<PAGE>
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
-----------------------------
Commission File Number 1-4393
-----------------------------
PUGET SOUND POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Washington 91-0374630
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
411 - 108th Avenue N.E., Bellevue, Washington 98004-5515
(Address of principal executive offices)
(206) 454-6363
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file for such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares of registrant's common stock outstanding at June 30,
1994 was 63,629,416.
===========================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Puget Sound Power & Light Company
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30
1994 1993
------- -------
(Unaudited)
(Thousands except shares
and per share amounts)
OPERATING REVENUES $263,612 $237,617
------- -------
OPERATING EXPENSES:
Operation:
Purchased and interchanged power 86,494 68,340
Fuel 8,786 6,597
Other 53,826 43,842
Maintenance 13,744 13,802
Depreciation and amortization 30,230 27,738
Taxes other than federal income taxes 24,512 23,123
Federal income taxes 10,441 11,136
------- -------
Total operating expenses 228,033 194,578
------- -------
OPERATING INCOME 35,579 43,039
------- -------
OTHER INCOME:
Allowance for funds used during construction -
equity portion 152 493
Miscellaneous - net of taxes 3,189 4,121
------- -------
Total other income 3,341 4,614
------- -------
INCOME BEFORE INTEREST CHARGES 38,920 47,653
------- -------
INTEREST CHARGES
Interest and amortization on long-term debt 20,881 21,518
Allowance for funds used during
construction - debt portion (888) (772)
Other 1,155 694
------- -------
Total interest charges 21,148 21,440
------- -------
NET INCOME 17,772 26,213
DEDUCT: ------- -------
Preferred stock dividend accrual 3,980 4,286
------- -------
INCOME FOR COMMON STOCK $ 13,792 $ 21,927
======= =======
COMMON SHARES OUTSTANDING -
WEIGHTED AVERAGE 63,629,416 59,138,460
EARNINGS PER COMMON SHARE (Note a) $0.22 $0.37
DIVIDENDS PAID PER COMMON SHARE $0.46 $0.46
<PAGE>
Puget Sound Power & Light Company
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30
1994 1993
------- -------
(Unaudited)
(Thousands except shares
and per share amounts)
OPERATING REVENUES $592,834 $561,591
------- -------
OPERATING EXPENSES:
Operation:
Purchased and interchanged power 186,224 148,894
Fuel 21,080 28,665
Other 106,104 89,237
Maintenance 25,102 24,694
Depreciation and amortization 60,105 58,577
Taxes other than federal income taxes 54,045 52,521
Federal income taxes 40,704 43,042
------- -------
Total operating expenses 493,364 445,630
------- -------
OPERATING INCOME 99,470 115,961
------- -------
OTHER INCOME:
Allowance for funds used during construction -
equity portion 192 923
Miscellaneous - net of taxes 7,031 7,408
------- -------
Total other income 7,223 8,331
------- -------
INCOME BEFORE INTEREST CHARGES 106,693 124,292
------- -------
INTEREST CHARGES:
Interest and amortization on long-term debt 41,737 43,456
Allowance for funds used during
construction - debt portion (1,611) (1,463)
Other 2,267 1,403
------- -------
Total interest charges 42,393 43,396
------- -------
NET INCOME 64,300 80,896
------- -------
DEDUCT:
Preferred stock dividend accrual 7,808 8,626
------- -------
INCOME FOR COMMON STOCK $ 56,492 $ 72,270
======= =======
COMMON SHARES OUTSTANDING -
WEIGHTED AVERAGE 63,629,416 58,952,475
EARNINGS PER COMMON SHARE (Note a) $0.89 $1.23
DIVIDENDS PAID PER COMMON SHARE $0.92 $0.91
<PAGE>
Puget Sound Power & Light Company
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1994 1993
--------- ---------
(Unaudited)
(Thousands of Dollars)
UTILITY PLANT:
Electric Plant, at original cost (including
construction work in progress of $100,700,000
and $97,932,000, respectively) $3,188,022 3,134,747
Less: Accumulated depreciation 1,020,879 981,535
--------- ---------
Net utility plant 2,167,143 2,153,212
--------- ---------
OTHER PROPERTY AND INVESTMENTS:
Investment in Bonneville Exchange Power
Contract (Note b) 104,701 108,002
Investment in terminated generating projects 4,267 12,612
Investments in and advances to subsidiaries 68,192 90,423
Energy conservation loans to customers 1,734 2,284
Other investments, at cost 16,342 15,960
--------- ---------
Total other property and investments 195,236 229,281
--------- ---------
CURRENT ASSETS:
Cash 6,270 3,445
Accounts receivable 96,753 90,863
Estimated unbilled revenue 46,700 89,266
PRAM accrued revenues 41,183 37,212
