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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 MARCH 31, 2000
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 _________
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COMMISSION FILE NUMBER 1-4393
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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 March 31, 2000
was 85,225,268.
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<PAGE>
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income - 3 month periods
ended March 31, 2000 and 1999 3
Consolidated Statements of Comprehensive Income -
3 month periods ended March 31, 2000 and 1999 4
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 5
Consolidated Statements of Cash Flows - 3 month
periods ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
<TABLE>
PUGET SOUND ENERGY, INC
CONSOLIDATED STATEMENTS OF INCOME
For the Three Month Periods Ended March 31
(Thousands except per share amounts)
(Unaudited)
<CAPTION>
2000 1999
------------ ------------
<S> <C> C>
OPERATING REVENUES:
Electric $ 438,356 $ 400,814
Gas 205,469 170,843
Other 3,398 3,675
------------ ------------
Total operating revenue 647,223 575,332
------------ ------------
OPERATING EXPENSES:
Energy costs:
Purchased electricity 196,203 185,156
Purchased gas 108,205 78,256
Electric generation fuel 20,749 9,877
Residential Exchange (12,199) (11,684)
Utility operations and maintenance 54,878 60,831
Other operations and maintenance 3,775 7,689
Depreciation and amortization 45,885 42,621
Conservation amortization 2,619 1,721
Taxes other than federal income taxes 58,485 50,614
Federal income taxes 52,738 48,321
------------ ------------
Total operating expenses 531,338 473,402
------------ ------------
OPERATING INCOME 115,885 101,930
OTHER INCOME 4,390 3,747
------------ ------------
INCOME BEFORE INTEREST CHARGES 120,275 105,677
INTEREST CHARGES, net of AFUDC 42,083 35,922
------------ ------------
NET INCOME 78,192 69,755
Less: Preferred stock dividends accrual 2,303 2,876
INCOME FOR COMMON STOCK $ 75,889 $ 66,879
============ ============
COMMON SHARES OUTSTANDING - WEIGHTED AVERAGE 85,074 84,561
============ ============
BASIC & DILUTED EARNINGS PER COMMON SHARE: $ 0.89 $ 0.79
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Month Periods Ended March 31
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Net Income $ 78,192 $ 69,755
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
arising during period 3,845 (780)
Reclassification adjustment for gains
included in net income (683) --
-------------- -------------
Other comprehensive income 3,162 (780)
-------------- -------------
Comprehensive Income $ 81,354 $ 68,975
============== =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
2000 1999
---- ----
<S> <C> <C>
UTILITY PLANT: (at original cost, including
construction work in progress of $299,339
and $311,317 respectively)
Electric $ 3,995,306 $ 3,966,220
Gas 1,387,283 1,371,589
Common 333,181 314,770
Less: Accumulated depreciation
and amortization 1,943,926 1,901,658
--------------- --------------
Net utility plant 3,771,844 3,750,921
--------------- --------------
OTHER PROPERTY AND INVESTMENTS 267,632 264,204
--------------- --------------
CURRENT ASSETS:
Cash 65,049 65,707
Accounts receivable 209,874 213,020
Unbilled revenue 96,839 121,303
Materials and supplies, at average cost 49,743 69,241
Purchased gas receivable 20,998 33,700
Prepayments and other 10,566 9,822
--------------- --------------
Total current assets 453,069 512,793
--------------- --------------
LONG-TERM ASSETS:
Regulatory asset for deferred income taxes 225,216 228,454
PURPA buyout costs 240,259 238,734
Other 159,894 150,500
--------------- --------------
Total long-term assets 625,369 617,688
--------------- --------------
TOTAL ASSETS $ 5,117,914 $ 5,145,606
=============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
2000 1999
----- ----
<S> <C> <C>
CAPITALIZATION:
Common shareholders' investment:
Common stock, $10 stated value,
150,000,000 shares authorized,
85,225,268 and 84,922,405 shares outstanding $ 852,253 $ 849,224
Additional paid-in capital 459,854 454,982
Earnings reinvested in the business 102,124 66,019
Accumulated other comprehensive income 12,010 8,848
Preferred stock not subject to
mandatory redemption 60,000 60,000
Preferred stock subject to
mandatory redemption 58,162 65,662
Corporation obligated, mandatorily redeemable
preferred securities of subsidiary
trust holding solely junior subordinated
debentures of the corporation 100,000 100,000
Long-term debt 1,914,783 1,783,139
------------- -------------
Total capitalization 3,559,186 3,387,874
