The following table sets forth information about the executive officers of Puget Energy and PSE, as of December 31, 2000. Unless otherwise indicated, all positions and offices listed are at PSE. Officers of both Puget Energy and PSE are elected for one-year terms.
The principal electric generating plants and underground gas storage facilities owned by PSE are described under Item 1 - "Business - Electric Utility Operations and Gas Utility Operations." PSE owns its transmission and distribution facilities and various other properties. Substantially all properties of PSE are subject to the liens of PSE's Mortgage Indentures.
Puget Energy's common stock, the only class of common equity of Puget Energy, is traded on the New York Stock Exchange under the symbol PSD. As of January 31, 2001, there were 50,950 holders of record of Puget Energy's common stock. The outstanding shares of PSE's common stock, the only class of common equity of PSE, are held by Puget Energy and are not traded.
The following table shows the market price range of, and dividends paid on, PSE's common stock during the periods indicated. PSE has paid dividends on its common stock each year since 1943 when such stock first became publicly held. Puget Energy became the holding company for PSE on January 1, 2001 pursuant to a plan of exchange in which each share of PSE common stock was exchange on a one-for-one basis for Puget Energy common stock.
Beginning in 2001, dividends on Puget Energy's common stock will depend primarily on the dividends and other distributions that PSE and other subsidiaries will pay to Puget Energy and the capital requirements of Puget Energy and its subsidiaries.
PSE's payment of common stock dividends to Puget Energy is restricted by provisions of certain covenants applicable to preferred stock and long-term debt contained in PSE's Articles of Incorporation and electric and gas mortgage indentures. Under the most restrictive covenants, earnings reinvested in the business unrestricted as to payment of cash dividends were approximately $228 million at December 31, 2000.(See Note 7 to the Consolidated Financial Statements.)
The following table shows selected financial data for PSE. Puget Energy became the holding company for PSE on January 1, 2001 pursuant to a plan of exchange in which each share of PSE common stock was exchanged on a one-for-one basis for Puget Energy common stock.
Puget Energy was established as the holding company for PSE on January 1, 2001 pursuant to a plan of exchange in which each share of PSE common stock was exchanged on a one-for-one basis for Puget Energy common stock. The following discussion and analysis relates to the accompanying consolidated financial statements and the notes thereto and should be read in conjunction with the financial statements and notes. The financial statements include the accounts of PSE and all wholly-owned subsidiaries and, therefore, also represents the consolidated financial statements of Puget Energy.
Net income in 2000 was $193.8 million on operating revenues of $3.4 billion, compared to $185.6 million on operating revenues of $2.1 billion in 1999 and $169.6 million on operating revenues of $1.9 billion in 1998. Income for common stock was $184.8 million in 2000, compared to $174.5 million in 1999 and $156.6 million in 1998.
Basic and diluted earnings per share in 2000 were $2.16 on 85.4 million weighted average common shares outstanding compared to $2.06 on 84.6 million weighted average common shares outstanding in 1999 and $1.85 on 84.6 million weighted average common shares outstanding in 1998.
Net income in 2000 was positively impacted by an increase in margins related to electric and gas operations. Net income in 1999 was positively impacted by net gains of approximately $7.8 million or $0.09 per share from non-utility operations. The $0.09 per share included gains from the sale of Homeguard Security Services, Inc., a wholly-owned subsidiary, and PSE's common stock investment in Cabot Oil & Gas Corporation. These gains were offset in part by losses related to sales of non-core assets and gas transportation contracts, establishing reserves for two proposed small hydro-electric projects by Hydro Energy Development Corp. and costs of ConneXt exiting certain product lines.
Total kilowatt-hour sales to ultimate consumers in 2000 were 21.9 billion compared with 21.4 billion in 1999 and 20.9 billion in 1998. Kilowatt-hour sales to wholesale customers were 15.1 billion in 2000, 11.7 billion in 1999 and 9.9 billion in 1998.
Total gas volumes, including gas sales, service and transportation, were 1,095 million therms in 2000, 1,109 million therms in 1999 and 1,008 million therms in 1998.
The following information pertains to the changes outlined in the table above:
Electric operating revenues increased $16.9 million and $17.3 million in 2000 and 1999, respectively, when compared to the prior years due to overall average 1.2% general rate increases effective January 1, 2000 and January 1, 1999.
