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UNITED STATES
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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OR
THE SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________ TO _________
----------------------------
COMMISSION FILE NUMBER 1-4393
----------------------------
PUGET SOUND ENERGY, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0374630
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 September
30, 1998 was 84,560,567.
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<PAGE>
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income -
3 months ended September 30, 1998 and 1997 3
Consolidated Statements of Income -
9 months ended September 30, 1998 and 1997 4
Consolidated Statements of Comprehensive Income -
3 months ended September 30, 1998 and 1997 5
Consolidated Statements of Comprehensive Income -
9 months ended September 30, 1998 and 1997 5
Consolidated Balance Sheets - September 30, 1998
and December 31, 1997 6
Consolidated Statements of Cash Flows -
9 months ended September 30, 1998 and 1997 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 24
Item 4 Submission of Matters to a Vote of Security Holders 24
Item 6 Exhibits and Reports on Form 8-K 24
SIGNATURE 25
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
<TABLE>
PUGET SOUND ENERGY, INC
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended September 30 1998 1997
- ------------------------------- ---- ----
<S> <C> <C>
OPERATING REVENUES:
Electric $ 375,398 $ 288,683
Gas 49,955 46,135
Other 2,004 6,203
--------- ---------
Total operating revenue 427,357 341,021
--------- ---------
OPERATING EXPENSES:
Energy costs:
Purchased electricity 211,226 142,789
Purchased gas 17,174 16,493
Electric generation fuel 15,661 12,291
Residential Exchange (11,763) (13,885)
Utility operations and maintenance 52,213 55,690
Other operations and maintenance 1,305 5,721
Depreciation and amortization 41,988 46,533
Taxes other than federal income taxes 33,146 32,719
Federal income taxes 16,628 7,249
Total operating expenses 377,578 305,600
--------- ---------
OPERATING INCOME 49,779 35,421
OTHER INCOME 5,721 6,029
INCOME BEFORE INTEREST CHARGES 55,500 41,450
INTEREST CHARGES, net of AFUDC 34,409 29,452
--------- ---------
NET INCOME 21,091 11,998
Less: Preferred stock dividends accrual 3,226 3,516
Preferred stock redemption -- 471
--------- ---------
INCOME FOR COMMON STOCK $ 17,865 $ 8,953
========= =========
BASIC COMMON SHARES OUTSTANDING - WEIGHTED AVERAGE 84,561 84,561
========= =========
BASIC & DILUTED EARNINGS PER COMMON SHARE: $ 0.21 $ 0.11
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<CAPTION>
Nine Months Ended September 30 1998 1997
- ------------------------------ ---- ----
<S> <C> <C>
OPERATING REVENUES:
Electric $ 1,030,907 $ 858,229
Gas 274,529 274,554
Other 9,514 24,273
----------- ----------
Total operating revenue 1,314,950 1,157,056
----------- ----------
OPERATING EXPENSES:
Energy costs:
Purchased electricity 517,881 421,314
Purchased gas 117,700 117,838
Electric generation fuel 36,402 29,696
Residential Exchange (39,333) (50,766)
Utility operations and maintenance 171,976 184,362
Other operations and maintenance 4,226 17,466
Depreciation and amortization 123,171 122,811
Merger and related costs -- 55,789
Taxes other than federal income taxes 115,623 113,675
Federal income taxes 68,478 7,169
----------- ----------
Total operating expenses 1,116,124 1,019,354
----------- ----------
OPERATING INCOME 198,826 137,702
OTHER INCOME 10,234 28,736
----------- ----------
INCOME BEFORE INTEREST CHARGES 209,060 166,438
INTEREST CHARGES, net of AFUDC 102,466 88,391
----------- ----------
INCOME FROM CONTINUING OPERATIONS 106,594 78,047
DISCONTINUED OPERATIONS -- (2,622)
----------- ----------
NET INCOME 106,594 75,425
Less: Preferred stock dividends accrual 9,784 14,480
Preferred stock redemption -- 471
----------- ----------
INCOME FOR COMMON STOCK $ 96,810 $ 61,416
=========== ==========
BASIC COMMON SHARES OUTSTANDING - WEIGHTED AVERAGE 84,561 84,560
=========== ===========
BASIC & DILUTED EARNINGS (LOSS) PER COMMON SHARE:
From continuing operations $ 1.14 $ 0.76
From discontinued operations -- (0.03)
----------- -----------
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 1.14 $ 0.73
=========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended September 30, 1998 1997
- --------------------------------- ---- ----
<S> <C> <C>
Net Income $ 21,091 $ 11,998
Other comprehensive income, net of tax:
Unrealized holding losses on available
for sale securities (6,586) --
------------ -----------
Comprehensive Income $ 14,505 $ 11,998
============ ===========
</TABLE>
<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30, 1998 1997
- -------------------------------- ---- ----
<S> <C> <C>
Net Income $ 106,594 $ 75,425
Other comprehensive income, net of tax:
Unrealized holding losses on available
for sale securities (5,806) --
------------ -----------
Comprehensive Income $ 100,788 $ 75,425
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
<CAPTION>
September 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
UTILITY PLANT:
Electric $ 3,748,565 $ 3,632,652
Gas 1,299,013 1,231,109
Less: Accumulated depreciation
and amortization (1,689,511) (1,613,300)
----------- -----------
Net utility plant 3,358,067 3,250,461
----------- -----------
OTHER PROPERTY AND INVESTMENTS 249,179 279,644
----------- -----------
CURRENT ASSETS:
Cash 14,640 7,759
Accounts receivable 294,969 280,787
Materials and supplies, at average cost 61,512 54,423
Prepayments and other 11,282 5,420
----------- -----------
Total current assets 382,403 348,389
LONG-TERM ASSETS:
Regulatory asset for deferred income taxes 259,545 258,430