Materials and supplies, at average cost 54,120 52,383
Prepayments and Other 5,093 5,185
--------- ---------
Total current assets 250,119 278,354
--------- ---------
LONG-TERM ASSETS:
Regulatory asset - SFAS No. 109 273,533 280,639
Unamortized energy conservation charges (Note c) 240,153 231,331
PRAM accrued revenues (net of current portion) 59,328 47,795
Unamortized debt expense 8,512 8,550
Other 115,634 111,968
--------- ---------
Total long-term assets 697,160 680,283
--------- ---------
TOTAL ASSETS $3,309,658 $3,341,130
========= =========
<PAGE>
Puget Sound Power & Light Company
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
June 30 December 31
1994 1993
--------- ---------
(Unaudited)
(Thousands of Dollars)
CAPITALIZATION:
Shareholders' investment:
Common stock, $10 stated value, 80,000,000
shares authorized, 63,629,416 shares
outstanding $ 636,294 $ 636,294
Additional paid-in capital 328,622 329,922
Earnings reinvested in the business 218,212 220,259
--------- ---------
Total common equity 1,183,128 1,186,475
Preferred stock not subject to
mandatory redemption 125,000 115,000
Preferred stock subject to
mandatory redemption 91,267 93,176
Long-term debt 1,071,235 1,036,079
--------- ---------
Total capitalization 2,470,630 2,430,730
--------- ---------
CURRENT LIABILITIES
Accounts payable 46,584 53,449
Short-term debt 94,308 149,306
Current maturities of long-term debt 8,000 23,000
Accrued expenses:
Taxes 34,663 39,124
Salaries and wages 24,882 26,289
Interest 24,853 23,832
Other 23,037 22,216
--------- ---------
Total current liabilities 256,327 337,216
--------- ---------
DEFERRED TAXES:
Deferred income taxes 530,937 528,665
Deferred investment tax credits 933 1,142
--------- ---------
Total deferred taxes 531,870 529,807
--------- ---------
OTHER DEFERRED CREDITS:
Customer advances for construction 20,723 19,131
Other 30,108 24,246
--------- ---------
Total other deferred credits 50,831 43,377
ACCUMULATED PROVISION FOR SELF-INSURANCE -- --
CONTINGENCIES -- --
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $3,309,658 $3,341,130
========= =========
<PAGE>
Puget Sound Power & Light Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30
1994 1993
------- -------
(Unaudited)
(Thousands of Dollars)
OPERATING ACTIVITIES:
- --------------------
Net income $ 64,300 $ 80,896
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 60,105 58,577
Deferred income taxes and tax credits - net 9,170 21,271
AFUDC - equity portion (192) (923)
PRAM accrued revenues - net (15,504) (39,058)
Other 21,003 (5,466)
Change in certain current assets
and liabilities (Note d) 24,139 47,381
- -------------------------------------------------------------------------
Net Cash Provided by Operating Activities 163,021 162,678
- -------------------------------------------------------------------------
INVESTING ACTIVITIES:
- --------------------
Construction expenditures - excluding equity AFUDC (67,109) (72,591)
Additions to energy conservation program (22,188) (32,390)
Decrease in energy conservation loans 550 901
Cash received from subsidiary 30,136 --
Other (including advances to subsidiaries) (6,433) (1,493)
- -------------------------------------------------------------------------
Net Cash Used by Investing Activities (65,044) (105,573)
- -------------------------------------------------------------------------
FINANCING ACTIVITIES:
- --------------------
Decrease in short-term debt (54,998) (8,250)
Dividends paid (net of newly issued shares
totaling $12,584,000 in 1993) (66,346) (49,444)
Issuance of common stock -- 7,921
Issuance of preferred stock 50,000 --
Issuance of bonds 85,000 93,460
Redemption of bonds and notes (65,005) (216,048)
Redemption of preferred stock (41,849) (606)
Issue costs of bonds and stock (1,954) (1,175)
- -------------------------------------------------------------------------
Net Cash Used by Financing Activities (95,152) (174,142)
- -------------------------------------------------------------------------
Increase (Decrease) in Cash 2,825 (117,037)
Cash at Beginning of Period 3,445 121,106
- -------------------------------------------------------------------------
Cash at End of Period $ 6,270 $ 4,069
=========================================================================
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(a) Earnings Per Common Share
Earnings per common share for the three and six months ended June 30, 1994
and 1993 have been computed by dividing income for common stock by the
weighted average number of common shares outstanding.