Electric revenues in 2000 increased significantly due to increased prices related to electric energy sales to other utilities and marketers and sales to customers whose rates are tied to a market index. Several factors, including unfavorable hydro conditions, unscheduled outages of generating facilities in California, and increased consumer demand have raised wholesale market prices on the West Coast to unprecedented levels beginning in the second half of 2000. PSE, to date, has protected its core customers from the negative impact of the volatile West Coast power markets through its effective management of its energy supply resources and its efficient operation of its distribution system.
On December 12, 2000, certain industrial customers who receive electric service under a market index-based tariff filed a complaint with the Washington Commission seeking emergency relief from this tariff. These and other industrial customers had demanded the market index-based tariff in return for supporting PSE's 1997 merger with Washington Natural Gas Company. On December 13, 2000, PSE filed a petition requesting that PSE be allowed to defer and recover any lost revenue resulting from any relief granted to these customers.
The Washington Commission held a number of hearings on this subject and on January 22, 2001, while concluding no emergency relief was warranted, ordered continued hearings as to whether and how some relief in the form of a “soft” price cap could be temporarily put in place for these customers. PSE immediately filed testimony with the Washington Commission detailing the significant adverse financial impact of such a proposal at rate cap levels being contemplated ($125 to $150 per megawatt hour). PSE also filed suit in King County Superior Court against certain of the customers seeking damages for their attempt to void their agreements to buy electricity under the market index-based tariffs.
Subsequent to those actions, the Washington Commission suspended the hearings to allow all parties to work on a settlement. The settlement proposal, which currently is being finalized in writing, would result in a significant portion of the industrial loads in question (in excess of 250 average megawatts) being expected to purchase electricity from other suppliers and in return give up any rights to PSE's embedded cost resources. Customers representing a small portion of the load (approximately 25 average megawatts) have the opportunity to transfer to a tariff with a new “small customer” rate schedule. It is expected that the settlement proposal will be submitted to the Washington Commission in March 2001.
Electric revenues in 2000 and 1999 were reduced because of the credit that PSE received through the Residential Purchase and Sale Agreement with the Bonneville Power Administration (“BPA”). This agreement enables PSE's residential and small farm customers to receive the benefits of lower-cost federal power. On January 29, 1997, PSE and the BPA signed a Residential Exchange Termination Agreement. The Termination Agreement ends PSE's participation in the Residential Purchase and Sale Agreement with BPA. As part of the Termination Agreement, PSE 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, PSE 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 January 2001 through June 2001, it is projected that PSE will credit customers approximately $34.3 million more than it will receive from BPA.
The allocation of future benefits of low-cost federal power, for the five-year BPA rate plan period 2001 to 2006, will be decided as part of a current BPA rate case process. In May 2000, the BPA published an initial Record of Decision in its Subscription process. BPA allocated benefits intended to be equivalent to 1900 average MW of cost-based federal power to the residential and small farm customers of the Pacific Northwest investor-owned utilities (“IOUs”). The regional Public Utility Commissions in turn recommended an allocation of the benefits among the IOUs, with PSE's proposed annual share equal to 700 average MW of benefits over the five-year period October 2001 through September 2006. In August 2000, the BPA determined that certain aspects of its initial Record of Decision would be revisited in its power rate case that is expected to continue through May 2001. On October 30, 2000, PSE signed a five-year contract with the BPA (as required by BPA's Subscription timeline) for receipt of the federal power benefits allocated by the Subscription and Commission processes. The contract describes the form (power and cash) of the 700 average MW benefits to be provided, and provides PSE a right to terminate the contract upon completion of BPA's rate case. The results of the case will affect the value of benefits actually received by PSE and other Northwest IOUs from the Subscription benefits allocation process.
Electric revenues in 2000 and 1999 were reduced by $35.4 million and $43.8 million, respectively, when compared to prior years as a result of PSE's sale of revenues associated with $237.7 million of its investment in conservation assets to grantor trusts. The revenue decrease represents the portion of rate revenues that were sold and forwarded to the trusts. The impact of this revenue decrease, however, was offset by related reductions in other utility operations and maintenance and interest expenses.
