SECURITIES AND EXCHANGE COMMISSSION
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 March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
-----------------------------
Commission File Number 1-4393
-----------------------------
PUGET SOUND ENERGY, INC.
(Exact name of registrant as specified in its charter)
Washington 91-0374630
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
411 - 108th Avenue N.E., Bellevue, Washington 98004-5515
(Address of principal executive offices)
(425) 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) or 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 March 31,
1998 was 84,560,616.
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<TABLE>
PUGET SOUND ENERGY, INC
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except shares and per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended March 31 1998 1997
- ------------------------------------------- ------------- -------------
<S> <C> <C>
OPERATING REVENUES:
Electric $ 368,596 $ 299,569
Gas 147,822 156,488
Other 5,651 7,262
------------- -------------
Total operating revenue 522,069 463,319
OPERATING EXPENSES:
Energy costs:
Purchased electricity 169,257 152,928
Purchased gas 67,928 71,961
Electric generation fuel 11,241 9,072
Residential Exchange (15,507) (22,607)
Utility operations and maintenance 60,217 63,822
Other operations and maintenance 1,562 5,977
Depreciation and amortization 40,736 38,307
One-time merger costs -- 55,789
Taxes other than federal income taxes 45,916 46,147
Federal income taxes 41,462 (14,905)
------------- -------------
Total operating expenses 422,812 406,491
------------- -------------
OPERATING INCOME 99,257 56,828
OTHER INCOME 1,160 4,884
------------- -------------
INCOME BEFORE INTEREST CHARGES 100,417 61,712
INTEREST CHARGES 34,414 29,104
------------- -------------
INCOME FROM CONTINUING OEPRATIONS 66,003 32,608
DISCONTINUED OPERATIONS -- (2,622)
------------- -------------
NET INCOME 66,003 29,986
Less: Preferred stock dividends accrual 3,309 5,549
------------- -------------
INCOME FOR COMMON STOCK $62,694 $ 24,437
============= =============
BASIC COMMON SHARES OUTSTANDING - WEIGHTED AVERAGE 84,561 84,454
============= =============
BASIC & DILUTED EARNINGS PER COMMON SHARE:
From continuing operations $ 0.74 $ 0.32
From discontinued operations -- (0.03)
------------- -------------
BASIC & DILUTED EARNINGS PER COMMON SHARE: $ 0.74 $ (0.29)
============== =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31 1998 1997
- ---------------------------------------- ------------- -------------
<S> <C> <C>
Net Income $ 66,003 $ 29,986
Other comprehensive income, net of tax:
Unrealized holding gains on securities
arising during period 4,419 --
------------- -------------
Comprehensive Income $ 70,422 $ 29,986
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
<CAPTION>
March 31 December 31
1998 1997
- ---------------------------------------------- ------------- -------------
<S> <C> <C>
UTILITY PLANT:
Electric $3,667,950 $3,632,652
Gas 1,251,734 1,231,109
Less: Accumulated depreciation and amortization (1,646,018) (1,613,300)
------------ -------------
Net utility plant 3,273,666 3,250,461
------------ -------------
OTHER PROPERTY AND INVESTMENTS 283,726 279,644
------------ -------------
CURRENT ASSETS:
Cash 16,932 7,759
Accounts receivable 263,690 280,787
Materials and supplies, at average cost 44,053 54,423
Prepayments and other 4,807 5,420
------------ -------------
Total current assets 329,482 348,389
------------ -------------
LONG-TERM ASSETS:
Regulatory asset for deferred income taxes 257,058 258,430
Unamortized energy conservation charges 6,267 6,867
Tenaska Regulatory Asset 216,700 215,000
Other 128,626 134,579
------------ -------------
Total long-term assets 608,651 614,876
------------ -------------
TOTAL ASSETS $4,495,525 $4,493,370
============ =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
CAPITALIZATION AND LIABILITIES
<CAPTION>
March 31 December 31
1998 1997
- ---------------------------------------------- ------------- -------------
<S> <C> <C>
CAPITALIZATION:
Common shareholders' investment:
Common stock, $10 stated value,
150,000,000 shares authorized,
84,560,616 and 84,560,645 shares outstanding $ 845,606 $ 845,606
Additional paid-in capital 450,845 450,845
Earnings reinvested in the business 70,380 46,672
Accumulated other comprehensive income 19,373 14,954
------------ -------------
1,386,204 1,358,077
Preferred stock not subject to
mandatory redemption 95,488 95,488
Preferred stock subject to
