=============================================================================
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 September 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 (I.R.S. Employee
jurisdiction of Identification No.)
incorporation or
organization)
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 September
30, 1994 was 63,629,416.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Puget Sound Power & Light Company
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30
1994 1993
------- -------
(Unaudited)
(Thousands except shares
and per share amounts)
OPERATING REVENUES $264,289 $230,178
------- -------
OPERATING EXPENSES:
Operation:
Purchased and interchanged power 90,888 65,653
Fuel 13,897 11,974
Other 47,936 39,079
Maintenance 14,655 15,321
Depreciation and amortization 30,240 28,485
Taxes other than federal income taxes 23,903 20,798
Federal income taxes 9,666 13,363
------- -------
Total operating expense 231,185 194,673
------- -------
OPERATING INCOME 33,104 35,505
------- -------
OTHER INCOME:
Allowance for funds used during construction -
equity portion 270 1,024
Miscellaneous - net of taxes 3,009 2,512
------- -------
Total other income 3,279 3,536
------- -------
INCOME BEFORE INTEREST CHARGES 36,383 39,041
------- -------
INTEREST CHARGES:
Interest and amortization on long-term debt 21,219 21,388
Allowance for funds used during
construction - debt portion (997) (871)
Other 1,234 453
------- -------
Total interest charges 21,456 20,970
------- -------
NET INCOME 14,927 18,071
DEDUCT: ------- -------
Preferred stock dividend accrual 3,945 3,921
------- -------
INCOME FOR COMMON STOCK $ 10,982 $ 14,150
======= =======
COMMON SHARES OUTSTANDING -
WEIGHTED AVERAGE 63,629,416 62,095,491
EARNINGS PER COMMON SHARE (Note a) $0.17 $0.23
DIVIDENDS PAID PER COMMON SHARE $0.46 $0.46
<PAGE>
Puget Sound Power & Light Company
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30
1994 1993
------- -------
(Unaudited)
(Thousands except shares
and per share amounts)
OPERATING REVENUES $857,123 $791,769
OPERATING EXPENSES: ------- -------
Operation:
Purchased and interchanged power 277,111 214,547
Fuel 34,976 40,640
Other 154,040 128,316
Maintenance 39,758 40,015
Depreciation and amortization 90,345 87,062
Taxes other than federal income taxes 77,948 73,319
Federal income taxes 50,371 56,404
------- -------
Total operating expenses 724,549 640,303
------- -------
OPERATING INCOME 132,574 151,466
------- -------
OTHER INCOME:
Allowance for funds used during construction -
equity portion 463 1,947
Miscellaneous - net of taxes 10,039 9,920
------- -------
Total other income 10,502 11,867
------- -------
INCOME BEFORE INTEREST CHARGES 143,076 163,333
------- -------
INTEREST CHARGES:
Interest and amortization on long-term debt 62,957 64,844
Allowance for funds used during
construction - debt portion (2,608) (2,334)
Other 3,501 1,856
------- -------
Total interest charges 63,850 64,366
------- -------
NET INCOME 79,226 98,967
------- -------
DEDUCT:
Preferred stock dividend accrual 11,752 12,547
------- -------
INCOME FOR COMMON STOCK $ 67,474 $ 86,420
======= =======
COMMON SHARES OUTSTANDING -
WEIGHTED AVERAGE 63,629,416 60,172,493
EARNINGS PER COMMON SHARE (Note a) $1.06 $1.44
DIVIDENDS PAID PER COMMON SHARE $1.38 $1.37
<PAGE>
Puget Sound Power & Light Company
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
1994 1993
--------- ---------
(Unaudited)
(Thousands of Dollars)
UTILITY PLANT:
Electric Plant, at original cost (including
construction work in progress of $111,847,000
and $97,932,000, respectively) $3,220,432 $3,134,747
Less: Accumulated depreciation 1,041,949 981,535
--------- ---------
Net utility plant 2,178,483 2,153,212
--------- ---------
OTHER PROPERTY AND INVESTMENTS:
Investment in Bonneville Exchange Power
Contract (Note b) 103,017 108,002
Investment in terminated generating projects -- 12,612
Investments in and advances to subsidiaries 70,414 90,423
Energy conservation loans to customers 1,550 2,284
Other investments, at cost 15,445 15,960
--------- ---------
Total other property and investments 190,426 229,281
--------- ---------
CURRENT ASSETS:
Cash 4,578 3,445
Accounts receivable 82,864 90,863
Estimated unbilled revenue 51,481 89,266
PRAM accrued revenues 53,179 37,212
Materials and supplies, at average cost 51,452 52,383
Prepayments and Other 10,416 5,185
--------- ---------