(b) Investment in Bonneville Exchange Power Contract
The Company has a five percent interest, as a tenant in common with three
other investor-owned utilities and Washington Public Power Supply System
("WPPSS"), in the WPPSS Unit 3 project. The Unit 3 project is a partially
constructed 1,240,000 kilowatt nuclear generating plant at Satsop,
Washington, which was in a state of extended construction delay instituted
by the Bonneville Power Administration ("BPA") and WPPSS in 1983. Unit 3
was recently terminated by WPPSS and the other owners. Under the terms of a
settlement agreement (the "Settlement Agreement"), which includes a
Settlement Exchange Agreement ("Bonneville Exchange Power Contract") between
the Company and BPA dated September 17, 1985, the Company is receiving
electric power (the "Bonneville Exchange Power") from the federal power
system resources marketed by the BPA for a period of approximately 30.5
years which commenced January 1, 1987. The Settlement Agreement settled the
claims of the Company against WPPSS and BPA relating to the construction
delay of the WPPSS Unit 3 project.
In its general rate order issued on January 17, 1990, the Washington
Utilities and Transportation Commission (the "Washington Commission") found
that all WPPSS Unit 3/Bonneville Exchange Power costs had been prudently
incurred. Under terms of the order, approximately two-thirds or $97 million
of the investment in Bonneville Exchange Power is included in rate base and
amortized on a straight-line basis over the remaining life of the Bonneville
Exchange Power Contract (amortization is included in "Purchased and
interchanged power"). The remainder of the Company's investment is being
recovered in rates over ten years, without a return during the recovery
period. Beginning in 1990, the related amortization is included in
"Depreciation and amortization," pursuant to a Federal Energy Regulatory
Commission ("FERC") accounting directive.
Statement of Financial Accounting Standards No. 90 ("Statement No. 90")
requires that amounts recoverable through rates be adjusted to their present
value using a discount rate as specified in Statement No. 90. In the fourth
quarter of 1989, the Company adjusted its investment account downward by
$21.2 million. The impact of the adjustment on net income, net of the $7.2
million deferred tax benefit, was approximately $14 million. The discount
to present value in 1989 is being amortized to other income over the ten-
year recovery period.
Several issues in the litigation relating to WPPSS Unit 3, including claims
on behalf of WPPSS Unit 5 against the Company and the other Unit 3 owners
seeking recovery of certain common costs, have not been settled by the
Settlement Agreement. The claims with respect to WPPSS Unit 3 and Unit 5
common costs, made in the United States District Court for the Western
District of Washington, arise out of the fact that Unit 3 and Unit 5, which
was also terminated prior to completion, were being constructed adjacent to
each other and were planned to share certain costs. In 1989, the Company
and other parties submitted arguments and affidavits to the United States
District Court, in response to an order of the court, on the proper basis or
bases upon which costs should have been allocated between Unit 3 and Unit 5
under the WPPSS Unit 4 and 5 Bond Resolution. On October 5, 1990, the
District Court ruled that certain cost allocations between Unit 3 and Unit 5
(and between WPPSS Unit 1 and Unit 4) were improper. The District Court
determined that principles of incremental cost sharing were not applied and,
as a result, Units 4 and Unit 5 apparently bore more than their fair and
equitable share of construction costs. The District Court granted the
motion by the trustee for WPPSS Unit 4 and Unit 5 bondholders for an
accounting of all uses of WPPSS Unit 4 and Unit 5 bond proceeds to
determine, among other things, the extent of improper allocation of such
costs. In January 1991, the United States Court of Appeals for the Ninth
Circuit granted the Company and others permission to appeal on an
interlocutory basis from the District Court's orders. In February 1992, the
Court of Appeals ruled on the District Court's October 5, 1990 order and
held that principles of incremental cost sharing were not required and
remanded the matter to the District Court for further proceedings. The
ultimate resolution of these issues is not expected to have a material
adverse impact on the financial condition or operations of the Company.
(c) Unamortized Conservation Costs
The Company's conservation expenditures are accumulated, included in rate
base and amortized over a ten-year period at the direction of the Washington
Commission. The Company's total unamortized conservation balance at June
30, 1994 was $240 million. The amount included in rate base by the
Washington Commission in its September 1993 order, based on expenditures
through April 30, 1993, was $201 million. Conservation investments made
from May 1, 1993 to April 30, 1994 are expected to be included in rates
beginning October 1, 1994. In its April 1991 rate order, the Washington
Commission authorized the Company to accrue, as non-cash income, the
carrying costs on conservation investments (Allowance for Funds Used to
Conserve Energy, or AFUCE) until such investments are included in rates.
(d) Consolidated Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all temporary investments to be cash equivalents. These
temporary cash investments are securities held for cash management
purposes, having maturities of three months or less at time of purchase.
The net change in current assets and current liabilities for purposes of
the Statement of Cash Flows excludes short-term debt, current maturities
of long-term debt, and the current portion of the Periodic Rate
Adjustment Mechanism ("PRAM") accrued revenues.