mandatory redemption 76,912 78,134
Corporation obligated, mandatorily redeemable
preferred securities of subsidiary
trust holding solely junior subordinated
debentures of the corporation 100,000 100,000
Long-term debt 1,401,718 1,411,707
------------ -------------
Total capitalization 3,060,322 3,043,406
------------ -------------
CURRENT LIABILITIES:
Accounts Payable 92,528 116,548
Short-term debt 341,432 372,538
Current maturities of long-term debt 46,000 51,000
Purchased gas liability 12,345 876
Accrued expenses:
Taxes 114,491 73,636
Salaries and wages 18,560 15,326
Interest 31,422 27,704
Other 26,213 33,198
------------ -------------
Total current liabilities 682,991 690,826
------------ -------------
DEFERRED INCOME TAXES 629,872 629,018
------------ -------------
OTHER DEFERRED CREDITS 122,340 130,120
------------ -------------
TOTAL CAPITALIZATION AND LIABILITIES $4,495,525 $4,493,370
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31 1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
- ----------------------------------
Income from continuing operations $ 66,003 $ 32,608
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 40,736 38,423
Deferred income taxes and tax credits - net 2,226 (12,844)
PRAM accrued revenues -- 57,470
Pre-tax loss on write-down of coal properties -- 4,044
Other (2,119) 13,016
Change in certain current assets
and liabilities (Note 5) 56,352 (6,303)
- -----------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 163,198 126,414
- -----------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
- ----------------------------------
Construction expenditures - excluding equity AFUDC (67,864) (63,781)
Additions to energy conservation program (888) (423)
Other 4,585 14,193
- -----------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (64,167) (50,011)
- -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
- ----------------------------------
Decrease in short-term debt (31,106) (36,677)
Dividends paid (42,225) (39,463)
Issuance of common and preferred securities -- 81
Redemption of bonds and notes (15,001) --
Redemption of preferred stock (1,293) (1,200)
Issue costs of bonds and stock (233) (18)
- -----------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (89,858) (77,277)
- -----------------------------------------------------------------------------------------
Increase (Decrease) in cash from continuing operations 9,173 (874)
Decrease in cash from discontinued operations:
Investing activities -- (2,622)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) in cash 9,173 (3,496)
Cash at Beginning of year 7,759 4,335
Adjustment to conform fiscal year of WECo -- 39
- -----------------------------------------------------------------------------------------
Cash at End of Period $16,932 $ 878
=========================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
6
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NOTES TO FINANCIAL STATEMENTS
1) SUMMARY OF CONSOLIDATION POLICY
The consolidated financial statements include the accounts of Puget Sound
Energy, Inc. ("the Company") and its wholly-owned subsidiaries, after
elimination of all significant intercompany items and transactions.
The consolidated financial statements contained in this Form 10-Q are
unaudited. In the opinion of management, all adjustments necessary for a
fair presentation of the results for the interim periods have been reflected
and were of a normal recurring nature other than as described in footnotes 2
& 5. These condensed financial statements should be read in conjunction with
the Company's annual report on Form 10-K.
On February 10, 1997, the Company consummated its merger with Washington
Energy Company ("WECo"). The merger has been accounted for as a pooling of
interests. Accordingly, the consolidated financial statements have been
retroactively restated to include the results of operations, financial
position and cash flows of WECo for all periods prior to consummation of the
merger.
Effective with the merger, WECo's 1996 fiscal year-end was changed from
September 30 to December 31 to conform to the Company's year-end.
Accordingly, WECo's operations for the three months ended December 31, 1996,
have been reported as an adjustment of $10.8 million to consolidated retained
earnings in the first quarter of 1997. WECo's revenues for the three months
ended December 31, 1996, were $148.6 million, net income was $16.9 million,
common stock issued was $1.0 million and common stock dividends declared were
$6.1 million for the same period.