Total current assets 253,970 278,354
--------- ---------
LONG TERM ASSETS:
Regulatory asset - SFAS No. 109 269,176 280,639
Unamortized energy conservation charges (Note c) 240,303 231,331
PRAM accrued revenues (net of current portion) 62,857 47,795
Unamortized debt expense 8,293 8,550
Other 107,786 111,968
--------- ---------
Total long-term assets 688,415 680,283
--------- ---------
TOTAL ASSETS $3,311,294 $3,341,130
========= =========
<PAGE>
Puget Sound Power & Light Company
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
September 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 outstanding $ 636,294 $ 636,294
Additional paid-in capital 328,622 329,922
Earnings reinvested in the business 199,954 220,259
--------- ---------
Total common equity 1,164,870 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 971,269 1,036,079
--------- ---------
Total capitalization 2,352,406 2,430,730
--------- ---------
CURRENT LIABILITIES:
Accounts payable 51,734 53,449
Short-term debt 117,929 149,306
Current maturities of long-term debt 108,000 23,000
Accrued expenses:
Taxes 29,677 39,124
Salaries and wages 22,927 26,289
Interest 24,898 23,832
Other 16,545 22,216
--------- ---------
Total current liabilities 371,710 337,216
--------- ---------
DEFERRED TAXES:
Deferred income taxes 527,544 528,665
Deferred investment tax credits 830 1,142
--------- ---------
Total deferred taxes 528,374 529,807
--------- ---------
OTHER DEFERRED CREDITS:
Customer advances for construction 21,810 19,131
Other 36,994 24,246
--------- ---------
Total other deferred credits 58,804 43,377
--------- ---------
ACCUMULATED PROVISION FOR SELF-INSURANCE -- --
CONTINGENCIES -- --
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $3,311,294 $3,341,130
========= =========
<PAGE>
Puget Sound Power & Light Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
1994 1993
------- -------
(Unaudited)
(Thousands of Dollars)
OPERATING ACTIVITIES:
- --------------------
Net income $ 79,226 $ 98,967
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 90,345 87,062
Deferred income taxes and tax credits - net 10,031 23,807
AFUDC - equity portion (463) (1,947)
PRAM accrued revenues - net (31,029) (40,810)
Other 43,267 (2,356)
Change in certain current assets
and liabilities (Note d) 22,355 44,864
- ----------------------------------------------------------------------------
Net Cash Provided by Operating Activities 213,732 209,587
- ----------------------------------------------------------------------------
INVESTING ACTIVITIES:
- --------------------
Construction expenditures - excluding equity AFUDC (100,826) (107,891)
Additions to energy conservation program (29,320) (45,635)
Decrease in energy conservation loans 735 1,310
Cash received from subsidiary 30,136 --
Other (including advances to subsidiaries) (8,544) (4,539)
- ----------------------------------------------------------------------------
Net Cash Used by Investing Activities (107,819) (156,755)
- ----------------------------------------------------------------------------
FINANCING ACTIVITIES:
- --------------------
Decrease in short-term debt (31,377) (34,936)
Dividends paid (net of newly issued shares
totaling $19,091,000 in 1993) (99,532) (75,946)
Issuance of common stock -- 108,146
Issuance of preferred stock 50,000 --
Issuance of bonds 85,000 93,460
Redemption of bonds and notes (65,006) (207,465)
Redemption of preferred stock (41,849) (50,620)
Issue costs of bonds and stock (2,016) (4,174)
- ----------------------------------------------------------------------------
Net Cash Used by
Financing Activities (104,780) (171,535)
- ----------------------------------------------------------------------------
Increase (Decrease) in Cash 1,133 (118,703)
Cash at Beginning of Period 3,445 121,106
- ----------------------------------------------------------------------------
Cash at End of Period $ 4,578 $ 2,403
============================================================================
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(a) Earnings Per Common Share
Earnings per common share for the three and nine months ended September 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, net of
deferred taxes, at September 30, 1994 was $240 million. The amount included
in customer rates by the Washington Commission in its September 1994 PRAM
order, based on expenditures through April 30, 1994, was $229 million.
