UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 1, 2007
| | Exact name of registrant as specified | I.R.S. |
| | in its charter, state of incorporation, | Employer |
| Commission | address of principal executive offices, | Identification |
| File Number | Telephone | Number |
| 1-16305 | PUGET ENERGY, INC. | 91-1969407 |
| | A Washington Corporation | |
| | 10885 - N.E. 4th Street, Suite 1200 | |
| | Bellevue, Washington 98004-5591 | |
| | (425) 454-6363 | |
| 1-4393 | PUGET SOUND ENERGY, INC. | 91-0374630 |
| | A Washington Corporation | |
| | 10885 - N.E. 4th Street, Suite 1200 | |
| | Bellevue, Washington 98004-5591 | |
| | (425) 454-6363 | |
___________
Check the appropriate box below if the Form 8−K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a−12 under the Exchange Act (17 CFR 240.14a−12) |
o | Pre−commencement communications pursuant to Rule 14d−2(b) under the Exchange Act (17 CFR 240.14d−2(b)) |
o | Pre−commencement communications pursuant to Rule 13e−4(c) under the Exchange Act (17 CFR 240.13e−4(c)) |
Item 2.02 Results of Operations and Financial Condition
On November 1, 2007, the Company issued the following press release.
Puget Energy Reports Third-Quarter 2007 Earnings
| · | Puget Energy third quarter 2007 income of 10 cents per diluted share |
| · | Puget Sound Energy third quarter 2007 income of 10 cents per diluted share |
| · | Puget Sound Energy calendar year 2007 earnings guidance of $1.50 to $1.65 per diluted share re-affirmed |
BELLEVUE, Wash. — Puget Energy (NYSE: PSD), the parent company of Puget Sound Energy (PSE), Washington state's oldest and largest utility, today reported net income of $11.4 million, or 10 cents per diluted share, for the third quarter 2007 compared to $15.9 million, or 14 cents per diluted share, in the third quarter 2006.
Net income from PSE in the third quarter 2007 was $12 million, or 10 cents per diluted share, compared to $15.6 million, or 13 cents per diluted share, in the third quarter 2006. PSE's third quarter 2007 net income was negatively impacted by a $3.4 million after-tax charge, or 3 cents per diluted share, for non-cash unrealized losses relating to hedges for power supply agreements under "Accounting for Derivative Instruments and Hedging Activities" (FAS-133) compared to a gain of $0.4 million after-tax in the third quarter 2006. PSE's third quarter 2007 results reflect growth in retail-sales volume, recovery of new generating facilities in customer rates and a lower effective income tax rate, offset by higher operations, maintenance, depreciation and interest expense, including costs related to the addition of new generating resources and energy delivery infrastructure investments, compared to the same period in 2006.
“Third quarter earnings for Puget Energy and PSE were on target,” said Stephen P. Reynolds, chairman, president and chief executive officer. “We continue to execute our business plan and efforts to provide value to our shareholders and a secure and sustainable energy future for our customers.”
Table 1: Third quarter 2007 vs. third quarter 2006 EPS reconciliation | | Cents per diluted share | |
| Puget Energy’s Third Quarter 2006 earnings | | $ | 0.14 | |
| Increase due to lower federal income tax effective rate | | | 0.05 | |
| Increase in natural gas margin | | | 0.04 | |
| Increase in electric margin | | | 0.03 | |
| Increase in interest expense | | | (0.06 | ) |
| Increase in utility operations and maintenance expense | | | (0.04 | ) |
| FAS-133 unrealized loss on power supply agreements | | | (0.03 | ) |
Increase in depreciation and amortization expense, excluding the Goldendale deferral | | | (0.04 | ) |
Credit to depreciation and amortization expense related to the Goldendale deferral | | | 0.02 | |
| Other and Rounding | | | (0.01 | ) |
| Puget Energy's Third Quarter 2007 Earnings | | $ | 0.10 | |
PSE Third-Quarter 2007 Highlights:
Key components of PSE’s third-quarter 2007 financial performance are highlighted below. All items are pre-tax unless otherwise noted.
| · | As of Sept. 30, 2007, PSE provided service to 1,051,700 electric customers and 724,600 natural gas customers in Washington, representing a 1.8 percent and 2.7 percent increase, respectively, in the last 12 months. |
| · | Retail sales volumes of electricity and natural gas increased by 1.2 percent and 4.8 percent, respectively, in the third quarter of 2007 compared to the same period in 2006. PSE's energy sales, in particular natural gas volumes, are highly seasonal, with the lowest volumes occurring during summer months. Natural gas sales volumes were favorably impacted by colder than normal temperatures during the latter part of the third quarter 2007. |
| · | Natural gas margin increased by $7.5 million in the third quarter 2007 as compared to the same period in 2006 primarily as a result of higher retail sales volumes and the impact of a 2.8 percent general tariff rate increase effective Jan. 13, 2007. |
Natural gas margin represents natural gas sales to retail and transportation customers, net of revenue based taxes, less the cost of purchasing and transporting natural gas.