Included in consolidated results of operations for the month of January 1997
(the merger was effective February 10, 1997) are the following results of the
previously separate companies for that period:
MONTH ENDED JANUARY 31, 1997
(Dollars in Thousands)
-------------------------------------------
Company WECo Consolidated
-------------------------------------------
Revenues $123,051 $60,486 $183,537
Net Income $19,671 $9,378 $29,049
Common Dividends Declared $29,244 -- $29,244
2) MERGER WITH WASHINGTON ENERGY COMPANY
Effective February 10, 1997, WECo and its wholly-owned subsidiary, Washington
Natural Gas Company, ("WNG") were merged into PSPL which then changed its
name to Puget Sound Energy, Inc.
Pursuant to the Agreement and Plan of Merger ("Merger Agreement") between the
two companies, each share of WECo common stock was exchanged for 0.86 share
of the Company's common stock (approximately 20,921,000 shares of Company
stock were issued). On February 10, 1997, the Company increased the number
of authorized shares to 150,000,000. Based on the capitalization of the
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Company and WECo on February 10, 1997, holders of the Company's and WECo's
common stock held approximately 75% and 25% respectively, of the aggregate
number of outstanding shares of the merged company's common stock. In
accordance with the Merger Agreement, the preferred stock of WNG was
converted into preferred shares of the merged company. The merger has been
structured as a tax-free exchange of shares, and has been accounted for as a
pooling of interests for financial statement purposes.
The order approving the merger, issued by the Washington Commission, contains
a rate plan that is designed to provide a five-year period of rate certainty
for customers and provide the Company with an opportunity to achieve a
reasonable return on investment. As required under the merger order, the
Company filed tariffs, effective February 8, 1997, that resulted in an
average electric rate decrease of 5.6% related to the termination of the
Periodic Rate Adjustment Mechanism ("PRAM"), and an increase in electric
general rates of between 1.0% and 2.5%, depending on rate class. The general
rate increase has a positive impact on earnings while the decrease related to
the PRAM does not affect earnings because all previously accrued PRAM
revenues were fully collected. The net impact on customer rates was an
average rate decrease of 3.7%, including a decrease in residential rates of
3.2%. General electric rates for residential and industrial customers will
increase by 1.5% on January 1 of each of the four following years, while
those for small commercial customers will increase by 1.0% in each of the
following three years. General rates for all classes of natural gas
customers will remain unchanged until January 1, 1999, when they will
decrease sufficiently to reduce utility margin by 1 percent.
In connection with the merger, the Company recognized direct and indirect pre-
tax merger-related expenses of $55.8 million during the first quarter of
1997. The charge consisted primarily of severance costs of $15.5 million,
benefit-related curtailment costs of $9.1 million, transaction costs of $13.7
million and systems and facilities integration costs of $7.2 million. The
nonrecurring charge reduced net income by approximately $36.3 million ($0.43
per share) in the three months ended March 31, 1997. In addition, pre-tax
merger-related costs of $4.8 million were recognized in the fourth quarter of
1996 by PSPL.
3) EARNINGS PER COMMON SHARE
Basic earnings per common share have been computed based on weighted average
common shares outstanding of 84,561,000 and 84,454,000 for the three months
ended March 31, 1998 and 1997, respectively. Diluted earnings per common
share have been computed based on weighted average common shares outstanding
of 84,661,000 and 84,504,000 for the three months ended March 31, 1998 and
1997, respectively, which include the dilutive effect of securities related
to employee compensation plans.
4) DISCONTINUED OPERATIONS
On March 5, 1997, the Company conveyed its interests in undeveloped coal
properties through its wholly-owned subsidiary Thermal Energy, Inc. to Wesco
Resources, Inc. effective February 1, 1997. In return for this conveyance,
Wesco Resources, Inc. agreed to assume future coal property obligations and
liabilities and to pay the Company a 2% royalty on coal mined from the
transferred coal properties now held by Wesco Resources, Inc. In the
September 1996 consolidated financial statements of WECo these activities
8
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were reflected as discontinued operations. The Company has determined, based
on a report by mining consultants, that the development of the transferred
coal properties in the foreseeable future is speculative. As a result, the
Company does not expect to receive any amounts under the 2% royalty
agreement. Therefore, in March 1997, the Company's remaining $4.0 million
investment in Thermal Energy, Inc. was written off to expense and appears in
the consolidated financial statement as discontinued operations. Prior
periods have been restated to include Thermal Energy, Inc. operations as
discontinued operations.