------------- -------------
CURRENT LIABILITIES:
Accounts Payable 130,666 178,218
Short-term debt 421,113 604,712
Current maturities of long-term debt 25,000 47,620
Accrued expenses:
Taxes 137,199 72,688
Salaries and wages 18,656 18,023
Interest 34,402 43,955
Other 28,649 24,129
------------- -------------
Total current liabilities 795,685 989,345
------------- -------------
DEFERRED INCOME TAXES 635,497 636,735
------------- -------------
OTHER DEFERRED CREDITS 127,546 131,652
------------- -------------
TOTAL CAPITALIZATION AND LIABILITIES $ 5,117,914 $ 5,145,606
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
6
<PAGE>
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month Periods Ended March 31
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 78,192 $ 69,755
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 45,885 42,621
Deferred income taxes and tax credits - net 2,000 5,490
Other (7,249) 4,763
Change in certain current assets
and liabilities (Note 3) 71,625 29,568
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Net Cash Provided by Operating Activities 190,453 152,197
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INVESTING ACTIVITIES:
Construction expenditures - excluding equity AFUDC (76,628) (92,114)
Additions to energy conservation program (947) (678)
Other 4,222 2,620
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Net Cash Used by Investing Activities (73,353) (90,172)
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FINANCING ACTIVITIES:
Change in short-term debt, net (183,599) (224,962)
Dividends paid (net of newly issued shares totaling
$6,720 in 2000) (34,720) (41,746)
Redemption of preferred stock (7,500) (12,578)
Issuance of bonds 225,000 250,000
Redemption of bonds and notes (115,980) (10,358)
Issue costs of bonds and stock (959) (1,878)
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Net Cash Used by Financing Activities (117,758) (41,522)
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Net Increase in cash (658) 20,503
Cash at Beginning of year 65,707 28,216
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Cash at End of Period $ 65,049 $ 48,719
==============================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
7
<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. Certain
amounts previously reported have been reclassified to conform with current year
presentations with no effect on total equity or net income.
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. These condensed financial statements should be
read in conjunction with the Company's annual report on Form 10-K.
(2) EARNINGS PER COMMON SHARE
Basic earnings per common share have been computed based on weighted
average common shares outstanding of 85,074,000 and 84,561,000 for the three
months ended March 31, 2000 and 1999, respectively.
Diluted earnings per common share have been computed based on weighted
average common shares outstanding of 85,291,000. and 84,829,000 for the three
months ended March 31, 2000 and 1999, respectively. These shares include the
dilutive effect of securities related to long-term employee compensation plans
approved by shareholders.
(3) CONSOLIDATED STATEMENTS OF CASH FLOWS
The following provides additional information concerning cash flow
activities:
<TABLE>
<CAPTION>
Three Months Ended March 31 2000 1999
- --------------------------- ---- ----
<S> <C> <C>
Changes in current asset and current liabilities:
Accounts receivable and unbilled revenue $ 27,610 $ 39,399
Materials and supplies 19,498 11,742
Prepayments and Other (744) (3,660)
Purchased gas receivable 12,702 (99)
Accounts payable (47,552) (68,552)
Accrued expenses and Other 60,111 50,738
- --------------------------------------------------------------- --------------
Net change in current assets and current liabilities $ 71,625 $ 29,568
==============================================================================
Cash payments:
Interest (net of capitalized interest) $52,917 $ 44,641
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Income taxes -- --
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</TABLE>
8
<PAGE>
(4) SEGMENT INFORMATION
The Company primarily operates in one business segment, Regulated Utility
Operations. The Company's regulated utility operation generates, purchases and
sells electricity and purchases, transports and sells natural gas. The Company's
service territory covers approximately 6,000 square miles in the state of
Washington.
Principal non-utility lines of business include computer billing system
software, real estate investment and development and small hydro-electric
project development. Reconciling items between segments are not material.