The following provides additional information concerning cash flow
activities:
<PAGE>
Six Months Ended June 30 1994 1993
- -------------------------------------------------------------------------
(Thousands)
Changes in current assets and current liabilities:
Accounts receivable $(5,890) $ 4,334
Unbilled revenues 42,566 40,357
Materials and supplies (1,737) (4,137)
Prepayments and Other 91 7,185
Accounts payable (6,865) (5,065)
Accrued expenses and Other (4,026) 4,707
- -------------------------------------------------------------------------
Net change in current assets and current liabilities $24,139 $47,381
=========================================================================
Cash payments:
Interest (net of capitalized interest): $40,915 $38,282
Income taxes $35,000 $ 9,816
- -------------------------------------------------------------------------
(e) Other
The Company's September 21, 1993 general rate order required the Company to
file a case by November 1, 1993, demonstrating the prudency of its eight new
power purchase contracts acquired since its last general rate case. Pending
the resolution of the prudency review case, the Washington Commission
ordered that the Company's new rates, effective October 1, 1993, would be
collected subject to refund to the extent this proceeding demonstrates any
of those contracts to be imprudent. The Washington Commission calculated
the annual revenue requirement at risk to be up to $86.1 million. This
amount is the difference between the Company's power costs under the new
power purchase contracts and the Washington Commission's estimated cost of
purchasing equivalent power on the secondary market. Revenues reported for
the three months ended June 30 1994, which are at risk under the prudency
review case, are approximately $26.3 million. Revenues reported since the
Commission's order was effective October 1, 1993, which are at risk, are
approximately $71.8 million.
On May 4, 1994, Commission Staff, the Public Counsel section of the State
Attorney General's Office, and a group of industrial customers filed
testimony in the Company's prudence review addressing the eight contracts
initially subject to review plus an additional contract for a resource that
went into operation on April 8, 1994. The testimony filed by the industrial
customer group does not recommend any rate reduction or refund.
Commission Staff's testimony recommended that beginning October 1, 1994, the
Company's rates be reduced by $22.6 million, and that the Company be directed
to refund $12.8 million (which is the estimated amount expected to be
collected in rates through September 30, 1994) associated with three
purchased power contracts. Public Counsel's testimony recommended a $43.2
million rate reduction effective October 1, 1994, and that the Company be
directed to refund $35.4 million.
On June 3, 1994, the Commission Staff filed revised testimony reducing its
recommended disallowance. Commission Staff's revised testimony now
recommends that beginning October 1, 1994, the Company's rates be reduced by
$9.9 million and that the Company be directed to refund $3.7 million. Public
Counsel also filed revised testimony reducing its recommended disallowance on
June 6, 1994. Public Counsel's testimony now recommends a $39.7 million rate
reduction effective October 1, 1994 and that the Company be directed to
refund $33.8 million. The disallowances proposed by Commission Staff and
Public Counsel would continue throughout the term of the respective power
contracts which have remaining terms of 14 to 20 years. The Public Counsel's
recommended disallowance would, over the lives of the contracts, equal $1.2
billion, while the Commission Staff's disallowance would equal $215 million.
Based on the nature and terms of the contracts and existing regulatory
precedents, management believes that these power purchase contracts were
prudent, and that on those grounds the recommendations of Commission Staff
and Public Counsel are not supportable. The contracts were acquired pursuant
to the Company's integrated resource plan and all of the generating projects
whose output is being purchased are completed, operational, and performing in
accordance with the contracts. The ultimate resolution of this prudence
review is subject to the determination of the Commission.
The Company filed its rebuttal case on July 1, 1994. Hearings on the
opposing parties' cases as well as on the Company's rebuttal case occurred
during the week of August 1, 1994. The Commission is expected to issue its
decision in September, to be effective as of October 1, 1994.
On May 27, 1994, the Company filed for a $66.7 million increase in rates
under the Washington Commission's Periodic Rate Adjustment Mechanism (PRAM).
On July 12, 1994, the Company filed a revised PRAM request reducing the
adjustment to $60.3 million. The increase would be effective during the
period from October 1, 1994 through September 30, 1995.
Approximately $35 million of the $66.7 million request covers costs related
to energy conservation programs and a new long-term contract for cogeneration
power, at a facility which became operational this past spring. The
remainder is due to the diminished availability of hydroelectric power,
revised load growth projections and increased customer growth. $31.6 million
was included in the May 27, 1994 PRAM filing in addition to the $66.7 million
request for Commission review, but it would not be collected until the 1995-
96 PRAM period, October 1, 1995 through September 30, 1996. The Washington
Commission is expected to rule on the PRAM filing by late September 1994.
The decrease in allowed return on equity from 12.8 percent in the last
general rate case to 10.5 percent approved in the present rate case has put
downward pressure on earnings since the order became effective on October 1,
1993. In addition, it will be difficult for the Company to earn its full
allowed rate of return because of changes made by the rate orders in the
recovery methods of certain costs. Therefore, the Company continues to
place strong emphasis on its ongoing improvement efforts designed to
increase operating efficiencies.
