consortium in a deal valued at $3.5 billion plus the assumption of $2.6 billion in debt, providing a possible transaction model for other medium-size utilities that are faced with large capital needs but don't have a big equity cushion to tap.

The consortium led by Macquarie Infrastructure Partners, a U.S. fund managed by the big financial-services firm, agreed to pay $30 a share, a 25% premium to Puget's closing price before the announcement. The buyers said they would retain existing management and keep company headquarters in Bellevue, Wash.

Puget Energy, parent of Puget Sound Energy, has about one million customers in Washington state. It said the transaction, if approved, would give the company access to the capital it needs to meet growing energy needs. For the buyers, the transaction gives them a place to invest money over the long term. The utility currently has an authorized return on equity of 10.3%.

Earlier this month, Puget Sound Energy updated its long-term resource plan and said it will need an estimated $14.4 billion in capital to meet rising electricity demand in the next 20 years, or three times as much money as it projected four years ago when it pegged its capital needs at $4.4 billion. Infrastructure costs have been rising rapidly, and Puget has proposed meeting more of its future needs through renewable-power and energy-efficiency programs.

Steve Reynolds, Puget's chief executive, said the "immense capital need" demands a new approach. Mr. Reynolds said he looked ahead and saw the need to invest $5 billion in the next five years and "it wasn't credit access that I was concerned about, but equity," since the company would need to raise equity as it added debt.

Puget got into trouble with regulators following the Western U.S. energy crisis of 2000-2001, when its equity level fell to about 30% of total capital. It issued stock in 2002, 2004 and 2005 to get equity back to the levels required by regulators. But the issuances diluted the value of shares, and the stock has performed more poorly than the stocks of many other utilities.

The deal requires approval from the Washington Utilities and Transportation Commission which, in the past, has required only that buyers prove they will do "no harm" by a merger transaction. In neighboring Oregon, by comparison, the buyers must demonstrate a transaction produces a net benefit for customers.

The buyout group is getting approximately half of its funds from U.S. investors, such as pension funds, investing through Macquarie Infrastructure Partners, and the remainder from Canadian and Australian interests, including participation from Canada Pension Plan Investment Board, British Columbia Investment Management Corp., Alberta Investment Management, Macquarie-FSS Infrastructure Trust and Macquarie Bank Ltd.

In 4 p.m. composite trading Friday on the New York Stock Exchange, Puget shares were up $3.85, or 16%, to $27.80.