Conservation investments made from May 1, 1994 to September 30, 1994 are
expected to be included in rates beginning October 1, 1995. 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.
<PAGE>
The following provides additional information concerning cash flow
activities:
Nine Months Ended September 30
1994 1993
- ---------------------------------------------------------------------------
(Thousands)
Changes in current assets and current liabilities:
Accounts receivable $ 7,999 $20,307
Unbilled revenues 37,785 28,011
Materials and supplies 931 (1,791)
Prepayments and Other (5,231) 2,819
Accounts payable (1,716) 4,200
Accrued expenses and Other (17,413) (8,682)
- ---------------------------------------------------------------------------
Net change in current assets and current liabilities $22,355 $44,864
===========================================================================
Cash payments:
Interest (net of capitalized interest): 62,593 $56,743
Income taxes 45,706 $16,816
- ---------------------------------------------------------------------------
(e) Other
On September 27, 1994 the Washington Commission issued two rate orders, one
regarding the case initiated last fall by the Commission to review the
prudence of nine of the Company's recent purchase power contracts, the other
related to an annual rate adjustment under the Commission's Periodic Rate
Adjustment Mechanism (PRAM).
In the order relating to the prudence review case, the Commission ruled that
1.2% of the contract payments on the Tenaska cogeneration purchased power
contract and 3% of the contract payments on the March Point Phase II
cogeneration purchased power contract should not be recovered in rates. No
disallowance was ordered in respect to the other seven purchased power
contracts under review. This results in a potential refund of approximately
$1.1 million of rate revenues collected during the October 1, 1993 through
September 30, 1994 period and a denial of $1.6 million of rate revenues over
the October 1, 1994 through September 30, 1995 period. The Commission
calculated that this decision would amount to a cumulative disallowance of
approximately $17 million on a present value basis over the life of the two
contracts.
The basis for the Commission's disallowance is that the Commission felt the
Company had not adequately quantified the value of dispatchability of the
power when it evaluated these two power contracts. The Company disagrees
with the Commission's conclusions. On October 7, 1994, the Company filed
with the Washington Commission a petition for reconsideration and
clarification to correct for, what the Company believes are, computational
errors in its September 27 decision on the prudence review case. Correction
of these errors would substantially reduce or eliminate the disallowances
described above. The Company has not recognized any disallowance in the
financial statements for the period ending September 30, 1994.
On October 28, 1994 the Public Counsel section of the Attorney General's
office in the State of Washington filed comments to the Company's October 7,
1994 petition for reconsideration and clarification with the Commission.
Public Counsel notes computational errors were made by the Commission in its
order of September 27, 1994 but does not agree with the Company's position
that disallowed contract costs should be eliminated and, in fact, argues for
a larger disallowance. The Commission staff has taken a position in support
of Public Counsel's position on reconsideration. The Commission expects to
render a decision by December 16, 1994.
On September 27, 1994 the Commission also acted on the Company's pending
annual rate increase under the PRAM. The Company had requested a $55.5
million revenue increase and the Commission allowed $53.7 million. The
items of revenue disallowed were the $1.6 million related to the two
purchased power contracts and $208,000 related to a $978,000 reduction that
the Commission ordered in the Company's rate base for its conservation
program. Previously deferred conservation program costs of $690,000 were
written off to expense in the third quarter of 1994 to conform deferred
conservation program costs to the Commission's September 27, 1994 order.
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. During the past 21 months, the Company's
efforts to reduce costs and increase operating efficiencies has resulted in
a workforce reduction of over 500 positions, or nearly 20 percent.
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 $9.4 million ($6.1 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.
In the third quarter of 1994, the Company recorded a charge of $1.9 million
($1.2 million or 2 cents a share after-tax) for costs related to the two
voluntary retirement and separation programs described above. These costs
are also included in other operating expenses.
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 September 30, 1994, was $14.9 million
on operating revenues of $264.3 million, compared with net income of $18.1
million on operating revenues of $230.2 million for the same period in 1993.
Income for common stock was $11.0 million for the third quarter of 1994 and
$14.1 million for the third quarter of 1993. Earnings per common share were
$0.17 based on 63.6 million weighted average common shares outstanding for
the third quarter of 1994, compared to $0.23 based on 62.1 million weighted
average common shares outstanding for the same period in 1993.