To meet customer demand, PSE's power supply portfolio includes net purchases of power under long-term supply contracts. However, depending principally upon streamflow available for hydro-electric generation and weather effects on customer demand, from time to time, PSE may have surplus power available for sale to wholesale customers. In addition, PSE has increased its wholesale surplus power business in order to manage its core energy portfolio through short and intermediate-term purchases, sales, arbitrage and other risk management techniques. PSE has a Risk Management Committee which oversees energy price risk matters. Sales to other utilities and marketers increased $932.6 million and $41.8 million in 2000 and 1999, respectively, compared to the prior years due primarily to an increase in sales volumes and, for 2000, large increases in wholesale power prices.
PSE operates within the western wholesale market and has made sales into the California energy market. At December 31, 2000, PSE's current receivables from the California Independent System Operators (CAISO) and other counterparties, net of reserves, is $41.8 million.
Regulated gas utility revenues in 2000 increased by $126.8 million from the prior year on a 2.1% increase in gas volumes sold. Total gas volumes, including transported gas, decreased 1.3% in 2000 from 1999. The primary reason for the increase in gas sales was the higher natural gas prices which are passed through to customers in the Purchased Gas Adjustment (“PGA”). Increases under the PGA were effective November 1, 1999 and August 1, 2000. As a result of the PGA increases, gas rates to all sales customers increased by an average of 16% on November 1, 1999 and 30.2% on August 1, 2000. A larger percentage of firm gas sales with higher prices and less transportation volumes in 2000 when compared to last year also contributed to increased revenues. Utility gas margin (the difference between gas revenues and gas purchases) increased by $6.1 million, or 2.8%, in 2000 over 1999.
Regulated gas utility sales revenue in 1999 increased by $68.9 million from the prior year on a 15.8% increase in gas volumes sold. Total gas volumes, including transported gas, increased 10% in 1999 from 1998.
InfrastruX provided total operating revenues of $45.0 million in 2000 from the acquisitions they made in the third quarter. PSE's other revenues decreased $11.8 million in 2000 compared to 1999 primarily due to decreased revenues at PSE's real estate investment and development subsidiary, Puget Western, Inc., and the sale of a wholly-owned subsidiary, Homeguard Security Services, Inc. in 1999. Other revenues decreased $7.7 million in 1999 compared to 1998 due primarily to decreased revenues at PSE's customer information and billing software development and marketing subsidiary, ConneXt.
Purchased electricity expenses increased $986.5 million in 2000 when compared to 1999 and $28.0 million in 1999 when compared to 1998. The increase in 2000 was due primarily to greater volumes and much higher prices for non-firm power purchases from other utilities and marketers due to skyrocketing prices in the volatile West Coast power market. The increase in 1999 was due primarily to an increase in secondary power purchases from other utilities and marketers, the increased load due to temperatures that averaged near normal as compared to warmer than normal in 1998, and the increase in electric customers in 1999 compared to 1998.
The Colstrip Unit 4 generating plant, located in eastern Montana, went out of service on September 3, 2000, because of cracks discovered in the generator shaft. The unit, which PSE owns in part and buys power from in part, provides 225 MW of capacity and energy. It went back into service the weekend of October 21, 2000. Loss of power from this unit increased PSE's cost of power and reduced energy margins. The 2000 increases were partially offset by a reduction in purchased electricity expenses related to the purchase of the 160-megawatt Encogen electric cogeneration plant in November 1999. This reduction in purchased electricity expenses was offset in part by increases in fuel, operations and maintenance, and depreciation and interest expenses related to Encogen. Prior to the purchase, PSE was obligated to purchase the net output of the plant under a 1990 power purchase contract.
Residential exchange credits associated with the Residential Purchase and Sale Agreement with BPA increased $2.0 million in 2000 when compared to 1999, due to the terms set out in the 1997 Residential Exchange Termination Agreement discussed in “Operating Revenues – Electric”. Residential exchange credits decreased $16.6 million in 1999 when compared to 1998, also as a result of the Termination Agreement. Residential exchange credits received in 2000 were $41.0 million and are estimated to be $27.0 million in 2001.(See discussion of the Residential Purchase and Sale Agreement under “Operating Revenues – Electric”.)
Purchased gas expenses increased $112.9 million in 2000 compared to 1999 primarily due to the impact of increased gas costs, which are passed through to customers through the PGA mechanism, and a 2.1% increase in sales volumes. Purchased gas expenses increased $44.2 million in 1999 compared to 1998 due to both the increased volumes of purchases as a result of higher heating load and the increase in gas service customers. Purchased gas expenses also increased by $17.3 million in 1999 compared to 1998 due to approval of PSE's PGA filing effective November 1, 1999. The PGA allows PSE to recover expected increases in gas costs. PSE defers, as a receivable, any gas costs that exceed the amount in PGA rates and accrues interest under the PGA. The balance of the PGA receivable was $96.1 million and $33.7 million for December 31, 2000 and 1999, respectively.