In the first quarter of 1994, the Company offered to 650 manager-level and
eligible professional staff the opportunity to voluntarily leave or, if
eligible, to retire from the Company. The offer was accepted by 98
employees in March 1994. A charge of $6.9 million ($4.5 million or 7 cents
a share after-tax) was taken in the first quarter to reflect costs
associated with this program and is included in other operating expenses.
During the second quarter, 155 Company employees, including 131 bargaining
unit employees, elected to accept a second voluntary retirement package
offered by the Company. A charge of $9.6 million ($6.2 million or 10 cents
a share after-tax) was taken in the second quarter to reflect costs
associated with this program and is included in other operating expenses.
As a regulated electric utility, the Company's financial condition is
largely dependent on continued cost-recovery regulation by the Washington
Commission. Adverse action by the Washington Commission in regulatory
matters involving the Company, including the pending prudency review case,
could adversely impact the Company's financial condition and threaten its
ability to maintain the dividend on its common stock at current levels.
The financial statements contained in this Form 10-Q are unaudited; however,
in the opinion of the Company, they include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair statement of the
results of operations for the periods shown.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income for the three months ended June 30, 1994, was $17.8 million on
operating revenues of $263.6 million, compared with net income of $26.2
million on operating revenues of $237.6 million for the same period in 1993.
Income for common stock was $13.8 million for the second quarter of 1994 and
$21.9 million for the second quarter of 1993. Earnings per common share were
$0.22 based on 63.6 million weighted average common shares outstanding for
the second quarter of 1994, compared to $0.37 based on 59.1 million weighted
average common shares outstanding for the same period in 1993.
For the first six months of 1994, net income was $64.3 million on operating
revenues of $592.8 million, compared with net income of $80.9 million on
operating revenues of $561.6 million for the corresponding period in 1993.
Income for common stock was $56.5 million for the first half of 1994 and
$72.3 million for the same period in 1993. Earnings per common share were
$0.89 for the six months ended June 30, 1994 based on 63.6 million weighted
average common shares outstanding and $1.23 for the same period in 1993 based
on 59.0 million weighted average common shares.
The decline in net income for the three and six month periods reflects non-
recurring after-tax charges of $6.2 million and $10.6 million, respectively,
associated with the Company's two voluntary early retirement and separation
programs offered during 1994. These charges, recorded in other operating
expenses, represent decreases in earnings per common share of $0.10 and $0.17
for the second quarter and first half of 1994, respectively.
Total kilowatt-hour sales were 5.1 billion, including 0.9 billion in sales to
other utilities, for the second quarter of 1994, compared to 4.5 billion,
including 0.2 billion in sales to other utilities, for the second quarter of
1993. For the six month periods ended June 30, 1994 and 1993, total kilowatt-
hour sales were 10.8 billion, including 1.2 billion in sales to other
utilities, and 9.9 billion, including 0.3 billion in sales to other
utilities, respectively.
The Company's operating revenues and associated expenses are not generated
evenly during the year. Variations in energy usage by consumers do occur
from season to season and from month to month within a season, primarily as a
result of weather conditions. The Company normally experiences its highest
energy sales in the first and fourth quarters of the year. Sales to other
utilities also vary by quarter and year depending principally upon water
conditions for the generation of hydroelectric power, customer usage and the
energy requirements of other utilities. With the implementation of the PRAM
in October 1991, earnings are no longer significantly influenced, up or down,
by sales of surplus electricity to other utilities or by weather or hydro
conditions.
Preferred stock dividends decreased $0.3 million and $0.8 million for the
three and six month periods ended June 30, 1994, respectively, compared to
the same periods in 1993. Decreases due to the redemptions of the $50
million, Flexible Dutch Auction Rate Transferable Securities (FLEX DARTS)
$100 Par Value Preferred Stock, Series B in July 1993 and the $40 million,
Adjustable Rate Cumulative Preferred Stock, Series A ($100 par value) in
February 1994 were partially offset by the issuance in February 1994 of the
$50 million, Adjustable Rate Cumulative Preferred Stock, Series B ($25 par
value).
<PAGE>
Comparative Periods Ended
--------------------------
June 30, 1994 vs. June 30, 1993
-------------------------------
Increase (Decrease)
-------------------
Three Six
Month Month
Periods Periods
------- -------
(In Millions)
Operating revenue changes
General Rate Increase $ 5.7 $23.9
PRAM surcharge billed 5.0 9.5
Accrual of Revenue under the PRAM - Net (1.1) (23.6)
BPA Residential Purchase & Sale Agreement 2.5 6.6
Sales to other utilities 13.9 19.9
Load and other changes 0.0 (5.1)
---- ----
Total operating revenue changes 26.0 31.2
Operating expense changes
Purchased & interchanged power 18.2 37.3
Fuel 2.2 (7.6)
Other operation expenses 10.0 16.9
Maintenance (0.1) 0.4
Depreciation and amortization 2.5 1.5
Taxes other than federal income taxes 1.4 1.5
Federal income taxes (0.7) (2.3)
---- ----
Total operating expense changes 33.5 47.7
Allowance for funds used during construction ("AFUDC") (0.2) (0.6)
Other income (0.9) (0.4)
Interest charges excluding AFUDC (0.2) (0.9)
---- ----
NET INCOME CHANGES $(8.4) $(16.6)
==== =====
The following is additional information pertaining to the changes outlined
in the above table.