Financial data for business segments are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Regulated
Three Months Ended March 31, 2000 Utility Other Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 643,827 $ 3,396 $ 647,223
Net Income 76,357 1,835 78,192
Total Assets 4,965,512 152,402 5,117,914
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Regulated
Three Months Ended March 31, 1999 Utility Other Total
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Revenues $ 571,657 $ 3,675 $ 575,332
Net Income 72,559 (2,804) 69,755
Total Assets 4,605,932 115,178 4,721,110
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</TABLE>
(5) OTHER
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. On March 9, 1999, the Company issued $250
million principal amount of Senior Medium-Term Notes, Series B, which consisted
of $150 million principal amount due March 9, 2009 at an interest rate of 6.46%
and $100 million principal amount due March 9, 2029 at an interest rate of 7.0%.
On February 22, 2000, the Company issued $225 million principal amount of 7.96%
Senior Medium-Term Notes, Series B due February 22, 2010. Proceeds were used to
redeem the Encogen project debt of approximately $112 million assumed by the
Company on November 1, 1999 upon the purchase of the Encogen project and pay
down a portion of the Company's short-term debt.
9
<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 March 31, 2000, was $78.2 million
on operating revenues of $647.2 million, compared with net income of $69.8
million on operating revenues of $575.3 million for the same period in 1999.
Income for common stock was $75.9 million for the first quarter of 2000 compared
to $66.9 million for the first quarter of 1999. Basic and diluted earnings per
share were $0.89 for the first quarter of 2000 compared to $0.79 for the first
quarter of 1999.
The increase in net income and earnings per share in the first quarter
of 2000 compared to the first quarter of 1999, reflected continued growth in the
number of electric and natural gas customers served and favorable electric
wholesale prices. These same factors contributed to improved energy margins in
the quarter compared to the comparable period one year ago. First quarter
utility O&M expenses were $54.9 million compared to $60.8 million in the same
period one year ago. A series of fierce wind storms in the first quarter of 1999
resulted in service restoration costs that were $7.4 million higher than the
first quarter of 2000.
Total kilowatt-hour electric sales were 8.5 billion, including 2.4
billion in sales to other utilities and marketers, for the first quarter of
2000, compared to 8.7 billion, including 2.7 billion in sales to other utilities
and marketers, for the first quarter of 1999.
Total gas volumes were 402.5 million therms, including 58.6 million
therms in transportation volumes for the three months ended March 31, 2000,
compared to 392.3 million therms, including 69.1 million therms of
transportation, for the same period in 1999.
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 and marketers also vary by quarter and year depending
principally upon water conditions for the generation of hydroelectric power,
retail customer usage and the energy requirements of other utilities.
Temperatures based on heating-degree-days measured at Seattle-Tacoma
airport during the three month periods ended March 31, 1999 and 2000, were near
normal.
10
<PAGE>
Results of Operations
Comparative Three Month Periods Ending
March 31, 2000 vs. March 31, 1999
Increase (Decrease)
<TABLE>
<CAPTION>
Three Month Period
(In Millions)
------------------
<S> <C>
Operating revenue changes
General rate increase - electric $4.1
BPA Residential Purchase & Sale Agreement (0.3)
Electric sales to wholesale customers 15.0
Electric load and other changes 18.8
Gas revenue change 34.6
Other revenue changes (0.3)
----------------
Total operating revenue change 71.9
----------------
Operating expense changes Energy costs:
Purchased electricity 11.0
Purchased gas 29.9
Electric generation fuel 10.9
Residential exchange credit (0.5)
Utility operations and maintenance (6.0)
Other operations and maintenance (3.9)
Depreciation and amortization 3.3
Conservation amortization 0.9
Taxes other than federal income taxes 7.9
Federal income taxes 4.4
----------------
Total operating expense change 57.9
----------------
Other income 0.6
Interest charges 6.2
----------------
Net income change $8.4
================
</TABLE>
The following is additional information pertaining to the changes outlined in
the above table.
11
<PAGE>
OPERATING REVENUES - ELECTRIC
Electric revenues for the quarter ended March 31, 2000 were $438.4
million, up $37.5 million or 9.4% over the same period in 1999. Revenues in the
first quarter of 2000 increased $4.1 million compared to the first quarter of
1999 due to an average 1.2% general electric rate increase effective January 1,
2000. A 1.8% increase in the number of electric customers served and favorable
electric wholesale prices also contributed to the increase in revenues.