Tenaska regulatory asset 220,102 215,000
Other 138,903 141,446
----------- -----------
Total long-term assets 618,550 614,876
----------- -----------
TOTAL ASSETS $ 4,608,199 $ 4,493,370
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
CAPITALIZATION AND LIABILITIES
<CAPTION>
September 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
CAPITALIZATION:
Common shareholders' investment:
Common stock, $10 stated value,
150,000,000 shares authorized,
84,560,567 and 84,560,645 shares
outstanding $ 845,606 $ 845,606
Additional paid-in capital 450,763 450,845
Earnings reinvested in the business 26,221 46,672
Accumulated other comprehensive income 9,148 14,954
----------- -----------
1,331,738 1,358,077
Preferred stock not subject to
mandatory redemption 95,265 95,488
Preferred stock subject to
mandatory redemption 73,162 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 1,524,739 1,411,707
----------- -----------
Total capitalization 3,124,904 3,043,406
----------- -----------
CURRENT LIABILITIES:
Accounts Payable 168,045 116,548
Short-term debt 358,741 372,538
Current maturities of long-term debt 57,000 51,000
Purchased gas liability 2,970 876
Accrued expenses:
Taxes 58,709 73,636
Salaries and wages 16,088 15,326
Interest 29,683 27,704
Other 21,751 33,198
----------- -----------
Total current liabilities 712,987 690,826
----------- -----------
DEFERRED INCOME TAXES 632,355 629,018
----------- -----------
OTHER DEFERRED CREDITS 137,953 130,120
----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $ 4,608,199 $ 4,493,370
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30, 1998 1997
- -------------------------------- ---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations $ 106,594 $ 78,047
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 123,171 122,811
Deferred income taxes and tax credits - net 2,223 3,192
PRAM accrued revenues -- 40,777
Other 40,667 77,916
Change in certain current assets
and liabilities (Note 5) 2,824 (6,634)
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 275,479 316,109
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Construction expenditures - excluding
equity AFUDC (230,744) (176,306)
Additions to energy conservation program (4,730) (2,849)
Cash received from sale of conservation assets-net -- 34,380
Other (3,885) 17,785
- --------------------------------------------------------------------------------
Net Cash Used by Investing Activities (239,359) (126,990)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Decrease in short-term debt, net (13,797) (29,591)
Dividends paid (127,037) (127,664)
Issuance of common and preferred securities -- 100,066
Issuance of Bonds 200,000 --
Redemption of bonds and notes (81,002) (1)
Redemption of common and preferred stock (5,236) (128,742)
Issue costs of bonds and stock (2,167) (1,530)
- --------------------------------------------------------------------------------
Net Cash Used by Financing Activities (29,239) (187,462)
- --------------------------------------------------------------------------------
Increase in cash from continuing operations 6,881 1,657
Decrease in cash from discontinued operations:
Investing activities -- (2,622)
- --------------------------------------------------------------------------------
Net Increase (decrease) in cash 6,881 (965)
Cash at Beginning of year 7,759 4,335
Adjustment to conform fiscal year of WECo -- 39
================================================================================
Cash at End of Period $ 14,640 $ 3,409
================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NOTES TO CONSOLIDATED 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. One
immaterial subsidiary is stated on an equity basis.
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 and 4. 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.
(2) MERGER WITH WASHINGTON ENERGY COMPANY
Effective February 10, 1997, WECo and its wholly-owned subsidiary,
Washington Natural Gas Company, ("WNG") were merged into the Company, formerly
Puget Sound Power & Light Company ("PSPL"), which then changed its name to Puget
Sound Energy, Inc.
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 or $0.43
per share. In addition, pre-tax merger-related costs of $4.8 million or $0.04
per share were recognized in the fourth quarter of 1996 by PSPL.
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 tariff rate increase had a
positive impact on earnings while the decrease related to the PRAM did 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 tariff
rates were stipulated to increase between 1.0% to 1.5% depending on rate class
on January 1 of each of the three following years, while those for certain
customers will increase by 1.5% in the fourth year. General rates for all
classes of natural gas customers will remain unchanged until January 1, 1999,
when they will decrease sufficiently to reduce gas sales margin by 1 percent.
9
<PAGE>
(3) EARNINGS PER COMMON SHARE
Basic earnings per common share have been computed based on weighted
average common shares outstanding of 84,561,000 for the three and nine months
ended September 30, 1998 and 84,561,000 and 84,560,000 for the three and nine
months ended September 30, 1997, respectively.
Diluted earnings per common share have been computed based on weighted
average common shares outstanding of 84,696,000 and 84,680,000 for the three and
nine months ended September 30, 1998 and 84,626,000 and 84,618,000 for the three
and nine months ended September 30, 1997, respectively. These shares include the
dilutive effect of securities related to long-term employee compensation plans
approved by shareholders.
(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. 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.