Operating revenues
Revenues since October 1, 1993 increased as a result of rates authorized
by the Washington Commission in its general rate and PRAM orders issued on
September 21, 1993. See discussion of the general rate order and Periodic
Rate Adjustment Mechanism in "Other.").
Revenues in 1994 and 1993 were reduced because of the credit that the
Company received through the Residential Purchase and Sale Agreement with
the BPA. These credits, in the second quarter and first half of 1994,
were smaller by $2.5 million and $6.6 million, respectively, compared to
the same periods in 1993. This agreement enables the Company's
residential and small farm customers to receive the benefits of lower-cost
federal power. A corresponding reduction is included in purchased and
interchanged power expenses.
Revenues from kilowatt-hour sales, excluding PRAM, were slightly lower in
the first half of 1994 as compared to the same period in 1993 due to
warmer than normal temperatures in the first three months of 1994.
Operating expenses
Purchased and interchanged power expenses increased $18.2 million for the
second quarter of 1994 and $37.3 million for the first half of 1994
compared to the same periods in 1993. Higher levels of purchased power,
which contributed increases of $15.9 million and $31.2 million, were
influenced by new firm power purchase contracts from PURPA (Public Utility
Regulatory Policies Act) qualifying facilities. Also contributing to the
increases were reductions in credits associated with the Residential
Purchase and Sale Agreement with BPA of $2.3 million and $6.2 million for
the three and six month periods. (See discussion of Residential Purchase
and Sale Agreement in "Operating revenues.")
Fuel expense increased $2.2 million for the three month comparative period
and decreased $7.6 million for the six month comparative period. In the
first quarter of 1994 the Company purchased additional power from
cogeneration facilities rather than run Company-owned gas turbines to
generate electricity.
Other operating expenses increased $10.0 million and $16.9 million for the
three and six month comparative periods, respectively. The increases were
due primarily to non-recurring charges of $9.6 million and $16.3 million,
for the comparative periods, to reflect costs associated with the
Company's two voluntary early retirement and separation programs offered
in 1994. Additional increases of $1.1 million and $2.2 million in
amortization expense associated with the Company's conservation program
for the three and six month comparative periods, respectively, were offset
by decreases of $1.7 million and $4.1 million in steam generation
expenses. The six month period also included an increase of $2.4 million
in transmission and distribution expenses.
Depreciation and amortization expense increased $2.5 million and $1.5
million for the three and six month comparative periods, respectively.
The increases were due to the effects of new utility plant placed in
service during the past year and were partially offset by reductions of
$0.3 million and $0.5 million in miscellaneous amortization expense for
the comparative periods. The second quarter increase was influenced by a
change in depreciation rates approved by the Washington Commission in the
second quarter of 1993, made retroactive to the beginning of 1993. This
adjustment had the effect of decreasing depreciation expense by $2.6
million in the second quarter of 1993.
Taxes other than federal income taxes increased $1.4 million and $1.5
million for three and six month comparative periods. Higher municipal and
state excise taxes of $0.7 million and $1.1 million in the second quarter
and first half of 1994, respectively, were primarily responsible for the
increases. Excise taxes and municipal taxes are essentially revenue-based
and are reflected as revenues are billed.
Federal income taxes decreased $0.7 million and $2.3 million for the three
and six month comparative periods, respectively. The decreases were due
primarily to lower pre-tax operating income in the respective periods.
AFUDC
AFUDC, which does not represent current cash income, is normally included
partially in other income and partially as an offset to interest expense.
Other income
Total other income decreased $0.9 million and $0.4 million for the three
and six month periods ended June 30, 1994, over the same periods a year
ago. The three month comparative period decrease is due primarily to
actual environmental remediation costs, as determined in the second
quarter of 1993, which were lower than previously accrued estimates. The
six month decrease reflects an offsetting increase in subsidiary earnings
of $1.1 million recorded in the first quarter of 1994. This increase was
due to an after-tax gain of $1.9 million resulting from the sale of a
project by the Company's hydro development subsidiary. Cash received from
the sale, which totaled $30.1 million, has been paid to the Company and is
recorded on the Statement of Cash Flows as "Cash received from
subsidiary."
Interest charges
Interest charges, which consist of interest and amortization on long-term
debt and other interest, decreased $0.2 million and $0.9 million for the
three and six month periods ended June 30, 1994, respectively, compared to
the same periods in 1993.