5) CONSOLIDATED STATEMENTS OF CASH FLOWS
The following provides additional information concerning cash flow
activities:
Three Months Ended March 31 1998 1997
- ----------------------------------------------------------------------------
Changes in current asset and current liabilities:
Accounts receivable $ 17,097 $(27,979)
Materials and supplies 10,370 7,511
Prepayments and Other 613 5,773
Purchased gas liability 11,470 (12,476)
Accounts payable (24,020) (35,455)
Accrued expenses and Other 40,822 56,323
- ----------------------------------------------------------------------------
Net change in current assets and current liabilities $ 56,352 $ (6,303)
============================================================================
Cash payments:
Interest (net of capitalized interest) $ 31,158 $ 27,424
Income taxes $ 5,003 $ (48,073)
- ----------------------------------------------------------------------------
6) OTHER
In the first quarter of 1997, the Company recorded an income tax refund of
$57 million associated with the method of accounting for taxes related to
conservation expenditures for the years 1991-1994. The benefit of the tax
refund, as a result of an agreement between the Company and the Washington
Commission, was passed on to retail customers as a $48.6 million reduction of
the PRAM accrued revenue balance. The $48.6 million reduction in revenues
was offset by a $17 million decrease in federal income taxes related to the
reduction in PRAM revenues, a $26.5 million reduction in federal income taxes
as a result of the change in accounting for conservation expenditures, $4.6
million in interest income (net of tax) relating to the tax refund and a $.8
million reduction in other taxes. The overall affect of recording the
conservation tax refund and the related PRAM entries was an increase to net
income of approximately $.3 million.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement No. 131"), which establishes requirements that companies report
certain information about operating segments. Statement No. 131 is effective
for fiscal years beginning after December 15, 1997. While this statement may
result in additional financial disclosures, it will not impact the Company's
financial position or results of operations.
9
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In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers Disclosures about Pensions and Other Postretirement
Benefits" ("Statement No. 132"), which standardizes the disclosure
requirements for pensions and other postretirement benefits. Statement No.
132 is effective for fiscal years beginning after December 15, 1997. While
this statement may result in additional financial disclosures, it will not
impact the Company's financial position or results of operations.
Effective January 1, 1998, the Company implemented Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
established standards for the reporting and display of comprehensive income
and its components.
10
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998, was $66 million on
operating revenues of $522.1 million, compared with net income of $30 million
on operating revenues of $463.3 million for the same period in 1997. Income
for common stock was $62.7 million for the first quarter of 1998 compared to
$24.4 million for the first quarter of 1997. Basic and diluted earnings per
share were $0.74 for the first quarter of 1998 compared to $0.29 for the
first quarter of 1997 based on 84.6 and 84.5 million weighted average common
shares outstanding in each quarter, respectively.
The increase in net income and earnings per share in the first quarter of
1998 compared to the first quarter of 1997 reflects the absence of both an
after-tax charge of $36.3 million (43 cents per share) for costs related to
the merger and an after-tax charge of $2.6 million (3 cents per share), to
write off the Company's remaining investment in undeveloped coal reserves and
related activities in southeastern Montana which were incurred during the
first quarter of 1997.
Total kilowatt-hour sales were 7.6 billion, including 1.9 billion in sales to
other utilities, for the first quarter of 1998, compared to 6.8 billion,
including 1.1 billion in sales to other utilities, for the first quarter of
1997.
Total gas volumes were 352 million therms, including 75.7 million therms in
transportation volumes for the three months ended March 31, 1998, compared to
370.2 million therms, including 76.2 million therms of transportation, for
the same period in 1997.
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. Electric 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 requirement of other utilities.