(5) CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
The following provides additional information concerning cash flow
activities:
<CAPTION>
Nine Months Ended September 30 1998 1997
- ------------------------------ ----------- -----------
<S> <C> <C>
Changes in current asset and
current liabilities:
Accounts receivable $ (14,182) $ 95,921
Materials and supplies (7,090) (1,671)
Prepayments and Other (5,862) 2,386
Purchased gas liability 2,094 (29,314)
Accounts payable 51,497 (42,680)
Accrued expenses and Other (23,633) (31,276)
================================================================================
Net change in current assets and
current liabilities $ 2,824 $ (6,634)
================================================================================
Cash payments:
Interest (net of capitalized interest) $103,495 $ 81,123
Income taxes $66,360 $(2,152)
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
(6) OTHER
On June 15, 1998 the Company issued $200 million principal amount of
Senior Medium-Term Notes, Series A. The Notes are due June 15, 2018 with an
interest rate of 6.74%.
In September 1998, the Company filed a shelf-registration statement
with the Securities and Exchange Commission for the offering, on a delayed or
continuous basis, of up to $500 million principal amount of Senior Notes,
secured by a pledge of First Mortgage Bonds. The Senior Notes may be offered in
one or more series at prices and on terms to be determined at the time of
offering.
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.
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.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("Statement No. 133") which establishes accounting and reporting standards for
derivative instruments and hedging activities. Statement No. 133 is effective
for all fiscal years beginning after June 15, 1999. The Company has not yet
determined the effect Statement No. 133 will have on its financial statements or
the timing of adoption.
11
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's business includes some
forward-looking statements that involve risks and uncertainties. Words such as
"estimates," "expects," "anticipates," "plans," and similar expressions identify
forward-looking statements involving risks and uncertainties. Those risks and
uncertainties include, but are not limited to, the ongoing restructuring of the
electric and gas industries and the outcome of regulatory proceedings related to
that restructuring. The ultimate impacts of both increased competition and the
changing regulatory environment on future results are uncertain, but are
expected to fundamentally change how the Company conducts its business. The
outcome of these changes and other matters discussed below may cause future
results to differ materially from historic results, or from results or outcomes
currently expected or sought by the Company.
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 1998, was $21.1
million on operating revenues of $427.4 million, compared with net income of
$12.0 million on operating revenues of $341.0 million for the same period in
1997. Income for common stock was $17.9 million for the third quarter of 1998
and $9.0 million for the third quarter of 1997. Basic and Diluted earnings per
common share were $0.21 for the third quarter of 1998 compared to $0.11 for the
third quarter of 1997.
For the first nine months of 1998, net income was $106.6 million on
operating revenues of $1,315.0 million, compared with net income of $75.4
million on operating revenues of $1,157.1 million for the corresponding period
in 1997. Income for common stock was $96.8 million for the first nine months of
1998 and $61.4 million for the same period in 1997. Basic and diluted earnings
per common share were $1.14 for the nine months ended September 30, 1998 and
$0.73 for the same period in 1997.
The increase in net income and earnings per share for the first nine
months of 1998 compared to the first nine months of 1997 is primarily the result
of the absence of the after-tax charge of $36.3 million (43 cents per share) for
costs related to the merger which was recorded in the first quarter of 1997. Net
income for the first nine months of 1997 also included an after-tax charge of
$2.6 million (3 cents per share), related to a write off of the Company's
remaining investment in undeveloped coal reserves and related activities in
southeastern Montana. These charges in the first nine months of 1997 were
partially offset by $13.6 million (16 cents per share) of one time benefits
related to an income tax refund received in the second quarter of 1997.
Excluding the impact of these charges and credits to income, continuing
operations for the first nine months of 1998 produced earnings of $1.14 per
share compared to $1.03 in the first nine months of 1997.
Total kilowatt-hour sales were 7.9 billion, including 3.3 billion in
sales to other utilities, for the third quarter of 1998, compared to 7.1
billion, including 2.6 billion in sales to other utilities, for the third
quarter of 1997. For the nine month periods ended September 30, 1998 and 1997,
total kilowatt-hour sales were 21.8 billion, including 6.6 billion in sales to
other utilities, and 19.9 billion, including 5.0 billion in sales to other
utilities, respectively.
Total gas sales in the third quarter of 1998 were 127.7 million therms
compared to 128.9 million therms in the third quarter of 1997. Total gas sales
for the nine months ended September 30, 1998, were 678.6 million therms compared
to 686.1 million therms in the nine months ended September 30, 1997.
12
<PAGE>
The Company's operating revenues and associated expenses are not
generated evenly during the year. Variations in energy usage by customers occur
from season to season and from month to month within a season, primarily as a
result of changing 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 requirements of other utilities.
13
<PAGE>
<TABLE>
Results of Operations
Comparative Periods Ending
September 30, 1998 vs. September 30, 1997
Increase (Decrease)
<CAPTION>
Three Nine
Month Month
Period Period
--------------------------
(In Millions)
<S> <C> <C>
Operating revenue changes
General rate increases
(effective 2/10/97 and 1/1/98) $3.4 $14.4
PRAM revenues -- 44.8
BPA Residential Purchase & Sale Agreement (0.5) 0.2
Sales to other utilities 72.5 93.4
Electric load and other changes 11.4 19.9
Gas revenue change 3.8 --
Other revenue changes (4.2) (14.7)
------ ------
Total operating revenue change 86.4 158.0
------ ------
Operating expense changes Energy costs:
Purchased electricity 68.4 96.6
Purchased gas 0.7 (0.1)
Electric generation fuel 3.4 6.7
Residential exchange credit 2.1 11.4
Utility operations and maintenance (3.5) (12.4)
Other operations and maintenance (4.4) (13.2)
Depreciation and amortization (4.5) 0.4
Merger costs -- (55.8)
Taxes other than federal income taxes 0.4 1.9
Federal income taxes 9.4 61.3
------ ------
Total operating expense change 72.0 96.8
------ ------
Other income (0.3) (18.6)
Interest charges 5.0 14.0
------ ------
Income from continuing operations 9.1 28.6
Discontinued operations, net of tax -- (2.6)
------ ------
Net income change $9.1 $31.2
====== ======
The following is additional information pertaining to the changes outlined
in the above table.