Interest and amortization on long-term debt decreased $0.6 million for the
three month comparative period and $1.7 million for the six month
comparative period. Contributing decreases of $1.9 million and $4.5
million, for the comparative periods, were eight issues of First Mortgage
Bond and Secured Medium-Term Note retirements or reacquisitions totaling
$297 million redeemed or retired over the previous 18 months. These
decreases were partially offset by higher interest expenses of $1.5
million and $2.9 million for the comparative periods attributable to nine
issues of Medium-Term Notes totaling $169 million issued during the
previous 17 months.
Other interest expense increased $0.5 million and $0.9 million for the
three and six month comparative periods, respectively, due to higher
amounts of outstanding short-term debt and higher interest rates compared
to the same periods in 1993.
Construction expenditures (excluding AFUDC and AFUCE) for the second quarter
of 1994 were $39.5 million, including $8.8 million of conservation
expenditures, compared to $57.5 million, including $16.3 million of
conservation expenditures, for the second quarter of 1993. Year-to-date
construction expenditures (excluding AFUDC and AFUCE) totaled $85.3 million,
including $19.8 million of conservation expenditures, compared to $100.5
million, including $29.3 million of conservation expenditures, for the same
period in 1993. Construction expenditures (excluding AFUDC and AFUCE) for
1994 and 1995 are expected to be $260 million and $207 million,
respectively.
Cash provided by operations (net of dividends, AFUDC and AFUCE) as a
percentage of construction expenditures (excluding AFUDC and AFUCE) was 59%
and 48% for the second quarter of 1994 and 1993, respectively. Cash
provided by operations (net of dividends, AFUDC and AFUCE) as a percentage
of construction expenditures (excluding AFUDC and AFUCE) was 109% for both
six month periods ended June 30, 1994 and 1993. The Company expects to fund
an average of 74% of its estimated construction expenditures (excluding
AFUDC and AFUCE) in 1994 and 1995 from cash provided by operations (net of
dividends, AFUDC and AFUCE) with the balance being funded through the sales
of securities, the nature, amount and timing of which will be subject to
market conditions and other relevant factors. The Company made an initial
payment of $8.0 million in 1993 for capacity rights to BPA's third A.C.
transmission line to the southwest United States and expects to pay the
remaining cost of $78 million in the fall of 1994. Construction expenditure
estimates are subject to periodic review and adjustment.
On February 1, 1994, the Company issued $55 million principal amount of
Secured Medium-Term Notes Series B, due February 1, 2024, bearing interest
at 7.35% per annum. Proceeds of this issue were used to extinguish $50
million principal amount of the Company's First Mortgage Bonds, 9.625%
Series due 1997. The Company redeemed $24.5 million through a tender offer
completed February 7, 1994. A portfolio of U.S. Government Treasury
Securities was purchased to defease the remaining $25.5 million of the
bonds.
On February 14, 1994, the Company redeemed $15 million principal amount of
First Mortgage Bonds, 4.75% Series due May 1, 1994.
On May 27, 1994, the Company issued $30 million principal amount of Secured
Medium-Term Notes Series B, due May 27, 2004, bearing interest at 7.80% per
annum. Proceeds of this issue were used to pay down short-term debt.
On February 3, 1994, the Company issued $50 million, Adjustable Rate
Cumulative Preferred Stock, Series B ($25 par value). The proceeds were
used to retire the $40 million principal amount of its Adjustable Rate
Cumulative Preferred Stock, Series A ($100 par value) and to pay down short-
term debt.
On June 30, 1994 the Company had available $176.5 million in lines of credit
with various banks, which provide credit support for outstanding commercial
paper of $65.8 million, effectively reducing the unused available borrowing
capacity under these lines of credit to $110.7 million. In addition, the
Company has agreements with several banks to borrow on an uncommitted, as
available, basis at money-market rates quoted by the banks. There are no
costs, other than interest, for these arrangements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
For a description of legal proceedings relating to the Company's five
percent interest in WPPSS Unit No. 3, see Note (b) to the Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
(12)-a Statement setting forth computation of ratios of
earnings to fixed charges (1989 through 1993 and
twelve months ended June 30, 1994).
(12)-b Statement setting forth computation of ratios of
earnings to combined fixed charges and preferred
stock dividends (1989 through 1993 and twelve months
ended June 30, 1994).
(b) Reports on Form 8-K
1. Form 8-K dated May 5, 1994, Item 5 - Other Events,
related to the WUTC Staff recommendation regarding the
Company's prudence review case.