Revenues in 2000 and 1999 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 an approximately five-year period ending June
2001. These payments are recorded as a reduction of purchased electricity
expenses. Under the rate plan approved by the Washington Commission in its
merger order, the Company will continue to reflect in customers' bills, the
level of Residential Exchange benefits in place at the time of the merger. Over
the remainder of the Residential Exchange Termination Agreement from April 2000
through June 2001, it is projected that the Company will credit customers
approximately $81.7 million more than it will receive from BPA during the
following periods:
Credit to Received from BPA Excess Credits
Period Customers (in Millions)
----------------------- --------------- ------------------ -----------------
April - December 2000 $73.9 $28.8 $45.1
January - June 2001 63.6 27.0 36.6
--------------- ------------------ -----------------
$137.5 $55.8 $81.7
The allocation of future benefits of low-cost federal power, for the
five-year BPA rate plan period 2002 to 2006 will be decided as part of a current
BPA rate case process. As part of its rate case, the BPA has a "subscription
plan" that outlines how the agency proposes to allocate the low-cost federal
power, or in some cases, the power's equivalent monetary benefits. Following a
public rate-hearing process, the BPA is expected to publish a record of decision
on final power rates and allocations in the latter part of 2000.
Electric sales to other utilities and marketers in the first quarter of
2000 increased $15.0 million or 32% over the same period in 1999 due primarily
to favorable hydroelectric conditions and higher wholesale power prices.
Wholesale sales generally have small margins. However, there may be certain
times when the market price of power may cause margins to fluctuate. Related
power cost expenses for the period also increased as the price of purchased
power for these sales increased.
OPERATING REVENUES - GAS
Gas operating revenues for the quarter ended March 31, 2000 increased
by $34.6 million from the prior year quarter. Total gas volumes increased 2.6%
from 392.3 million therms to 402.5 million therms. Gas margin increased by $1.5
million, or 2% in the first quarter of 2000 as compared to the first quarter of
1999. The primary reasons for the increase in gas sales volumes, gas sales
revenues and margin in the quarter ended March 31, 2000 were the 4.8% increase
in gas customers and a Purchased Gas Adjustment that became effective November
1, 1999. As a result of the Purchased Gas Adjustment, gas rates to all sales
customers increased by an average of 16.3% or $30.2 million in the first quarter
of 2000, while rates for gas transportation service as well as gas margins
remained unchanged.
12
<PAGE>
OPERATING EXPENSES
Purchased electricity expenses increased $11.0 million for the first
quarter of 2000 compared to the same period in 1999. The increase was due
primarily to higher prices for secondary power purchases from other utilities
and marketers to support wholesale sales as a part of the Company's energy price
risk management policies and the increased load due to the increase in electric
customers in the first quarter of 2000 compared to the same period in 1999.
Purchased electricity expenses were reduced in the first quarter of 2000 due to
the purchase of the Encogen electric cogeneration plant in November 1999. This
reduction in purchased electricity expenses was offset in part by increases in
fuel, operations and maintenance, depreciation and interest expenses related to
Encogen. Prior to the purchase, the Company was obligated to purchase the net
output of the plant under a 1990 power purchase contract.
Purchased gas expenses increased $29.9 million for the first quarter of
2000 compared to the first quarter of 1999 primarily due to the increased
volumes of purchases as a result of the increase in gas customers served and the
impact of the Purchased Gas Adjustment that was effective November 1, 1999.
Fuel expense increased $10.9 million in the first quarter of 2000
compared to the same period in 1999 as a result of a $9.4 million Encogen fuel
expense in the first quarter of 2000 and a refund from a coal supplier of
approximately $0.8 million which reduced fuel expense in the first quarter of
1999. The Company's acquisition of the 160 megawatt Encogen natural gas-fired
cogeneration plant was completed on November 1, 1999.
Utility operations and maintenance expenses decreased $6.0 million in
the first quarter of 2000 compared to the same period in 1999. A series of
fierce winter storms in first quarter 1999 resulted in service restoration costs
that were $7.4 million higher than the first quarter of 2000. This decrease was
partially offset by a $0.8 million increase in vegetation management expense and
a $1.0 million increase related to the Encogen plant in the first quarter of
2000 compared to the same period in 1999.