| · | Electric margin increased by $6.3 million in the third quarter 2007 as compared to the same period in 2006, driven in part by higher retail sales volumes. The recovery in rates of ownership costs and operating expenses related to new generation facilities, effective Jan. 13 and Sept. 1, 2007, also contributed to the growth in both electric revenues and margin. Such increases to electric margin were partially offset by production tax credits for federal income tax provided to PSE’s customers. These tax credits were the result of energy produced from the Wild Horse Wind Facility, the second company-owned wind-powered generation facility, placed in-service in December 2006. Although these tax credits reduce both PSE’s electric revenue and margin, PSE's federal income tax expense is also reduced. |
Electric margin is electric sales to retail and transportation customers less pass-through tariff items, revenue-sensitive taxes and power costs. Power costs include the cost of generating and purchasing electric energy sold to customers, including transmission costs to bring electric energy to PSE’s service area.
The Power Cost Adjustment mechanism (PCA) allows PSE to recover power costs in customer rates, according to certain terms. The PCA is designed to help PSE recover its actual power costs within a calendar year. Due to the seasonal nature of power costs and PSE’s load, under-recovery is normally anticipated in the first and fourth quarters and over-recovery in the second and third quarters. The magnitude of power cost recovery between similar quarters from one year to another varies as a result of several factors including hydroelectric conditions, relative market prices for fuel and purchased power in those periods and the impact of revisions to the PCA. Therefore, PSE’s quarterly power cost recovery results should not be assumed to be indicative of expected recovery for the full calendar year.
Third quarter 2007 electric margin included the company’s share of over-recovered power costs under the PCA of $7.2 million compared to $13.9 million in the third quarter 2006. During the first nine months in 2007, PSE’s share of power cost over-recovery was $30.1 million compared to $26.8 million in the same period in 2006. PSE anticipates that electric margins will decline during the fourth quarter of 2007 due to the seasonal nature of power prices in the Pacific Northwest (power prices are typically lower in the spring and summer months and higher during the winter heating season).
| · | Utility operations and maintenance expense increased by $6.7 million in the third quarter of 2007. The addition of new electric generating facilities placed in service over the past 12 months accounted for $3.9 million of the increase. The balance of the increase was due to increases in customer service costs and infrastructure reliability work performed on the utility's transmission and distribution systems. |
| · | Third quarter 2007 results reflect the benefit of deferral of certain ownership and operating costs totaling $3.9 million related to the Goldendale Generating Station (Goldendale), which was placed in service in February 2007. On April 11, 2007, the Washington Utilities and Transportation Commission (WUTC) authorized PSE to defer such costs until resolution of PSE’s Power Cost Only Rate Case (PCORC), filed on March 20, 2007. A regulatory asset was established to record the deferral, and a corresponding credit is reflected in the financial statements as a reduction to depreciation and amortization expense. With the resolution of the PCORC, deferral of such costs ceased, effective Sept. 1, 2007, and recovery of Goldendale deferred amounts, including carrying charges, will be included in the company’s next general rate case (GRC) proceeding, to be filed in December 2007. |
| · | Depreciation and amortization expense increased by $3.4 million in the third quarter of 2007, net of the benefit from the $3.9 million Goldendale deferral, over the third quarter in 2006. Excluding the Goldendale deferral, depreciation and amortization expense increased $7.3 million as a result of new electric generating facilities and energy delivery infrastructure placed in service over the past 12 months. As PSE continues to invest in its energy-delivery infrastructure to support service area growth and reliability initiatives, the trend in increasing depreciation and amortization expense is expected to continue. |
| · | Interest expense, net of the interest component of Allowance for Funds Used During Construction (AFUDC), increased by $10.4 million in the third quarter of 2007 as compared to the same quarter a year ago. PSE's average debt outstanding in the third quarter of 2007 was $3.2 billion as compared to $2.9 billion outstanding in the same quarter a year ago. The higher average balance reflects additional borrowing related to new electric generating facilities, utility transmission and distribution infrastructure investments, and $90.5 million in deferred system restoration expenses incurred as a result of the unprecedented December 2006 windstorm. Recovery of these expenses will be requested in PSE’s next GRC proceeding; carrying charges are not currently being accrued. |
| · | During the third quarter of 2007, PSE incurred an unrealized non-cash loss of $5.3 million related to FAS-133, compared to an unrealized non-cash gain of $0.6 million in the third quarter 2006. Unrealized FAS-133 gains or losses do not impact PSE's revenues, energy margins, cash flows or customer rates but must be recognized for financial reporting. Over time, these unrealized gains and losses reverse. For further details please refer to the company’s Form 10-Q quarterly report for the third quarter 2007. |
| · | Effective federal income tax rate was lower in the third quarter of 2007 compared to the same quarter in 2006 due to an increase in wind-powered electric generation production tax credits and a $1.9 million favorable true-up of estimated 2006 federal income tax expense following completion of Puget Energy's consolidated tax return for 2006. |
Puget Energy 2007 Outlook:
Puget Energy re-affirms calendar-year 2007 earnings guidance for PSE of $1.50 to $1.65 per fully diluted share.