2. Form 8-K dated June 3, 1994, Item 5 - Other Events,
related to the WUTC Staff filing revised testimony in
the Company's prudence review case.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUGET SOUND POWER & LIGHT COMPANY
Date: R. E. Olson
------------------------------------
Vice President Finance and Treasurer
(Principal accounting officer and
officer duly authorized to sign this
report on behalf of the registrant)
<PAGE>
<TABLE>
Exhibit 12a
PUGET SOUND POWER & LIGHT COMPANY
STATEMENT SETTING FORTH COMPUTATIONS OF
RATIOS OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<CAPTION>
Year Ended December 31
12 Months Ending ---------------------------------------------------
June 30, 1994 1993 1992 1991 1990 1989
---------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR FIXED CHARGES
Pre-tax income:
Net income per statement of income $121,731 $138,327 $135,720 $132,777 $132,343 $117,749
Federal income taxes 81,632 83,970 72,449 56,180 64,094 50,456
Federal income taxes charged to
other income - net 218 (382) (2,106) (2,267) 12 (28,743)
Undistributed (earnings) or losses
of less-than-fifty-percent-owned
entities -- -- (567) (16) (114) (45)
------- ---------------------------------------------------
Total $203,581 $221,915 $205,496 $186,674 $196,335 $139,417
Fixed charges:
Interest on long-term debt $ 84,311 $ 86,030 $ 89,509 $ 84,791 $ 81,766 $ 81,593
Other interest 4,355 3,542 10,477 6,384 8,368 7,096
Portion of rentals representative
of the interest factor 3,833 3,937 4,474 4,463 4,388 4,505
------- ---------------------------------------------------
Total $ 92,499 $ 93,509 $104,460 $ 95,638 $ 94,522 $ 93,194
Earnings available for
fixed charges $296,080 $315,424 $309,956 $282,312 $290,857 $232,611
======= ===================================================
RATIO OF EARNINGS TO FIXED CHARGES 3.20x 3.37x 2.97x 2.95x 3.08x 2.50x
</TABLE>
<PAGE>
<TABLE>
Exhibit 12b
Page 1
PUGET SOUND POWER & LIGHT COMPANY
STATEMENT SETTING FORTH COMPUTATIONS OF
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<CAPTION>
Year Ended December 31
12 Months Ending ----------------------------------------------------
June 30, 1994 1993 1992 1991 1990 1989
---------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FO
CHARGES AND PREFERRED DIVIDEND REQUIREMENTS
Pretax Income:
Net Income per statement
of income $121,731 $138,327 $135,720 $132,777 $132,343 $117,749
Federal income taxes 81,632 83,970 72,449 56,180 64,094 50,456
Federal income taxes charged to
other income - net 218 (382) (2,106) (2,267) 12 (28,743)
------- ---------------------------------------------------
Subtotal 203,581 221,915 206,063 186,690 196,449 139,462
Undistributed (earnings) or losses
of less-than-fifty-percent-owned
entities -- -- (567) (16) (114) (45)
------- ---------------------------------------------------
Total $203,581 $221,915 $205,496 $186,674 $196,335 $139,417
Fixed charges:
Interest on long-term debt 84,311 $ 86,030 $ 89,509 $ 84,791 $ 81,766 $ 81,593
Other interest 4,355 3,542 10,477 6,384 8,368 7,096
Portion of rentals representative
of the interest factor 3,833 3,937 4,474 4,463 4,388 4,505
------- ---------------------------------------------------
Total $ 92,499 $ 93,509 $104,460 $ 95,638 $ 94,522 $ 93,194
Earnings available for combined
fixed charges and preferred
dividend requirements $296,080 $315,424 $309,956 $282,312 $290,857 $232,611
======= ===================================================
</TABLE>
<PAGE>
<TABLE>
Exhibit 12b
Page 2
PUGET SOUND POWER & LIGHT COMPANY
STATEMENT SETTING FORTH COMPUTATIONS OF
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<CAPTION>
Year Ended December 31
12 Months Ending ----------------------------------------------------
June 30, 1994 1993 1992 1991 1990 1989
-------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DIVIDEND REQUIREMENT:
Fixed charges above $ 92,499 $ 93,509 $104,460 $ 95,638 $ 94,522 $ 93,194
Preferred dividend requirements 26,128 26,378 21,080 14,115 18,399 15,850
------- ---------------------------------------------------
Total $118,627 $119,887 $125,540 $109,753 $112,921 $109,044
======= ===================================================
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS 2.50 2.63 2.47 2.57 2.58 2.13
COMPUTATION OF PREFERRED DIVIDEND
REQUIREMENTS:
(a) Pre-tax income $203,581 $221,915 $206,063 $186,690 $196,449 $139,462
(b) Net income $121,731 $138,327 $135,720 $132,777 $132,343 $117,749
(c) Ratio of (a) to (b) 1.6724 1.6043 1.5183 1.4060 1.4844 1.1844
(d) Preferred dividends $ 15,623 $ 16,442 $ 13,884 $ 10,039 $ 12,395 $ 13,382
Preferred dividend requirements
[(d) multiplied by (c)] $ 26,128 $ 26,378 $ 21,080 $ 14,115 $ 18,399 $ 15,850
======= ===================================================
</TABLE>