</TABLE>
14
<PAGE>
OPERATING REVENUES
Electric operating revenues for both the three and nine month periods
ended September 30, 1998, increased compared to the same periods in 1997 due to
an overall average 1.8% general rate increase effective February 8, 1997 and an
overall average 1.2% general rate increase on January 1, 1998.
Electric operating revenues for the nine months ended September 30,
1998, increased $172.7 million compared to the same period in 1997 partially as
a result of a $48.6 million PRAM revenue reduction in the first quarter of 1997
associated with an IRS 1991-1994 Conservation tax refund and related interest
income. 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 revenue reduction in the
nine month period ended September 30, 1997 was offset by a decrease in federal,
state and local taxes as well as a decrease in interest expense and a
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 remainder of the Residential Exchange Termination Agreement from October
1998 through June 2001, it is projected that the Company will credit customers
approximately $193.3 million more than it will receive from BPA during the
following periods:
Dollars in
Period Millions
------ ----------
October- December 1998 $ 9.5
January - December 1999 71.6
January - December 2000 71.8
January - June 2001 40.4
------
$193.3
Electric sales to other utilities increased $72.5 million and $93.4
million in the quarter and nine months ended September 30, 1998, respectively,
over the same period in 1997 as wholesale sales to Duke Energy Trading and
Marketing and other transactions in which energy is delivered within the next
thirty days have increased. While wholesale sales volumes increased 27% and 34%
in the three and nine months ended September 30, 1998 compared to the same
periods in 1997, the dollar volumes associated with the sales increased more
dramatically because of higher wholesale market prices for electric energy.
Related power cost expenses for the periods also increased as the Company
generated and purchased more power for these sales. (See discussion of agreement
with Duke Energy Trading and Marketing under "Other".)
15
<PAGE>
Electric revenues increased $11.4 million and $19.9 million for the
quarter and nine months ended September 30, 1998 compared to the same periods in
1997 primarily as a result of 2% growth in the number of electric customers
served as well as strong commercial and industrial customer sales.
Gas operating revenues for the quarter ended September 30,1998
increased $3.8 million or 8.3% from the prior year quarter while gas volumes
decreased 1.0% from 128.9 million therms to 127.7 million therms. This resulted
from a decrease in industrial firm and transportation sales volumes with lower
prices and margins and an increase in residential firm sales with a higher price
and margin. Gas sales margin (regulated utility sales less the cost of gas sold)
increased by $2.1 million, or 7.9% in the third quarter of 1998 compared to the
same period in 1997.
Gas operating revenues for the nine months ended September 30, 1998 and
September 30, 1997, were $274.5 million and $274.6 million, respectively. During
this period, a 4.4% increase in gas customers was offset by the negative impact
of warmer weather on the company's gas heating load in the first quarter of 1998
compared to 1997. Gas margin in the nine months ended September 30, 1998
decreased slightly by $0.6 million or 0.4%.
Other revenues decreased in both the three months and nine months ended
September 30, 1998 as compared to the same periods in 1997 due primarily to the
sale of an unregulated subsidiary (Washington Energy Services Company) in
October 1997.
OPERATING EXPENSES
Purchased electricity expenses increased $68.4 million and $96.6
million for the three and nine month periods ended September 30, 1998,
respectively, compared to the same periods in 1997. The increases were due
primarily to increased secondary power purchases from other utilities to support
wholesale sales and higher payments for firm power purchases from non-utility
generators.
Fuel expense increased $3.4 million and $6.7 million in the three and
nine month periods ended September 30, 1998, respectively, as compared to the
same periods in 1997 primarily due to the Company generating more electricity at
Company-owned gas-fired combustion turbine plants. These increases were
partially offset by reductions to Colstrip fuel expense. In September 1998, the
Company recorded a reduction of $4.9 million in fuel expense and $3.5 million of
interest income related to the resolution of outstanding issues with the
Colstrip coal supplier.
Residential exchange credits associated with the Residential Purchase
and Sale Agreement with BPA decreased $2.1 million and $11.4 million in the
three and nine months ended September 30, 1998 when compared to the same periods
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 $3.5 million and
$12.4 million for the three and nine month periods ended September 30, 1998,
respectively, compared to the same periods in 1997. The decreases are primarily
the result of improved operating efficiencies as a result of the merger in 1997.
Other operations and maintenance expenses decreased $4.4 million and
$13.2 million for the three and nine month periods ended September 30, 1998,
respectively, compared to the same periods in 1997. The decreases are primarily
the result of the sale of the Company's unregulated subsidiary Washington Energy
Services Company in October 1997.
16
<PAGE>
Depreciation and amortization expense decreased $4.5 million and
increased $0.4 million for the three and nine month periods ended September 30,
1998, respectively, from the same periods in 1997. The decrease in the quarter
was the result of an August 1997 Washington Commission Order which authorized
the Company to record interest income of $8.3 million related to a conservation
tax refund but required the Company to expense deferred storm damage costs in
the amount of $7.4 million, and establish a $1.0 million reserve to cover the
costs of a Company retail pilot program.