Puget Energy Discontinued Operations
Puget Energy’s results from discontinued operations for the three and nine months ended Sept. 30, 2006 reflect the company’s former utility construction services subsidiary, InfrastruX Group, Inc. (InfrastruX). Puget Energy sold InfrastruX to Tenaska Power Fund on May 7, 2006.
Third Quarter Earnings Conference Call:
Puget Energy will provide additional information regarding its third-quarter 2007 results during a conference call for analysts scheduled at 10 a.m. ET (7 a.m. PT) on Friday, Nov. 2, 2007. The call will be broadcast live through a Webcast at www.PugetEnergy.com. The Webcast will be archived and available for replay following the call. A tape-recorded replay of the call will be available two hours after completion of the conference call through midnight (ET) on Nov. 18, 2007, by dialing 888-286-8010 and entering the conference identification number 31868639.
Form 10-Q Quarterly Report for the Third Quarter of 2007:
Puget Energy will file its Form 10-Q for the third quarter of 2007 with the Securities and Exchange Commission (SEC) on Nov. 2, 2007, a copy of which will be available through the SEC’s website at www.sec.gov or at www.PugetEnergy.com. Investors are encouraged to read the financial statements and disclosures that will be contained in the Form 10-Q filing.
Puget Energy Merger Agreement:
On Oct. 26, 2007, Puget Energy entered into a definitive merger agreement with a consortium of long-term infrastructure investors. Under the terms of the agreement, the consortium will acquire all of the outstanding shares of Puget Energy for $30.00 per share.
The merger has been approved by the Board of Directors of Puget Energy and Boards of the Consortium members. The transaction is expected to close during the second half of 2008, subject to approval by Puget Energy’s shareholders and certain regulatory approvals, including those from the WUTC and the Federal Energy Regulatory Commission. The full merger agreement is available at the SEC’s website at www.sec.gov or at www.PugetEnergy.com.
Future Earnings Guidance and Conference Calls:
Effective after the reporting of third quarter 2007 financial results, Puget Energy, in light of the merger agreement, will discontinue the practice of providing forward-looking earnings guidance and holding quarterly earnings conference calls.
About Puget Energy
Puget Energy (NYSE:PSD) is the parent company of Puget Sound Energy (PSE), a regulated utility providing electric and natural gas service primarily to the growing Puget Sound region of Western Washington. For more information visit www.PugetEnergy.com.
About Puget Sound Energy
Washington state’s oldest and largest energy utility, with a 6,000-square-mile service area stretching across 11 counties, PSE serves more than 1 million electric customers and nearly 725,000 natural gas customers, primarily in Western Washington. PSE meets the energy needs of its growing customer base through incremental, cost-effective energy efficiency, low-cost procurement of sustainable energy resources, and far-sighted investment in the energy-delivery infrastructure. For more information visit www.PSE.com.
CAUTIONARY STATEMENT: Certain statements contained in this news release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, among which include PSE’s plans relating to the planned merger with the Macquarie Consortium, to possible future regulatory filings and to utility plant additions and expenses, and factors that could impact Puget Energy’s earnings guidance for the year-end 2007. Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could affect actual results include, among others, governmental policies and regulatory actions, including those of the WUTC and the Federal Energy Regulatory Commission, and weather conditions. More information about these and other factors that potentially could affect the company’s financial results is included in Puget Energy's and PSE's most recent annual report on Form 10-K, quarterly report on Form 10-Q and in their other public filings filed with the Securities and Exchange Commission. Except as required by law, Puget Energy and PSE undertake no obligation to update any forward-looking statements.