Temperatures based on heating degree days measured at Seattle-Tacoma airport
during the three months ended March 31, 1998, were 9% warmer than normal and
10% warmer than the same period in 1997.
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Comparative Periods Ending
March 31, 1998 vs. March 31, 1997
Increase (Decrease)
Three Month Period
_____________________________________________________________________________
(In Millions)
Operating revenue changes
General rate increase $ 7.3
PRAM revenues 44.8
BPA Residential Purchase & Sale Agreement 1.1
Sales to other utilities 15.7
Electric load and other changes (1.4)
Gas revenue change (8.7)
------
Total operating revenue change 58.8
------
Operating expense changes
Energy costs:
Purchased electricity 16.3
Purchased gas (4.0)
Electric generation fuel 2.1
Residential exchange credit 7.1
Utility operations and maintenance (3.6)
Other operations and maintenance (4.4)
Depreciation and amortization 2.4
Merger costs (55.8)
Taxes other than federal income taxes (0.2)
Federal income taxes 56.4
------
Total operating expense change 16.3
------
Other income (3.8)
Interest charges 5.3
------
Income from continuing operations 33.4
Discontinued operations 2.6
------
Net income change $ 36.0
======
The following is additional information pertaining to the changes outlined in
the above table.
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Operating Revenues - Electric
Revenues since February 8, 1997 increased as a result of an overall average
1.8% general rate increase authorized by the Washington Commission in the
merger order.
Operating revenues for the three months ended March 31, 1997 included a $48.6
million reduction associated with 1991-1994 Conservation IRS tax refund and
related interest income which was received in the first quarter of 1997.
Based on the Company's agreement with the Washington Commission, the benefit
of the tax refund was passed on to retail customers as a reduction of the
PRAM accrued revenue balance. The $48.6 million reduction in 1997 operating
revenues was offset by a decrease in federal, state and local taxes as well
as a decrease in interest expense and recognition of interest income.
Revenues in 1998 and 1997 were reduced because of the credit that the Company
received through the Residential Purchase and Sale Agreement with the
Bonneville Power Administration ("BPA"). The agreement enables the Company's
residential and small farm customers to receive the benefits of lower-cost
federal power. On January 29, 1997, the Company and BPA signed a Residential
Exchange Termination Agreement. The Agreement ends the Company's
participation in the Residential Purchase and Sale agreement with BPA. As
part of the Termination Agreement, the Company will receive payments by the
BPA of approximately $235 million over five years. Under the rate plan
approved by the Washington Commission in its merger order, the Company will
continue to reflect, in customers' bills, the current level of Residential
Exchange benefits. Over the five year period, it is projected that the
Company will credit customers approximately $250 million more than it will
receive from BPA.
Electric revenues for the quarter were $368.6 million, up $69.0 million or
5.9% over the same period in 1997, after adjusting 1997 revenues to eliminate
the effects of the aforementioned one-time reduction of $48.6 million
associated with the IRS tax refund and related interest. Electric sales to
other utilities increased $15.7 million or 95 percent over the same period in
1997 as the Company has increased its wholesale surplus power business
through short and intermediate term purchase, sale, arbitrage and other
trading and marketing techniques. However, warmer than normal weather in the
three-month period ended March 31, 1998 reduced electric heating loads which
was partially offset by increased sales to industrial customers.
Operating Revenues - Gas
Gas operating revenues for the quarter ended March 31, 1998 decreased by $8.7
million from the prior year quarter. Total gas volumes decreased 4.9% from
370.2 million therms to 351.9 million therms. Gas margin also declined by
$4.6 million, or 5.5% in the first quarter of 1998 as compared to the first
quarter of 1997. The primary reason for the decrease in gas sales volumes
and gas sales revenues in the quarter ended March 31, 1998, was the negative
impact of warmer weather on the company's gas heating load.
Operating Expenses
Purchased electricity expenses increased $16.3 million for the first quarter
of 1998 compared to the same period in 1997. The increase was due primarily
to increased sales to other utilities.
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Purchased gas expenses decreased $4.0 million for the first quarter of 1998
compared to the first quarter of 1997 primarily due to decreased volumes of
purchases as a result of lower heating load.