Electric generation fuel expense increased $123.6 million in 2000 compared to 1999 as a result of $37.6 million in Encogen fuel expenses, compared to $6.7 million in 1999, and as a result of PSE generating more electricity with higher-priced gas and oil at PSE-owned combustion turbines. Electric generation fuel expense increased $2.9 million in 1999 compared to 1998 as a result of a $6.7 million Encogen fuel expense in the fourth quarter of 1999 which was partially offset by PSE generating less electricity at other PSE-owned combustion turbines. PSE's acquisition of the 160-megawatt Encogen natural gas-fired cogeneration facility was completed on November 1, 1999.
Utility operations and maintenance expenses decreased $0.6 million in 2000 compared to 1999 due primarily to high 1999 costs related to Year 2000 remediation expenses in 1999, and electric service restoration following a number of storms which occurred in early 1999. The lower operations and maintenance expenses in 2000 were partially offset by increased Colstrip costs in 2000 due to unplanned outages, increased costs of running the Encogen plant for all of 2000 as compared to two months of 1999, and increased combustion turbine plant costs due to significantly higher usage in 2000. Utility operations and maintenance increased $9.0 million in 1999 compared to 1998 due to the aforementioned increased storm-repair costs and increased expenditures for Year 2000 remediation efforts in 1999.
InfrastruX's operation and maintenance expenses for 2000 were $41.4 million due to the third quarter acquisitions in 2000 of its two subsidiaries, Utilx and Lineal. PSE's other operations and maintenance expenses decreased $8.0 million in 2000 compared to 1999 primarily due to a decrease in operating expenses at ConneXt and from the sale of Homeguard Security Services, Inc. in 1999. This decrease was offset by PSE's write-off of the planning and design costs associated with two abandoned utility projects in 2000 for a total of $4.4 million. Other operations and maintenance expenses decreased $2.9 million in 1999 compared to 1998 primarily as a result of ConneXt exiting certain product lines in the second quarter of 1999.
Depreciation and amortization expenses increased $20.8 million in 2000 compared to 1999 due to the effects of new plant placed into service during the past year, including the Encogen plant, purchased in November 1999, and the purchase of ConsumerLinX, a customer information and billing system, which was placed into service in 2000. Depreciation and amortization expense increased $10.1 million in 1999 compared to 1998 due primarily to the effects of new plant placed into service during 1999.
Taxes other than federal income taxes increased $23.1 million in 2000 compared to 1999 and $19.7 million in 1999 compared to 1998 due primarily to increases in municipal taxes and state excise taxes which are revenue based. Federal income taxes increased by $21.0 million in 2000 compared to 1999, and $2.2 million in 1999 compared to 1998 primarily due to higher pre-tax operating income for the periods.
Other income, net of federal income tax, decreased $23.0 million in 2000 compared to 1999 due primarily to an after-tax gain in 1999 of $12.3 million on the sale of Cabot Oil & Gas Corporation (“Cabot”) common stock in the second quarter of 1999, and an after-tax gain of $3.6 million related to the sale and assignment of certain non-core assets and supply transportation contracts in 1999. The decrease is also related to the establishing in 2000 of an after-tax reserve of $11.8 million for a write-down to the fair values of certain assets held for sale by Hydro Energy Development Corp. to their net realizable values. The decrease in 2000 was partially offset by the after-tax gain of approximately $1.6 million related to the sale of the Centralia generating plant. Other income, net of federal income tax, increased $15.0 million in 1999 compared to 1998 due primarily to net gains of approximately $7.8 million from non-utility operations in 1999 and an increase of $2.8 million in AFUDC income. The $7.8 million of net gains included gains from the sale of Homeguard Security Services, Inc., and PSE's common stock investment in Cabot. These gains were offset in part by losses related to sales of non-core assets and gas transportation contracts, establishing reserves for two proposed small hydro-electric projects and expenses of a subsidiary exiting certain product lines.