Merger related costs recorded in the nine months ended September 30,
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 was $36.3 million or 43 cents per share during the first nine
months of 1997. (See Footnote 2 to the Consolidated Financial Statements.)
Federal income taxes increased $9.4 million for the three months ended
September 30, 1998, primarily due to higher pre-tax operating income from
continuing operations for the quarter.
Federal income taxes increased $61.3 million for the nine months ended
September 30, 1998 from the same period in 1997 due to higher pre-tax operating
income from continuing operations in 1998 and a number of factors in 1997. An
IRS tax refund related to the method of accounting for taxes on conservation
expenditures during the first quarter of 1997 decreased federal income taxes by
$26.5 million. In addition, there was a $17.0 million reduction 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.
OTHER INCOME
Other income, net of federal income tax, decreased $0.3 million and
$18.6 million for the three months and nine months periods ending September 30,
1998, respectively, compared to the same periods in 1997. In September, 1998 the
Company recorded $4.5 million of interest income related to the resolution of
outstanding issues with a coal supplier. In September 1997, the Company recorded
$8.4 million of interest income associated with a conservation tax refund under
an order from the Washington Commission which authorized the Company to record
the interest income and to write-off deferred storm damage costs in the amount
of $7.4 million and establish a $1.0 million reserve to cover the costs of a
Company retail pilot program. The decrease in the nine month period ending
September 30, 1998, was also due to the receipt of interest income in 1997 of
$13.6 million from the IRS on tax refunds for prior years in connection with a
plant abandonment loss, conservation tax refunds and certain additional research
and experimental credits claimed for tax purposes.
INTEREST CHARGES
Interest charges, which consist of interest and amortization on long-term
debt and other interest, increased $5.0 million and $14.0 million for the three
and nine month periods ended September 30, 1998, respectively, compared to the
same periods in 1997 as a result of the issuance of $300 million 7.02% Senior
Medium-Term Notes, Series A, in December 1997, the issuance of $100 million
8.231% Capital Trust Debentures in June 1997 and the issuance of $200 million
6.74% Senior Medium-Term Notes, Series A in mid-June 1998. These increases were
partially offset by the maturity of $100 million Secured Medium-Term Notes,
Series A in October 1997, $10 million Secured Medium-Term Notes, Series B in
February 1998 and $5 million Secured Medium-Term Notes, Series B in March 1998.
17
<PAGE>
CONSTRUCTION, CAPITAL RESOURCES AND LIQUIDITY
Construction expenditures (excluding AFUDC) for the third quarter of
1998 were $89.3 million, including $2.4 million of conservation expenditures,
compared to $61.4 million, including $2.3 million of conservation expenditures,
for the third quarter of 1997. Year-to-date construction expenditures (excluding
AFUDC) totaled $229.7 million, including $4.7 million of conservation
expenditures, compared to $175.3 million, including $2.7 million of conservation
expenditures, for the same period in 1997. Construction expenditures (excluding
AFUDC) for 1998 and 1999 are expected to be $311 million and $274 million,
respectively. Construction expenditure estimates are subject to periodic review
and adjustment.
Cash provided by operations (net of dividends and AFUDC) as a
percentage of construction expenditures (excluding AFUDC) was 0.0% and (42.5)%
for the third quarters of 1998 and 1997, respectively. Cash provided by
operations (net of dividends and AFUDC) as a percentage of construction
expenditures (excluding AFUDC) was 62.1% and 105.4% for the nine month periods
ended September 30, 1998 and 1997, respectively.
On September 30, 1998, the Company had available $375.0 million in
lines of credit with various banks, which provide credit support for outstanding
commercial paper borrowing of $112.2 million, reducing the available borrowing
capacity under these lines of credit to $262.8 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.
YEAR 2000 CONVERSION
BACKGROUND
The Year 2000 problem results from the use of two digits rather than four digits
in computer hardware and software to define the applicable year (i.e. 98 instead
of 1998). If not corrected on computer systems that must process dates both
before and after January 1, 2000, two digit year "fields" may create processing
errors or system failures. The Company's goal is to be Year 2000 ready which
means that critical systems, devices, applications and business relationships
have been evaluated and are expected to be suitable for continued use into and
beyond the Year 2000, or contingency plans are in place.
PROJECT APPROACH AND PROGRESS
The Company has established a central project team to coordinate all Year 2000
activities and identified exposure in three categories: information technology;
embedded chip technology; and external non-compliance by customers and
suppliers. The project team is taking a phased approach in conducting the Year
2000 project for its internal systems. The phases include inventory, assessment,
planning/prioritizing, remediation, testing, implementation and contingency
planning. In addition, the Company has engaged outside consultants and
technicians to aid in formulating and implementing its plan. All business units,
excluding embedded systems, have completed the discovery phase. Assessment is
scheduled to continue until November 1998, with remediation, testing and
implementation scheduled to be completed during the second quarter of 1999.
18
<PAGE>
The Company has been upgrading mainframe and client server financial and
business applications since 1997 and replacing many of its business systems as
part of its business plans following its merger in 1997. In September , 1998,
the Company implemented a SAP business system which includes substantially all
of the Company's business applications with the exception of its customer
service information system. Implementation of a new customer service information
system is currently scheduled to begin in the fourth quarter of 1998 and to be
complete by mid-year 1999. The new systems and software are designed to be Year
2000 compliant. The remainder of the applications and operating environments are
in the remediation/testing phase. Full implementation of all applications and
components of the Company's internal systems are scheduled for completion by
mid-year 1999.