For the first nine months of 1994, net income was $79.2 million on operating
revenues of $857.1 million, compared with net income of $99.0 million on
operating revenues of $791.8 million for the corresponding period in 1993.
Income for common stock was $67.5 million for the first three quarters of
1994 and $86.4 million for the same period in 1993. Earnings per common
share were $1.06 for the nine months ended September 30, 1994 based on 63.6
million weighted average common shares outstanding and $1.44 for the same
period in 1993 based on 60.2 million weighted average common shares.
The decline in net income for the nine month period reflects non-recurring
after-tax charges totaling $11.8 million, of which $1.2 million was recorded
in the third quarter of 1994, 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 $0.19 for the first nine months of 1994.
Total kilowatt-hour sales were 5.0 billion, including 0.8 billion in sales
to other utilities, for the third quarter of 1994, compared to 4.6 billion,
including 0.3 billion in sales to other utilities, for the third quarter of
1993. For the nine month periods ended September 30, 1994 and 1993, total
kilowatt-hour sales were 15.8 billion, including 2.1 billion in sales to
other utilities, and 14.5 billion, including 0.6 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 for the third quarter of 1994 were largely
unchanged from the third quarter of 1993 and decreased $0.8 million for the
nine month period compared to the same period in 1993. The nine month period
decrease was 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 and 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 Ending
September 30, 1994 vs. September 30, 1993
Increase (Decrease)
Three Nine
Month Month
Period Period
------ ------
(In Millions)
Operating revenue changes
General Rate Increase $ 2.2 $ 26.1
PRAM surcharge 4.8 14.2
Accrual of revenue under the PRAM - Net 13.9 (9.7)
BPA Residential Purchase & Sale Agreement 2.4 9.0
Sales to other utilities 12.4 32.2
Load and other changes (1.6) (6.4)
---- ----
Total operating revenue changes 34.1 65.4
Operating expense changes
Purchased & interchanged power 25.2 62.6
Fuel 1.9 (5.7)
Other operation expenses 8.8 25.7
Maintenance (0.6) (0.3)
Depreciation and amortization 1.8 3.3
Taxes other than federal income taxes 3.1 4.6
Federal income taxes (3.7) (6.0)
---- ----
Total operating expense changes 36.5 84.2
Allowance for funds used during
construction (AFUDC) (0.6) (1.2)
Other income 0.5 0.1
Interest charges excluding AFUDC 0.6 (0.2)
---- ----
NET INCOME CHANGES $ (3.1) $(19.7)
===== =====
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 third quarter and first nine months of
1994, were smaller by $2.4 million and $9.0 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 the PRAM, were somewhat lower
in the first nine months 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 $25.2 million for the
third quarter of 1994 and $62.6 million for the first three quarters of
1994 compared to the same periods in 1993. Higher levels of purchased
power, which contributed increases of $23.4 million and $57.1 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 $8.4
million for the three and nine month periods. (See discussion of
Residential Purchase and Sale Agreement in "Operating revenues.")
Fuel expense increased $1.9 million for the three month comparative period
and decreased $5.7 million for the nine 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 $8.8 million and $25.7 million for the
three and nine month comparative periods, respectively. Included in the
increases were non-recurring charges of $1.9 million and $18.1 million for
the comparative periods, respectively, reflecting costs associated with
the Company's two voluntary early retirement and separation programs
offered in 1994. The three month comparative period also included a $2.3
million increase in steam generation expense. The nine month comparative
period included an increase of $3.6 million in transmission and
distribution expenses and an increase of $2.6 million in amortization
expense associated with the Company's energy conservation program.
Depreciation and amortization expense increased $1.8 million and $3.3
million for the three and nine month comparative periods, respectively.
The increases were due to the effects of new utility plant placed in
service during the past year.
Taxes other than federal income taxes increased $3.1 million and $4.6
million for three and nine month comparative periods, respectively.
Municipal and state excise taxes, which are essentially revenue-based,
were higher by $1.5 million and $2.6 million in the third quarter and
first nine months of 1994, respectively, and were primarily responsible
for the increases. Also contributing increases of $1.1 million and $0.9
million for the three and nine months comparative periods, respectively,
were higher Washington state property taxes.