Fuel expense increased $2.1 million in the first quarter of 1998 compared to
the same period in 1997 as the Company generated more electricity at company-
owned coal plants.
Residential exchange credits associated with the Residential Purchase and
Sale Agreement with BPA decreased $7.1 million in the three months ended
March 31, 1998 when compared to the same period in 1997. The primary reason
for the decrease was the Residential Exchange Termination Agreement between
the Company and BPA in January 1997.
Utility operations and maintenance expenses decreased $3.6 million or 5.6% in
the first quarter of 1998 compared to the same period in 1997. The decrease
resulted primarily from improved operating efficiencies as a result of the
merger in 1997 and a decrease in storm damage caused electric transmission
and distribution system costs, offset in part by increased severance costs
and vegetation management expenses.
Depreciation and amortization expense increased $2.4 million for the first
quarter of 1998 from the same period in 1997 due to the effects of new plant
placed into service during the past year.
Merger related costs recorded in the first quarter of 1997 were $55.8 million
including amounts related to transaction expenses, employee separation and
systems and facilities integration. On an after-tax basis the charge in the
quarter ended March 31, 1997, was $36.3 million or 43 cents per share. (See
Footnote 2 to the Consolidated Financial Statements)
Federal income taxes increased $56.4 million for the first quarter of 1998
from the same period in 1997 due to a number of factors. An IRS tax refund
related to the method of accounting for taxes on conservation expenditures
decreased federal income taxes in the first quarter of 1997 by $26.5 million.
In addition, there was a $17.0 million reduction in 1997 associated with a
decrease in PRAM revenues of $48.6 million. Merger costs expensed in the
first quarter of 1997 further reduced federal income taxes by $19.3 million.
AFUDC, which does not represent current cash income, is normally included in
other income and as an offset to interest expense. For the three month
periods ending March 31, 1998 and March 31, 1997, AFUDC was $1.7 million and
$1.2 million, respectively.
Other Income
Other income, net of federal income tax, decreased $3.7 million in the first
quarter of 1998 from the same period in 1997. The decrease was due primarily
to the receipt of interest income in 1997 from the IRS on the Conservation
Tax Refund.
The Company recorded after-tax dividend income of $3.5 million in the first
quarter of 1998 associated with a $4.3 million investment the Company has in
a utility-related venture capital fund.
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Interest Charges
Interest charges, which consist of interest and amortization on long-term
debt and other interest, increased $5.3 million for the first quarter of 1998
compared to the same period in 1997 as a result of the issuance of $300
million 7.02% Series A Notes, in December 1997 and the issuance of $100
million 8.231% Capital Trust Debentures in June 1997. These increases were
partially offset by the maturity of $100 million 7.875% Series A Medium Term
Notes in October 1997.
CONSTRUCTION, CAPITAL RESOURCES AND LIQUIDITY
Construction expenditures which include energy conservation expenditures and
exclude AFUDC for the first quarter of 1998 were $67.2 million, including
$0.9 million of energy conservation expenditures, compared to $63.2 million,
including $0.4 million of energy conservation expenditures, for the first
quarter of 1997. Construction expenditures for 1998 and 1999 are expected to
be $311 million and $274 million, respectively. Cash provided by operations
(net of dividends and AFUDC) as a percentage of construction expenditures
(excluding AFUDC) were 178% and 136% for the first quarters of 1998 and 1997,
respectively. Construction expenditure estimates are subject to periodic
review and adjustment.
On March 31, 1998, the Company had available $375 million in lines of credit
with various banks, which provide credit support for outstanding commercial
paper of $103.4 million, effectively reducing the available borrowing
capacity under these lines of credit to $271.6 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.