Interest charges, which consist of interest and amortization on long-term debt and other interest, increased $24.7 million in 2000 compared to 1999 as a result of the issuance of $225 million 7.96% Senior Medium-Term Notes, Series B, in February 2000, the issuance of $25 million 7.61% Senior Medium-Term Notes, Series B, in September 2000, and the issuance of $260 million 7.69% Senior Medium-Term Notes, Series C, in November 2000. These increases were partially offset by the repayment of $132 million in Secured Medium-Term Notes since September 1999 and $105.6 million of Encogen debt in February 2000. Other interest expense increased $9.1 million compared to 1999 as a result of higher weighted average interest rates and higher average daily short-term borrowings.
Interest charges increased $11.7 million in 1999 compared to 1998 as a result of the issuance of $200 million 6.74% Senior Medium-Term Notes, Series A, in June 1998, and $250 million Senior Medium-Term Notes, Series B, in March 1999. These increases were partially offset by the maturity or redemption of $188 million in Secured Medium-Term Notes since February 1998. Other interest expense decreased $1.7 million compared to 1998 as a result of lower weighted average interest rates.
Current construction expenditures for generation, transmission and distribution are designed to meet continuing customer growth and to improve efficiencies of PSE's energy delivery systems. Construction expenditures in 1999 and 2000 also include costs of developing a new customer information system. Construction expenditures, excluding equity AFUDC, were $296.5 million in 2000. PSE expects construction expenditures for the period 2001 through 2003 will be approximately $247 million, $230 million and $231 million, respectively. Construction expenditure estimates are subject to periodic review and adjustment.
PSE expects cash from operations (net of dividends and AFUDC) during the period 2001 through 2003 will, on average, be approximately 113.1% of average estimated construction expenditures (excluding AFUDC) during the same period.
In September 1998, PSE 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, PSE 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, PSE issued $225 million principal amount of 7.96% Senior Medium-Term Notes, Series B. The Notes are due February 22, 2010 and the proceeds were used to redeem the Encogen project debt and pay down a portion of PSE's short-term debt. On September 9, 2000, PSE issued $25 million principal amount of 7.61% Senior Medium-Term Notes, Series B, due September 8, 2008, which completed the shelf registration.
In October 2000, PSE 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, Subordinated Debentures or Trust Preferred Securities. On November 9, 2000, PSE issued $260 million principal amount of 7.69% Senior Medium-Term Notes, Series C, due February 1, 2011.
In 2000 and 1999 PSE issued common stock for PSE's Stock Purchase and Dividend Reinvestment Plan of $23.1 million (981,549 shares) and $6.8 million (361,944 shares), respectively.
PSE's ability to finance its future construction program is dependent upon market conditions and maintaining a level of earnings sufficient to permit the sale of additional securities. In determining the type and amount of future financing, PSE may be limited by restrictions contained in its electric and gas mortgage indentures, articles of incorporation and certain loan agreements.
Under the most restrictive tests, at December 31, 2000, PSE could issue either (i) approximately $427 million of additional first mortgage bonds, (ii) approximately $616 million of additional preferred stock at an assumed dividend rate of 7.75%, or (iii) a combination thereof.
Short-term borrowings from banks and the sale of commercial paper are used to provide working capital for the construction program. At December 31, 2000, PSE had available $375 million in lines of credit with various banks, which provide credit support for outstanding commercial paper of $204 million, effectively reducing the available borrowing capacity under these lines of credit to $171 million.(See Note 9 to the Consolidated Financial Statements.)
Under the most restrictive covenants in PSE's Articles of Incorporation and electric and gas mortgage indentures, earnings reinvested in the business unrestricted as to payment of cash dividends were approximately $228 million at December 31, 2000.
PSE currently has receivables net of reserves in the amount of $41.8 million from the CAISO and other counterparties, for power sales made in 2000. A reserve was established against the receivables as collection of the full amount is currently in question due to problems in the California energy market.
The order approving the Merger, issued by the Washington Commission on February 5, 1997, contained a rate plan designed to provide a five-year period of rate certainty for customers and to provide PSE with an opportunity to achieve a reasonable return on investment. General electric tariff rates were stipulated to increase annually between 1.0% and 1.5% depending on rate class on January 1 of 1998 through 2000. Electric tariff rates for certain customers will increase by 1.5% in 2001. PSE has had no electric rate adjustment mechanism during the rate stability period to adjust for changes in electric energy supply costs or fuel costs. These variances may now significantly influence earnings. The rate stabilization period will end on December 31, 2001, at which time PSE will be allowed to file for changes in rates, if necessary.