Federal income taxes decreased $3.7 million and $6.0 million for the three
and nine 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 increased $0.5 million and $0.1 million for the three
and nine month periods ended September 30, 1994, over the same periods a
year ago. The nine month change includes an increase in subsidiary
earnings of $1.1 million recorded in the first quarter of 1994. This
increase is 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, increased $0.6 million and decreased $0.2 million
for the three and nine month periods ended September 30, 1994,
respectively, compared to the same periods in 1993.
Interest and amortization on long-term debt alone decreased $0.2 million
for the three month comparative period and $1.9 million for the nine month
comparative period. Decreases of $1.9 million and $6.4 million, for the
comparative periods, were attributable to eight First Mortgage Bond and
Secured Medium-Term Note retirements or redemptions totaling $297 million
over the previous 21 months. These decreases were partially offset by
higher interest expenses of $1.8 million and $4.7 million for the
comparative periods attributable to nine Medium-Term Notes totaling $169
million issued over the previous 20 months.
Other interest expense increased $0.8 million and $1.6 million for the
three and nine 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 third quarter
of 1994 were $38.5 million, including $5.8 million of conservation
expenditures, compared to $45.7 million, including $11.3 million of
conservation expenditures, for the third quarter of 1993. Year-to-date
construction expenditures (excluding AFUDC and AFUCE) totaled $123.8
million, including $25.6 million of conservation expenditures, compared to
$146.2 million, including $40.6 million of conservation expenditures, for
the same period in 1993. Construction expenditures (excluding AFUDC and
AFUCE) for 1994 and 1995 are expected to be $180 million and $234 million,
respectively.
Cash provided by operations (net of dividends, AFUDC and AFUCE) as a
percentage of construction expenditures (excluding AFUDC and AFUCE) was 40%
and 39% for the third quarters 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 88% and 87% for
the nine month periods ended September 30, 1994 and 1993. The Company
expects to fund an average of 62% 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 first quarter of
1995. 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 September 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 $117.9 million, effectively reducing the unused
available borrowing capacity under these lines of credit to $58.6 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.
Other contingencies, arising out of the normal course of the Company's
business, exist at September 30, 1994. The ultimate resolution of these
issues is not expected to have a material adverse impact on the financial
condition or results of operations of the Company.
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 ending September 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
ending September 30, 1994).
(b) Reports on Form 8-K
1. Form 8-K dated September 28, 1994, Item 5 - Other
Events, related to the Washington Commission's issuing
two orders regarding the prudence of the Company's
recent purchase power contracts and its annual rate
increase under the PRAM.
<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: November 14, 1994
William S. Weaver
----------------------------
Executive Vice President and
Chief Financial Officer
(Principal financial officer and
officer duly authorized to sign this
report on behalf of the registrant)
<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 ---------------------------------------------------
September 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 $118,587 $138,327 $135,720 $132,777 $132,343 $117,749
Federal income taxes 77,936 83,970 72,449 56,180 64,094 50,456
Federal income taxes charged to
other income - net 810 (382) (2,106) (2,267) 12 (28,743)
Undistributed (earnings) or losses
of less-than-fifty-percent-owned
entities -- -- (567) (16) (114) (45)
------- ---------------------------------------------------
Total $197,333 $221,915 $205,496 $186,674 $196,335 $139,417
Fixed charges:
Interest on long-term debt $ 84,143 $ 86,030 $ 89,509 $ 84,791 $ 81,766 $ 81,593
Other interest 5,051 3,542 10,477 6,384 8,368 7,096