OTHER
On March 20, 1991, the Company executed a 20-year contract to purchase 216
average MW of energy and 245 MW of capacity, beginning in April 1994, from
Tenaska Washington Partners, L.P., which owns and operates a natural-gas
fired cogeneration project located near Ferndale, Washington. In December
1997 and January 1998, the Company and Tenaska Washington Partners entered
into revised agreements which will lower purchased power costs from the
Tenaska project by restructuring its natural gas supply. The Company paid
$215 million to buy out the project's existing long-term gas supply
contracts, which contained fixed and escalating gas prices that were well
above current and projected future market prices for natural gas. The
Company became the principal natural gas supplier to the project and power
purchase prices under the Tenaska contract were revised to reflect market-
based prices for the natural gas supply. The Company obtained an order from
the Washington Commission creating a regulatory asset related to the $215
million restructuring payment. Under terms of the order, the Company is
allowed to accrue as an additional regulatory asset one-half the carrying
costs of the deferred balance over the first five years. Amortization of the
regulatory assets commenced January 1, 1998 and extends over the remaining 14
year life of the contract.
In April 1998, the Company and Duke Energy Trading and Marketing signed an
agreement to coordinate their energy-marketing and trading activities in 14
western states and British Columbia. Through this alliance, the Company now
participates in an energy-trading business that will be many times the size
15
<PAGE>
of its current trading operations. Pursuant to the agreement, substantially
all of the Company's sales of surplus electricity and short-term purchases of
energy to meet retail sales will be made through the joint venture. Puget
Sound Energy sold 28 million megawatt hours of power in 1997, and its
revenues from off-system power sales and trading in 1997 doubled from 1996 to
more than $134 million.
For a discussion of FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information", see Note 6 to the Consolidated Financial
Statements.
For a discussion of FASB Statement No. 132, "Employers Disclosures about
Pensions and Other Postretirement Benefits", see Note 6 to the Consolidated
Financial Statements.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Contingencies arising out of the normal course of the Company's business,
exist at March 31, 1998. The ultimate resolution of these issues is not
expected to have a material adverse impact on the financial condition,
results of operations or liquidity 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 (1993 through 1997 and 12 months ended March 31, 1998)
12-b Statement setting forth computation of ratios of earnings to
combined fixed charges and preferred stock dividends (1993 through
1997 and 12 months ended March 31, 1998)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
17
<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 ENERGY, INC.
James W. Eldredge
___________________________________
James W. Eldredge
Corporate Secretary and Controller
Date: May 15, 1998 Chief accounting officer and officer
duly authorized to sign this report
on behalf of the registrant
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000081100
<NAME> PUGET SOUND ENERGY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,273,666
<OTHER-PROPERTY-AND-INVEST> 283,726
<TOTAL-CURRENT-ASSETS> 329,482
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 608,651
<TOTAL-ASSETS> 4,495,525
<COMMON> 845,606
<CAPITAL-SURPLUS-PAID-IN> 450,845
<RETAINED-EARNINGS> 89,753
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,386,204
76,912
195,488
<LONG-TERM-DEBT-NET> 1,401,718
<SHORT-TERM-NOTES> 238,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 103,432
<LONG-TERM-DEBT-CURRENT-PORT> 46,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,047,771
<TOT-CAPITALIZATION-AND-LIAB> 4,495,525
<GROSS-OPERATING-REVENUE> 522,069
<INCOME-TAX-EXPENSE> 41,462
<OTHER-OPERATING-EXPENSES> 381,350
<TOTAL-OPERATING-EXPENSES> 422,812
<OPERATING-INCOME-LOSS> 99,257
<OTHER-INCOME-NET> 1,160
<INCOME-BEFORE-INTEREST-EXPEN> 100,417
<TOTAL-INTEREST-EXPENSE> 34,414
<NET-INCOME> 66,003
3,309
<EARNINGS-AVAILABLE-FOR-COMM> 62,694