On December 12, 2000, certain industrial customers who receive electric service under a market index-based tariff filed a complaint with the Washington Commission seeking emergency relief from this tariff. These and other industrial customers had demanded the market index-based tariff in return for supporting PSE's 1997 merger with Washington Natural Gas Company. On December 13, 2000, PSE filed a petition requesting that PSE be allowed to defer and recover any lost revenue resulting from any relief granted to these customers.
The Washington Commission held a number of hearings on this subject and on January 22, 2001, while concluding no emergency relief was warranted, ordered continued hearings as to whether and how some relief in the form of a “soft” price cap could be temporarily put in place for these customers. PSE immediately filed testimony with the Washington Commission detailing the significant adverse financial impact of such a proposal at rate cap levels being contemplated ($125 to $150 per megawatt hour). PSE also filed suit in King County Superior Court against certain of the customers seeking damages for their attempt to void their agreement to buy electricity under the market index-based tariffs.
Subsequent to those actions, the Washington Commission suspended the hearings to allow all parties to work on a settlement. The settlement proposal, which currently is being finalized in writing, would result in a significant portion of the industrial loads in question (in excess of 250 average megawatts) being expected to purchase electricity from other suppliers and in return give up any rights to PSE's embedded cost resources. Customers representing a small portion of the load (approximately 25 average megawatts) have the opportunity to transfer to a tariff with a new “small customer” rate schedule. It is expected that the settlement proposal will be submitted to the Washington Commission in March 2001.
On March 6, 2000, the Washington Commission authorized PSE to sell its 7% ownership interest in the coal-fired Centralia Electric Generating plant located in southwest Washington state. On May 4, 2000, the plant was sold to TECWA Power, Inc. Of the resulting pre-tax gain, $21 million was allocated to customers and $2.5 million to PSE in accordance with the order. PSE recognized its share of the gain in September 2000. PSE returned the customers' share of the gain, with accrued interest, beginning November 1, 2000 based on customers' power usage in November 2000. Any final true-up of the gain will be collected or refunded through PSE's conservation rider.
On October 16, 2000, per FERC Order 2000, PSE filed its plans for forming and participating in a Regional Transmission Organization (“RTO”). FERC's goal is to promote efficiency in wholesale electricity markets and to ensure that electricity consumers pay the lowest price possible for reliable service. The impact upon PSE's operations related to the establishment of an RTO cannot be determined with certainty at this time but is not expected to be material.
On October 25, 2000, the Washington Commission approved PSE's request to sell excess sulfur dioxide emission allowances if and to the extent excess allowances are available to be sold. The proceeds of such sales will be deferred and amortized over a ten-year period. PSE estimates the value of the excess sulfur dioxide emission allowances to be $3.9 million at December 31, 2000.
The order approving the Merger, issued by the Washington Commission on February 5, 1997, contains a rate plan which provided unchanged rates for all classes of natural gas customers until January 1, 1999, when rates decreased by approximately $2.3 million annually.
As a result of sharp increases in gas costs during 2000, PSE filed two PGA and deferral amortization filings with the Washington Commission which were approved. The PGA filings allow PSE to recover expected increases in annual gas costs and deferral amortization filings allow PSE to recover prior period gas cost undercollections. As a result, gas rates to all sales customers increased by an average of 30.2% on August 1, 2000, and 26.4% again on January 12, 2001.(See Note 1 to the Consolidated Financial Statements for a description of the PGA mechanism.)
In the second quarter of 2000, PSE sold all of its redeemable 6% convertible preferred stock of Cabot Oil & Gas Corporation for $51.4 million. There was no significant gain or loss on the transaction.
On July 20, 2000, PSE and PPL Global, LLC (formerly PP&L Global, Inc.) terminated an Asset Purchase Agreement dated as of November 1, 1998, under which PPL Global, LLC had proposed purchasing PSE's 735-megawatt interest in the four-unit Colstrip power plants and associated transmission capacity across Montana. As a result, PSE will retain its 50% interest in Colstrip Units 1 and 2 and 25% interest in Colstrip Units 3 and 4.