Other operations and maintenance expenses decreased $3.9 million in the
first quarter of 2000 compared to the first quarter of 1999 primarily as a
result of a wholly-owned subsidiary exiting certain product lines in the second
quarter of 1999, thereby eliminating operations and maintenance expenses related
to these activities.
Depreciation and amortization expense increased $3.3 million for the
first quarter of 2000 from the same period in 1999 due primarily to the effects
of new plant placed into service during the past year, including the Encogen
plant purchased in November 1999.
Taxes other than federal income taxes increased $7.9 million in the
first quarter of 2000 compared to the first quarter of 1999 primarily due to
increases in municipal and state excise taxes which are revenue based and
increased state property taxes.
Federal income taxes increased $4.4 million for the first quarter of 2000
from the same period in 1999, primarily due to higher pre-tax operating income
for the quarter.
13
<PAGE>
OTHER INCOME
Other income, net of federal income tax, increased $0.6 million in the
first quarter of 2000 compared to the same period in 1999. Increased income from
subsidiaries of $2.8 million in the first quarter of 2000 compared to the first
quarter of 1999 were partially offset by increased non-utility expenses of $2.1
million.
INTEREST CHARGES
Interest charges, which consist of interest and amortization on
long-term debt and other interest, increased $6.2 million for the first quarter
of 2000 compared to the same period in 1999 primarily as a result of the
issuance of $250 million Senior Medium-Term Notes, Series B, in March 1999 and
$225 million Senior Medium-Term Notes, Series B, in February 2000. These
increases were partially offset by the repayment of $107 million in Secured
Medium-Term Notes since September 1999. Other interest expense increased $2.5
million for the three months ended March 31, 2000 compared to the same period in
1999 as a result of higher weighted average interest rates and higher average
daily short-term borrowings.
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
Capital expenditures which include energy conservation expenditures and
exclude AFUDC for the first quarter of 2000 were $74.3 million, including $0.9
million of energy conservation expenditures, compared to $90.2 million,
including $0.7 million of energy conservation expenditures, for the first
quarter of 1999. Capital expenditures for 2000 and 2001 are expected to be $269
million and $250 million, respectively. Cash provided by operations (net of
dividends and AFUDC) as a percentage of capital expenditures (excluding AFUDC)
were 205% and 120% for the first quarters of 2000 and 1999, respectively.
Capital expenditure estimates are subject to periodic review and adjustment.
On March 31, 2000, the Company had available $375 million in lines of
credit with various banks, which provide credit support for outstanding bank
loans and commercial paper of $313 million, effectively reducing the available
borrowing capacity under these lines of credit to $62 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. There was $108 million outstanding
under these arrangements at March 31, 2000.
OTHER
On May 5, 2000, the eight co-owners, including the Company, completed the
sale of the 1340 megawatt Centralia coal-fired generating project to TransAlta
Corporation of Calgary, Canada. The total sales price of the plant is $453
million. Under the order issued by the Washington Commission, the Company's
shareholders and customers will divide a net after-tax gain of approximately
$13.5 million on the Company's 7 percent interest in the Centralia plant.
Approximately $1 million of this gain will go to Company shareholders and $12.5
million will be deferred for pass through to electric customers. The deferred
gain will accrue interest at 7.16% until refunded to customers. The Company's
share of proceeds, approximately $23 million after-tax, will be used to pay down
utility debt.
14
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks, including changes in commodity
prices and interest rates.
COMMODITY PRICE RISK
The Company manages its energy supply portfolio to achieve three primary
objectives:
(i) Ensure that physical energy supplies are available to serve retail customer
requirements; (ii) Manage portfolio risks to limit undesired impacts on Company
financial results; and (iii) Optimize the value of the Company's energy supply
assets.
The portfolio is subject to major sources of variability (e.g., hydro
generation, temperature-sensitive retail sales, and market prices for gas and
power). At certain times, these sources of variability can mitigate portfolio
imbalances; at other times they can exacerbate portfolio imbalances.
Hedging strategies for the Company's energy supply portfolio interact
with portfolio optimization activities. Some hedges can be implemented in ways
that retain the Company's ability to use its energy supply portfolio to produce
additional value, other hedges can only be achieved by forgoing optimization
opportunities.