<COMMON-STOCK-DIVIDENDS> 38,898
<TOTAL-INTEREST-ON-BONDS> 28,989
<CASH-FLOW-OPERATIONS> 163,198
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
<TABLE>
Exhibit 12a
STATEMENT SETTING FORTH COMPUTATIONS OF RATIOS OF
EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<CAPTION>
12 Months
Ending Year Ended December 31
March ------------------------------------------------
31, 1998 1997 1996 1995 1994 1993
--------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR
FIXED CHARGES
Pre-tax income:
Income from continuing
operations per statement
of income $159,093 $125,698 $167,351 $128,382 $79,312 $163,812
Federal income taxes 103,664 47,725 107,747 91,519 74,816 93,702
Federal income taxes charged
to other income - net 9,754 11,876 (1,608) (12,068) 22,687 (418)
Capitalized interest (334) (360) (600) (660) (400) (791)
Undistributed (earnings) or
losses of less-than-
fifty-percent-owned
entities 165 (608) 460 8,325 743 --
-------- ------------------------------------------------
Total $272,342 $184,331 $273,350 $215,498 $177,158 $256,305
Fixed charges:
Interest expense $129,076 $123,439 $122,635 $131,346 $126,555 $120,962
Other interest 334 360 600 660 400 791
Portion of rentals
representative of the
interest factor 3,137 3,143 4,187 5,150 5,555 5,570
-------- ------------------------------------------------
Total $132,547 $126,942 $127,422 $137,156 $132,510 $127,323
Earnings available for
combined fixed charges $404,889 $311,273 $400,772 $352,654 $309,668 $383,628
======== ================================================
RATIO OF EARNINGS TO
FIXED CHARGES 3.05x 2.45x 3.15x 2.57x 2.34x 3.01x
</TABLE>
<PAGE>
<TABLE>
Exhibit 12b
STATEMENT SETTING FORTH COMPUTATIONS OF RATIOS OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<CAPTION>
12 Months
Ending Year Ended December 31
March ------------------------------------------------
31, 1998 1997 1996 1995 1994 1993
--------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR COMBINED
FIXED CHARGES AND PREFERRED
DIVIDEND REQUIREMENTS
Pretax income:
Income from continuing
operations per statement
of income $159,093 $125,698 $167,351 $128,382 $79,312 $163,812
Federal income taxes 103,664 47,725 107,747 91,519 74,816 93,702
Federal income taxes charged
to other income - net 9,754 11,876 (1,608) (12,068) 22,687 (418)
-------- ------------------------------------------------
Subtotal 272,511 185,299 273,490 207,833 176,815 257,096
Capitalized interest (334) (360) (600) (660) (400) (791)
Undistributed (earnings) or
losses of less-than-fifty-
percent-owned entities 165 (608) 460 8,325 743 --
-------- ------------------------------------------------
Total $272,342 $184,331 $273,350 $215,498 $177,158 $256,305
Fixed charges:
Interest expense $129,076 $123,439 $122,635 $131,346 $126,555 $120,962
Other interest 334 360 600 660 400 791
Portion of rentals
representative of the
interest factor 3,137 3,143 4,187 5,150 5,555 5,570
-------- ------------------------------------------------
Total $132,547 $126,942 $127,422 $137,156 $132,510 $127,323
Earnings available for
combined fixed charges
and preferred dividend
requirements $404,889 $311,273 $400,772 $352,654 $309,668 $383,628
======== ================================================
DIVIDEND REQUIREMENT:
Fixed charges above $132,547 $126,942 $127,422 $137,156 $132,510 $127,323
Preferred dividend
requirements below 26,661 26,250 36,249 36,674 45,441 29,904
-------- ------------------------------------------------
Total $159,208 $153,192 $163,671 $173,830 $177,951 $157,227
======== ================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
12 Months
Ending Year Ended December 31
March ------------------------------------------------
31, 1998 1997 1996 1995 1994 1993
--------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
DIVIDEND REQUIREMENTS 2.54 2.03 2.45 2.03 1.74 2.44
COMPUTATION OF PREFERRED
DIVIDEND REQUIREMENTS:
(a) Pre-tax income $272,511 $185,299 $273,490 $207,833 $176,815 $257,096
(b) Income from continuing
operations $159,093 $125,698 $167,351 $128,382 $ 79,312 $163,812
(c) Ratio of (a) to (b) 1.7129 1.4742 1.6342 1.6189 2.2294 1.5695
(d) Preferred dividends $ 15,565 $ 17,806 $ 22,181 $ 22,654 $ 20,383 $ 19,054
Preferred dividend
requirements
[(d) multiplied by (c)] $ 26,661 $ 26,250 $ 36,249 $ 36,674 $ 45,441 $ 29,904
======== ================================================
</TABLE>