A specialized team has been formed by the Company to inventory, assess and
remediate embedded technology in its generation, transmission and distribution
systems for both gas and electric operations. The project is currently in the
discovery phase. An engineering consulting firm has been retained to assist the
Company in accelerating the assessment phase of the project. The consulting firm
has an assessment database of 30,000 components used in the utilities industry.
The assessment phase is scheduled to be completed in December 1998. At that
time, remediation, testing and implementation will commence, and are scheduled
to be completed by the end of the second quarter of 1999. Contingency planning
specific to the Year 2000 issue will begin in November 1998, yielding
preliminary plans by the end of 1998. These plans will be refined and updated as
remediation and test results are analyzed, and are scheduled for completion in
third quarter of 1999.
The Company is also communicating with suppliers, financial institutions and
other business partners to coordinate Year 2000 conversion and determine the
extent to which the Company is exposed to third party compliance failures.
Approximately 20% of vendors and suppliers have been contacted to date. All
third party assessment is scheduled to be completed in January 1999.
In addition, the Company is working with various industry groups including the
North American Electric Reliability Council (NERC) and the regional reliability
council, the Western Systems Coordinating Council (WSCC) in an effort to make
electricity production and delivery systems reliable during the millennium
transition. The United States Department of Energy has asked NERC to assume a
leadership role in preparing the U.S. electric industry for the transition to
the Year 2000.
COSTS
While the replacement of business systems under business plans developed as a
result of the 1997 merger are not included in the Company's Year 2000 project,
those replacements substantially reduce the number of internal business
applications that require remediation. In addition to the costs of replacing new
business systems, the Company has expended approximately $1.0 million through
September 30, 1998 on Year 2000 remediation efforts, exclusive of internal labor
costs. Although it is difficult to determine the total remaining costs of
implementing the Year 2000 plan, the Company's current estimate is approximately
$11 million. Approximately one third of these costs will be capitalized and the
remainder will be expensed.
19
<PAGE>
RISK ASSESSMENT
The Company's current customer service information system is not Year 2000
compliant and is being replaced. The implementation is expected to be completed
by mid-year 1999. The Company's ability to invoice and collect for services is
dependent upon implementation of the new system or remediation of the current
system. If the system is not implemented (or the current system remediated) by
the year 2000, certain normal business activities such as customer billing and
collections could be adversely affected by interruptions.
The electric power-supply systems of North America are connected into three
major interconnections called grids. The western grid covers the western third
of the U.S., western Canada and parts of Mexico. Operational component failures
of any entity connected to the grid could cause failures in that grid. The
Company will need to continue to assess this risk as the millennium approaches
to evaluate the likelihood of power failures and develop approaches for
mitigating the risk of failures.
Much of the natural gas and electric systems are comprised of wires, poles and
pipes containing no imbedded chips. However, these systems do employ some
computer components that could be affected by the Year 2000 transition. Since
many of the components used by the Company exist in multiple sub-station
locations, there is a risk that a component could be missed, a component
manufacturer could provide erroneous information, or the component (while deemed
and tested compliant) could fail in a specific configuration found at the
Company . The Company has formed a special team to handle these types of
components (embedded systems), and retained an engineering firm with specific
utility experience to assist in the effort.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, Company business activities or operations.
Such failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem and the Year 2000
readiness of its material vendors. The Company believes that, with the
implementation of new business systems and completion of the project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
CONTINGENCY PLANS
The Company has started a process to identify various scenarios that could occur
in the event that Year 2000 issues are not resolved in a timely manner. Existing
emergency preparedness plans will be updated, and contingency plans will be
developed as necessary to address the risk scenarios. Contingency planning is
scheduled to continue through the third quarter of 1999.
20
<PAGE>
FORWARD LOOKING STATEMENTS
Readers are cautioned that forward-looking statements contained in the Year 2000
update are based on management's best estimates and may be influenced by factors
that could cause actual outcomes and results to be materially different than
projected. Specific factors that might cause differences between the estimates
and actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability to locate and correct all relevant
computer code, timely responses to and corrections by third-parties and
suppliers, the ability to implement new systems in a timely manner, the ability
to implement interfaces between the new systems and the systems not being
replaced, and similar uncertainties. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-parties and the interconnection of global businesses, the
Company cannot ensure its ability to timely and cost-effectively resolve
problems associated with Year 2000 issues that may affect its operations and
business, or expose it to third-party liability.
OTHER
On March 20, 1991, the Company executed a 20-year contract to purchase
energy and 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 have lowered
purchased power costs from the Tenaska project by restructuring its natural gas
supply. The project's original long-term gas supply contracts contained fixed
and escalating gas prices that were well above the current and projected future
market prices for natural gas. As a result of the restructuring, the Company is
now 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.
On April 1, 1998 the Company and Duke Energy Trading and Marketing
(DETM) of Houston, a unit of Duke Energy Corp., signed an agreement relating to
energy-marketing and trading activities in 14 western States and British
Columbia. The purpose of this agreement is to coordinate the two companies'
activities in serving Puget Sound Energy's native power load with DETM's Western
power and natural gas marketing and trading operations. The companies share the
benefits of this coordination proportionally up to certain stipulated amounts
intended to be reflective of the value the companies would have realized from
their respective operations in the absence of the agreement. The companies share
equally any benefits created above the stipulated amounts.