The prices of energy commodities and transportation services are subject
to fluctuations due to unpredictable factors including weather, transportation
congestion and other factors which impact supply and demand. This commodity
price risk is a consequence of purchasing energy at fixed and variable prices
and providing deliveries at different tariff and variable prices. Costs
associated with ownership and operation of production facilities are another
component of this risk. The Company may use forward delivery agreements, swaps
and option contracts for the purpose of hedging commodity price risk. Unrealized
changes in the market value of these derivatives are deferred and recognized
upon settlement along with the underlying hedged transaction. In addition, the
Company believes its current rate design, including its Optional Large Power
Sales Rate, various special contracts and the PGA mechanism mitigate a portion
of this risk.
Market risk is managed subject to parameters established by the Board of
Directors. A Risk Management Committee separate from the units that manage these
risks monitors compliance with the Company's policies and procedures. In
addition, the Audit Committee of the Company's Board of Directors has oversight
of the Risk Management Committee.
INTEREST RATE RISK
The Company believes interest rate risk of the Company primarily relates
to the use of short-term debt instruments and new long-term debt financing
needed to fund capital requirements. The Company manages its interest rate risk
through the issuance of mostly fixed-rate debt of various maturities. The
Company does utilize bank borrowings, commercial paper and line of credit
facilities to meet short-term cash requirements. These short-term obligations
are commonly refinanced with fixed rate bonds or notes when needed and when
interest rates are considered favorable. The Company may enter into swap
instruments to manage the interest rate risk associated with these debts.
15
<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, 2000. 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 (1995 through 1999 and 12 months ended
March 31, 2000)
12-b Statement setting forth computation of ratios of earnings
to combined fixed charges and preferred stock dividends
(1995 through 1999 and 12 months ended March 31, 2000)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<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 12, 2000 Chief accounting officer and officer
duly authorized to sign this report
on behalf of the registrant
17
<PAGE>
Exhibit 12a
<TABLE>
STATEMENT SETTING FORTH COMPUTATIONS OF RATIOS OF
EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<CAPTION>
12 Months
Ending Year Ended December 31,
March 31, 2000 1999 1998 1997 1996 1995
- ------------------------------------- ---------------------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AVAILABLE FOR
FIXED CHARGES
Pre-tax income:
Income from continuing
operations per statement
of income $194,004 $185,567 $169,612 $125,698 $167,351 $128,382
Federal income taxes 111,066 109,164 105,814 44,916 106,876 91,519
Federal income taxes charged
to other income - net 4,377 2,909 3,986 14,807 (784) (11,967)
Capitalized interest (3,442) (3,692) (1,782) (360) (600) (660)
Undistributed (earnings) or
losses of less-than-
fifty-percent-owned
entities -- -- -- (608) 460 8,325
- ------------------------------------- ---------------------- ----------- ------------ ------------ ----------- ------------
Total $306,005 $293,948 $277,630 $184,453 $273,303 $215,599
- ------------------------------------- ---------------------- ----------- ------------ ------------ ----------- ------------
Fixed charges:
Interest expense $167,882 $160,966 $146,248 $123,543 $122,635 $131,346
Other interest 3,442 3,692 1,782 360 600 660
Portion of rentals
representative of the
interest factor 4,572 4,575 2,878 3,143 4,187 5,150
- ------------------------------------- ---------------------- ----------- ------------ ------------ ----------- ------------
Total $175,896 $169,233 $150,908 $127,046 $127,422 $137,156
- ------------------------------------- ---------------------- ----------- ------------ ------------ ----------- ------------
Earnings available for
combined fixed charges $481,901 $463,181 $428,538 $311,499 $400,725 $352,755