Portion of rentals representative
of the interest factor 3,881 3,937 4,474 4,463 4,388 4,505
------- ---------------------------------------------------
Total $ 93,075 $ 93,509 $104,460 $ 95,638 $ 94,522 $ 93,194
Earnings available for
fixed charges $290,408 $315,424 $309,956 $282,312 $290,857 $232,611
==============================================================
RATIO OF EARNINGS TO FIXED CHARGES 3.12x 3.37x 2.97x 2.95x 3.08x 2.50x
</TABLE>
<PAGE>
Exhibit 12b
Page 1
<TABLE>
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 ----------------------------------------------------
September 30, 1994 1993 1992 1991 1990 1989
------------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR COMBINED FIXED
CHARGES AND PREFERRED DIVIDEND REQUIREMENTS
Pretax Income:
Net Income per statement
of income $118,587 $138,327 $135,720 $132,777 $132,343 $117,749
Federal income taxes 77,936 83,970 72,449 56,180 64,094 50,456
Federal income taxes charged to
other income - net 810 (382) (2,106) (2,267) 12 (28,743)
------- ---------------------------------------------------
Subtotal 197,333 221,915 206,063 186,690 196,449 139,462
Undistributed (earnings) or losses
of less-than-fifty-percent-owned
entities -- -- (567) (16) (114) (45)
------- ---------------------------------------------------
Total $197,333 $221,915 $205,496 $186,674 $196,335 $139,417
Fixed charges:
Interest on long-term debt $ 84,143 $ 86,030 $ 89,509 $ 84,791 $ 81,766 $ 81,593
Other interest 5,051 3,542 10,477 6,384 8,368 7,096
Portion of rentals representative
of the interest factor 3,881 3,937 4,474 4,463 4,388 4,505
------- ---------------------------------------------------
Total $ 93,075 $ 93,509 $104,460 $ 95,638 $ 94,522 $ 93,194
Earnings available for combined
fixed charges and preferred
dividend requirements $290,408 $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 ----------------------------------------------------
September 30, 1994 1993 1992 1991 1990 1989
------------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DIVIDEND REQUIREMENT:
Fixed charges above $ 93,075 $ 93,509 $104,460 $ 95,638 $ 94,522 $ 93,194
Preferred dividend requirements 26,037 26,378 21,080 14,115 18,399 15,850
------- ---------------------------------------------------
Total $119,112 $119,887 $125,540 $109,753 $112,921 $109,044
======= ===================================================
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS 2.44x 2.63x 2.47x 2.57x 2.58x 2.13x
COMPUTATION OF PREFERRED DIVIDEND
REQUIREMENTS:
(a) Pre-tax income $197,333 $221,915 $206,063 $186,690 $196,449 $139,462
(b) Net income $118,587 $138,327 $135,720 $132,777 $132,343 $117,749
(c) Ratio of (a) to (b) 1.6640 1.6043 1.5183 1.4060 1.4844 1.1844
(d) Preferred dividends $ 15,647 $ 16,442 $ 13,884 $ 10,039 $ 12,395 $ 13,382
Preferred dividend requirements
[(d) multiplied by (c)] $ 26,037 $ 26,378 $ 21,080 $ 14,115 $ 18,399 $ 15,850
======= ===================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993
<PERIOD-END> SEP-30-1994 DEC-31-1993
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,178,483 2,153,212
<OTHER-PROPERTY-AND-INVEST> 190,426 229,281
<TOTAL-CURRENT-ASSETS> 253,970 278,354
<TOTAL-DEFERRED-CHARGES> 0 0
<OTHER-ASSETS> 688,415 680,283
<TOTAL-ASSETS> 3,311,294 3,341,130
<COMMON> 636,294 636,294
<CAPITAL-SURPLUS-PAID-IN> 328,622 329,922
<RETAINED-EARNINGS> 199,954 220,259
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,164,870 1,186,475
91,267 93,176
125,000 115,000
<LONG-TERM-DEBT-NET> 971,269 1,036,079
<SHORT-TERM-NOTES> 0 79,300
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 117,929 70,006
<LONG-TERM-DEBT-CURRENT-PORT> 108,000 23,000
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 732,959 738,094
<TOT-CAPITALIZATION-AND-LIAB> 3,311,294 3,341,130
<GROSS-OPERATING-REVENUE> 857,123 1,112,878
<INCOME-TAX-EXPENSE> 50,371 83,970
<OTHER-OPERATING-EXPENSES> 674,178 817,928
<TOTAL-OPERATING-EXPENSES> 724,549 901,898
<OPERATING-INCOME-LOSS> 132,574 210,980
<OTHER-INCOME-NET> 10,502 13,578
<INCOME-BEFORE-INTEREST-EXPEN> 143,076 224,558
<TOTAL-INTEREST-EXPENSE> 63,850 86,231
<NET-INCOME> 79,226 138,327
11,752 16,442
<EARNINGS-AVAILABLE-FOR-COMM> 67,474 121,885
<COMMON-STOCK-DIVIDENDS> 99,532 128,003
<TOTAL-INTEREST-ON-BONDS> 60,011 82,065
<CASH-FLOW-OPERATIONS> 213,732 234,331
<EPS-PRIMARY> 1.06 2.00
<EPS-DILUTED> 1.06 2.00
</TABLE>