Under the terms of the agreement, DETM performs the forward electric
energy trading function. As a result, the Company's future wholesale "sales to
other utilities" revenues and related "secondary purchase" power expenses, which
previously have reflected trading activity by the Company, will be lower than
amounts which the Company would report absent this agreement. During the third
quarter of 1998, the Company continued to execute in its own name transactions
in which electric energy is delivered within the next thirty days. Therefore,
during this interim period, the Company's results include those transactions.
When fully implemented, the Company will only record as "sales to other
utilities" or "secondary purchases" sales to or purchases from DETM reflecting
the Company's net energy surplus or deficiency over the reporting period. The
Company will also record its share of the benefits that result from the
agreement. The agreement provides that forward trading activities will be
conducted according to DETM's energy price risk and credit policies, and that
the Company is not responsible for any losses caused by deviation from these
policies.
21
<PAGE>
On June 25, 1998, the Company received approval from the Washington
Commission to begin a new performance-based mechanism for strengthening its
gas-supply purchasing and gas-storage practices. The Purchase Gas Adjustment
(PGA) Incentive Mechanism, which encourages competitive gas purchasing and
management of pipeline and storage-capacity became effective July 1, 1998.
Incentive gains and losses from the three-year experimental program are shared
between customers and shareholders. Currently, the Company manages more than 40
natural gas supply and pipeline contracts, making sure that supplies arrive in
sufficient quantities through pipeline capacity contracts. It purchases natural
gas supplies from producers primarily in western Canada and the U.S. Rocky
Mountains. The Company's supply portfolio includes low-cost natural gas
purchased during the summer and stored for winter use. The Company expects the
PGA Incentive Mechanism to produce modest increases in gas margin. No gains or
losses were recognized in the third quarter of 1998 as realized amounts were
below minimum thresholds for ratemaking purposes.
On July 8, 1998, the Washington Commission approved the Company's
requested accounting treatment for its program to reduce costly tree-caused
power outages. The Tree Watch program, which focuses on controlling vegetation
outside the Company's rights-of-way, should improve service reliability for its
customers and result in future savings in outage recovery costs. The five-year
$43 million program will be treated as an investment that will be amortized over
10 years. The Company expects the Tree Watch investment to be offset by savings
from lower outage restoration and storm damage costs over the same period.
On November 2, 1998, the Company announced it signed an agreement to sell
the Company's 735-megawatt interest in the four-unit, coal-fired Colstrip
generation plant in eastern Montana, as well as associated transmission
facilities. The Company signed the agreement with PP&L Global, Inc., of Fairfax,
Virginia, a subsidiary of PP&L Resources, Inc. Included in the sale are the
Company's 50 percent interest in Colstrip Units 1 and 2; 25 percent interest in
Units 3 and 4; and associated Colstrip transmission capacity across Montana. The
sales price is expected to be $549 million before taxes and expenses. The net
book value of these assets and related regulatory assets is approximately $464
million. The Company expects the Colstrip sale to close in the second half of
1999. Completion of the sale is contingent on receipt of acceptable regulatory
treatment from the Washington Utilities and Transportation Commission and the
Federal Energy Regulatory Commission.
The Company has also agreed to join with the other owners of the
coal-fired generating plant at Centralia, Washington by offering for sale its 92
megawatt ownership interest in the facility. As part of the sale process, an
independent consultant has been hired to review the projected reclamation
liability related to the coal mining operations (the study is scheduled for
completion in early 1999).
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.
22
<PAGE>
For a discussion of FASB Statement No. 132, "Employers Disclosures
about Pensions and Other Postretirement Benefits", see Note 6 to the
Consolidated Financial Statements.
For a discussion of FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", see Note 6 to the Consolidated Financial
Statements.
23
<PAGE>
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
Contingencies arising out of the normal course of the Company's
business, exist at September 30, 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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In accordance with the Company's Bylaws, a shareholder proposing to
transact business at the Company's annual meeting must provide written notice of
such proposal, in the manner required by the Company's Bylaws, no later than 120
days prior to the date of such annual meeting (or, if the Company provides less
than 120 days' notice of such meeting, no later than 10 days after the date of
the Company's notice). For a shareholder proposal to be considered for inclusion
in the Company's proxy materials relating to its 1999 Annual Meeting of
Shareholders, such proposal must be received at the principal executive office
of the Company no later than December 1, 1998. In addition, if the Company
receives notice of a shareholder proposal after February 15, 1999, the persons
named as proxies in the Company's proxy materials will have discretionary
authority to vote on such shareholder proposal.