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PUGET ENERGY -- SUMMARY INCOME STATEMENT | | | | | | | | | |
| (In thousands, except per-share amounts) | | | | | | | | | |
| | | | | | | Unaudited | | | Unaudited |
| | | | | | | Three months ended 9/301 | | | Nine months ended 9/301 |
| | | | | | | 2007 | | 2006 | | | 2007 | | 2006 |
Operating revenues | | | | | | | | | |
| | Electric | | $ 456,100 | | $ 399,246 | | | $ 1,418,980 | | $ 1,247,650 |
| | Gas | | | | 142,120 | | 119,610 | | | 834,304 | | 718,655 |
| | Non-utility operating revenue | | 3,460 | | 685 | | | 13,439 | | 5,776 |
| | | Total operating revenues | | 601,680 | | 519,541 | | | 2,266,723 | | 1,972,081 |
Operating expenses | | | | | | | | | |
| | Purchased electricity | | 185,778 | | 183,723 | | | 640,627 | | 623,793 |
| | Electric generation fuel | | 43,528 | | 36,282 | | | 93,312 | | 72,158 |
| | Residential exchange | | (384) | | (35,923) | | | (52,424) | | (131,226) |
| | Purchased gas | | 80,914 | | 68,294 | | | 530,616 | | 453,335 |
| | Unrealized net (gain) on derivative instruments | | 5,276 | | (611) | | | 1,031 | | 214 |
| | Utility operations & maintenance | | 94,433 | | 87,687 | | | 291,539 | | 258,653 |
| | Non-utility expense and other | | 3,300 | | 958 | | | 8,198 | | 2,665 |
| | Depreciation & amortization | | 68,909 | | 65,530 | | | 204,351 | | 193,959 |
| | Conservation amortization | | 8,530 | | 7,127 | | | 27,608 | | 22,638 |
| | Taxes other than income taxes | | 56,907 | | 46,360 | | | 207,269 | | 180,299 |
| | | Total operating expenses | | 547,191 | | 459,427 | | | 1,952,127 | | 1,676,488 |
Operating income | | 54,489 | | 60,114 | | | 314,596 | | 295,593 |
Other income (deductions): | | | | | | | | | |
| | Charitable foundation funding | | --- | | --- | | | --- | | (15,000) |
| | Other income | | 6,725 | | 7,298 | | | 17,710 | | 17,425 |
| | Other expense | | (686) | | (1,685) | | | (4,546) | | (3,943) |
Interest Charges: | | | | | | | | | |
| | | AFUDC | | 3,554 | | 5,189 | | | 8,915 | | 10,238 |
| | | Interest expense | | (54,681) | | (45,923) | | | (158,133) | | (134,197) |
Income from continuing operations before income taxes | | 9,401 | | 24,993 | | | 178,542 | | 170,116 |
| | | Income taxes | | (2,218) | | 9,072 | | | 49,262 | | 60,048 |
Net income from continuing operations | | 11,619 | | 15,921 | | | 129,280 | | 110,068 |
| Income from discontinued operations, net of tax | | (224) | | 1 | | | (212) | | 51,903 |
Net income before cumulative effect of accounting change | | 11,395 | | 15,922 | | | 129,068 | | 161,971 |
| Cumulative effect of accounting change | | --- | | --- | | | --- | | 89 |
Net Income | | $ 11,395 | | $ 15,922 | | | $ 129,068 | | $ 162,060 |
Common shares outstanding | | 116,821 | | 116,101 | | | 116,650 | | 115,910 |
Diluted shares outstanding | | 117,365 | | 116,568 | | | 117,225 | | 116,311 |
| Basic earnings per common share before cumulative effect of accounting change from continuing operations | | $ 0.10 | | $ 0.14 | | | $ 1.11 | | $ 0.95 |
| Basic earnings from discontinued operations | | --- | | --- | | | --- | | 0.45 |
| Cumulative effect from accounting change | | --- | | --- | | | --- | | --- |
Basic earnings per common share | | $ 0.10 | | $ 0.14 | | | $ 1.11 | | $ 1.40 |
| Diluted earnings per common share before cumulative effect of accounting change from continuing operations | | $ 0.10 | | $ 0.14 | | | $ 1.10 | | $ 0.95 |
| Diluted earnings from discontinued operations | | --- | | --- | | | --- | | 0.44 |
| Cumulative effect from accounting change | | --- | | --- | | | --- | | --- |
Diluted earnings per common share2 | | $ 0.10 | | $ 0.14 | | | $ 1.10 | | $ 1.39 |