RATIO OF EARNINGS TO
FIXED CHARGES 2.74x 2.74x 2.84x 2.45x 3.14x 2.57x
</TABLE>
1
<PAGE>
Exhibit 12b
<TABLE>
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, 2000 1999 1998 1997 1996 1995
- ------------------------------------- ---------------------- ------------ ------------ ------------ ------------ ------------
<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 $194,004 $185,567 $169,612 $125,698 $167,351 $128,382
Federal income taxes 111,066 109,164 105,814 44,916 106,876 91,519
Federal income taxes charged
to other income - net 4,377 2,909 3,986 14,807 (784) (11,967)
- ------------------------------------- ---------------------- ------------ ------------ ------------ ------------ ------------
Subtotal 309,447 297,640 279,412 185,421 273,443 207,934
Capitalized interest (3,442) (3,692) (1,782) (360) (600) (660)
Undistributed (earnings) or
losses of less-than-fifty-
percent-owned entities -- -- -- (608) 460 8,325
- ------------------------------------- ---------------------- ------------ ------------ ------------ ------------ ------------
Total $306,005 $293,948 $277,630 $184,453 $273,303 $215,599
- ------------------------------------- ---------------------- ------------ ------------ ------------ ------------ ------------
Fixed charges:
Interest expense $167,882 $160,966 $146,248 $123,543 $122,635 $131,346
Other interest 3,442 3,692 1,782 360 600 660
Portion of rentals
representative of the
interest factor 4,572 4,575 2,878 3,143 4,187 5,150
- ------------------------------------- ---------------------- ------------ ------------ ------------ ------------ ------------
Total $175,896 $169,233 $150,908 $127,046 $127,422 $137,156
- ------------------------------------- ---------------------- ------------ ------------ ------------ ------------ ------------
Earnings available for
combined fixed charges
and preferred dividend
requirements $481,901 $463,181 $428,538 $311,499 $400,725 $352,755
DIVIDEND REQUIREMENT:
Fixed charges above $175,896 $169,233 $150,908 $127,046 $127,422 $137,156
Preferred dividend
requirements below 16,736 17,747 21,421 26,266 36,242 36,693
- ------------------------------------- ---------------------- ------------ ------------ ------------ ------------ ------------
Total $192,632 $186,980 $172,329 $153,312 $163,664 $173,849
- ------------------------------------- ---------------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
12 Months
Ending Year Ended December 31,
March 31, 2000 1999 1998 1997 1996 1995
- --------------------------------------- ---------------------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
DIVIDEND REQUIREMENTS 2.50 2.48 2.49 2.03 2.45 2.03
COMPUTATION OF PREFERRED
DIVIDEND REQUIREMENTS:
(a) Pre-tax income $309,447 $297,640 $279,412 $185, 421 $273,443 $207,934
(b) Income from continuing
operations 194,004 $185,567 $169,612 $125,698 $167,351 $128,382
(c) Ratio of (a) to (b) 1.5951 1.6039 1.6474 1.4751 1.6339 1.6197
(d) Preferred dividends $ 10,492 $ 11,065 $ 13,003 $ 17,806 $ 22,181 $ 22,654
Preferred dividend
requirements
[(d) multiplied by (c)] $ 16,736 $ 17,747 $ 21,421 $ 26,266 $ 36,242 $ 36,693
3
</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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,771,844
<OTHER-PROPERTY-AND-INVEST> 267,632
<TOTAL-CURRENT-ASSETS> 453,069
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 625,369
<TOTAL-ASSETS> 5,117,914
<COMMON> 852,253
<CAPITAL-SURPLUS-PAID-IN> 459,854
<RETAINED-EARNINGS> 114,134
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,426,241
58,162
60,000
<LONG-TERM-DEBT-NET> 1,914,783
<SHORT-TERM-NOTES> 108,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 313,113
<LONG-TERM-DEBT-CURRENT-PORT> 25,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,212,615
<TOT-CAPITALIZATION-AND-LIAB> 5,117,914
<GROSS-OPERATING-REVENUE> 647,223
<INCOME-TAX-EXPENSE> 52,738
<OTHER-OPERATING-EXPENSES> 478,600
<TOTAL-OPERATING-EXPENSES> 531,338
<OPERATING-INCOME-LOSS> 115,885
<OTHER-INCOME-NET> 4,390
<INCOME-BEFORE-INTEREST-EXPEN> 120,275
<TOTAL-INTEREST-EXPENSE> 42,083
<NET-INCOME> 78,192
2,303
<EARNINGS-AVAILABLE-FOR-COMM> 75,889
<COMMON-STOCK-DIVIDENDS> 39,064
<TOTAL-INTEREST-ON-BONDS> 34,900
<CASH-FLOW-OPERATIONS> 190,453
<EPS-BASIC> 0.89
<EPS-DILUTED> 0.89
</TABLE>