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
September 30, 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 September 30, 1998)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
24
<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: November 13, 1998 Chief accounting officer and officer duly
authorized to sign this report on behalf
of the registrant
25
<PAGE>
<TABLE>
Exhibit 12a
STATEMENT SETTING FORTH COMPUTATIONS OF RATIOS OF
EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<CAPTION>
12 Months
Ending
September Year Ended December 31,
30, 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 $ 154,246 $ 125,698 $ 167,351 $ 128,382 $ 79,312 $ 163,812
Federal income taxes 100,371 47,725 107,747 91,519 74,816 93,702
Federal income taxes
charged to other
income - net (1,270) 11,876 (1,608) (12,068) 22,687 (418)
Capitalized interest (211) (360) (600) (660) (400) (791)
Undistributed
(earnings) or losses
of less-than-fifty-
percent-owned entities -- (608) 460 8,325 743 --
- -------------------------- --------- --------- --------- --------- --------- ---------
Total $ 253,136 $ 184,331 $ 273,350 $ 215,498 $ 177,158 $ 256,305
Fixed charges:
Interest expense $ 139,412 $ 123,439 $ 122,635 $ 131,346 $ 126,555 $ 120,962
Other interest 211 360 600 660 400 791
Portion of rentals
representative of the
interest factor 2,827 3,143 4,187 5,150 5,555 5,570
- -------------------------- --------- --------- --------- --------- --------- ---------
Total $ 142,450 $ 126,942 $ 127,422 $ 137,156 $ 132,510 $ 127,323
Earnings available for
combined fixed charges $ 395,586 $ 311,273 $ 400,772 $ 352,654 $ 309,668 $ 383,628
========= ========= ========= ========= ========= =========
RATIO OF EARNINGS TO
FIXED CHARGES 2.78x 2.45x 3.15x 2.57x 2.34x 3.01x
</TABLE>
<PAGE>
<TABLE>
Exhibit 12b
STATEMENT SETTING FORTH COMPUTATIONS OF RATIOS OF
EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<CAPTION>
12 Months
Ending
September Year Ended December 31,
30, 1998 1997 1996 1995 1994 1993
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR
COMBINED FIXED CHARGES
AND PREFERRED DIVIDEND
REQUIREMENTS
Pre-tax income:
Income from continuing $154,246 $125,698 $167,351 $128,382 $ 79,312 $163,812
operations per
statement of income
Federal income taxes 100,371 47,725 107,747 91,519 74,816 93,702
Federal income taxes
charged to other
income - net (1,270) 11,876 (1,608) (12,068) 22,687 (418)
-------- -------- -------- -------- -------- ---------
Subtotal 253,347 185,299 273,490 207,833 176,815 257,096
Capitalized interest (211) (360) (600) (660) (400) (791)
Undistributed
(earnings) or losses
of less-than-fifty-
percent-owned entities -- (608) 460 8,325 743 --
-------- -------- -------- -------- -------- --------
Total $253,136 $184,331 $273,350 $215,498 $177,158 $256,305
Fixed charges:
Interest expense $139,412 $123,439 $122,635 $131,346 $126,555 $120,962
Other interest 211 360 600 660 400 791
Portion of rentals
representative of the
interest factor 2,827 3,143 4,187 5,150 5,555 5,570
-------- -------- -------- -------- -------- --------
Total $142,450 $126,942 $127,422 $137,156 $132,510 $127,323
Earnings available for
combined fixed charges
and preferred dividend
requirements $395,586 $311,273 $400,772 $352,654 $309,668 $383,628
======== ======== ======== ======== ======== ========
DIVIDEND REQUIREMENT:
Fixed charges above $142,450 $126,942 $127,422 $137,156 $132,510 $127,323
Preferred dividend
requirements below 21,533 26,250 36,249 36,674 45,441 29,904
-------- -------- -------- -------- -------- --------
Total $163,983 $153,192 $163,671 $173,830 $177,951 $157,227
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
12 Months
Ending
September Year Ended December 31,
30, 1998 1997 1996 1995 1994 1993
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO
COMBINED FIXED CHARGES
AND PREFERRED DIVIDEND
REQUIREMENTS 2.41 2.03 2.45 2.03 1.74 2.44
COMPUTATION OF PREFERRED
DIVIDEND REQUIREMENTS:
(a) Pre-tax income $253,347 $185,299 $273,490 $207,833 $176,815 $257,096
(b) Income from
continuing
operations $154,246 $125,698 $167,351 $128,382 $79,312 $163,812
(c) Ratio of (a) to (b) 1.6425 1.4742 1.6342 1.6189 2.2294 1.5695
(d) Preferred dividends $13,110 $17,806 $22,181 $22,654 $20,383 $19,054
Preferred dividend
requirements
[(d) multiplied by (c)] $21,533 $26,250 $36,249 $36,674 $45,441 $29,904
</TABLE>
<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> JUL-01-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,358,067
<OTHER-PROPERTY-AND-INVEST> 249,179
<TOTAL-CURRENT-ASSETS> 382,403
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 618,550
<TOTAL-ASSETS> 4,608,199
<COMMON> 845,606
<CAPITAL-SURPLUS-PAID-IN> 450,763
<RETAINED-EARNINGS> 35,369
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,331,738
173,162
95,265
<LONG-TERM-DEBT-NET> 1,524,739
<SHORT-TERM-NOTES> 246,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 112,241
<LONG-TERM-DEBT-CURRENT-PORT> 57,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,067,554
<TOT-CAPITALIZATION-AND-LIAB> 4,608,199
<GROSS-OPERATING-REVENUE> 1,314,950
<INCOME-TAX-EXPENSE> 68,478
<OTHER-OPERATING-EXPENSES> 1,047,646
<TOTAL-OPERATING-EXPENSES> 1,116,124
<OPERATING-INCOME-LOSS> 198,826
<OTHER-INCOME-NET> 10,234
<INCOME-BEFORE-INTEREST-EXPEN> 209,060
<TOTAL-INTEREST-EXPENSE> 102,466
<NET-INCOME> 106,594
9,784
<EARNINGS-AVAILABLE-FOR-COMM> 96,810
<COMMON-STOCK-DIVIDENDS> 116,694
<TOTAL-INTEREST-ON-BONDS> 89,537
<CASH-FLOW-OPERATIONS> 275,479
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