On January 1, 2001, Puget Energy adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“Statement No. 133”), as amended by Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities an amendment of FASB Statement No. 133". Statement No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Puget Energy enters into both physical and financial contracts to manage its energy resource portfolio. Certain of these contracts outstanding on December 31, 2000 meet the derivative classification requirements of the statement and will be reported at fair value in the balance sheet. Beginning with the implementation of Statement No. 133, changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as qualifying cash flow hedge under the statement. Puget Energy will recognize the cumulative effect of this change in accounting principle by recording an after-tax decrease to current earnings of approximately $14.7 million for electric derivative transactions. In addition, Puget Energy will record a deferred asset for electric energy contracts designated as qualifying cash flow hedges of approximately $286.9 million at the adoption with a corresponding increase of approximately $286.9 million in other comprehensive income. Puget Energy anticipates approximately $207.9 million of the $286.9 million will reverse during 2001 and will, as a result, report a corresponding decrease to the deferred asset and to other comprehensive income to report this reversal. The decrease in the deferred asset and in other comprehensive income will have no net effect on current earnings. These estimates are based upon the forward market prices for energy at December 31, 2000. Retail gas related derivative transactions are deferred under Puget Energy's Purchased Gas Adjustment Mechanism and recorded in earnings as the transactions are executed under the PGA Incentive Mechanism.
PSE entered into an agreement with CellNet Data Services Inc. (“CellNet”) under which PSE would lend CellNet up to $72 million so it can finance the Automated Meter Reading (“AMR”) network system in PSE's service territory. The network system is collateral for the loan which has a term of five-years from the first draw on June 30, 1999. The loan agreement provides for interest only payments during the five-year term, with the principal due at the end of the five-year term. As of December 31, 2000 and 1999, the outstanding loan amounts were $51.9 million and $31.1 million, respectively. In the second quarter of 2000, Schlumberger completed the acquisition of CellNet which was approved by the bankruptcy court.
In December 1997, PSE paid $215 million to buy out Tenaska's existing long-term gas supply contracts, which contained fixed and escalating gas prices that were well above current and projected future market prices for natural gas. PSE became the principal natural gas supplier to the project and power purchase prices under the Tenaska contract were revised to reflect market-based prices for the natural gas supply. PSE obtained an order from the Washington Commission creating a regulatory asset related to the $215 million restructuring payment. Under terms of the order, PSE is allowed to accrue as an additional regulatory asset one-half the carrying costs of the deferred balance over the first five years.
On November 1, 1999, PSE purchased the 160-MW cogeneration plant from Encogen Northwest, L.P. Pursuant to an October 27, 1999 order from the Washington Commission approving the purchase, PSE will depreciate the original owner's net book value of the plant over the remaining 23-year useful life of the project. The difference between the purchase price and the net book value of the plant will be amortized over nine years.
In December 1999, PSE bought out the remaining 8.5 years of one of the natural gas supply contracts serving the cogeneration plant from Cabot Oil & Gas Corporation which provided approximately 60% of the plant's natural gas requirements. PSE became the replacement gas supplier to the project for 60% of the supply under terms of the Cabot Agreement. The Washington Commission has issued an order creating a regulatory asset relating to the $12 million payment that requires PSE to accrue carrying costs on the unamortized balance over the first three years.
The acquisitions by InfrastruX of Utilx and Lineal have been accounted for using the purchase method of accounting and, accordingly, the operating results of Utilx and Lineal have been included in PSE's consolidated financial statements since the date of acquisition. These acquisitions mark Puget Energy's entry into the business of providing design, construction and engineering services to the utility industry. The total purchase price of the two acquisitions was approximately $87.1 million.
PSE is exposed to market risks, including changes in commodity prices and interest rates.
PSE's energy related businesses are exposed to risks related to changes in commodity prices. As part of its business, PSE markets power to wholesale customers by entering into contracts to purchase or supply electric energy or natural gas at specified delivery points and at specified future delivery dates. PSE's energy risk management function manages PSE's core electric and gas supply portfolios.
PSE 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 PSE financial results; and
(iii) Optimize the value of PSE'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 supplies). At certain times, these sources of variability can mitigate portfolio imbalances; at other times they can exacerbate portfolio imbalances.
Hedging strategies for PSE's energy supply portfolio interact with portfolio optimization activities. Some hedges can be implemented in ways that retain PSE'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 are subject to fluctuations due to unpredictable factors including weather, generation outages 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. PSE may use forward delivery agreements, swaps and option contracts for the purpose of hedging commodity price risk. During fiscal year 2000, unrealized changes in the market value of these derivatives are deferred and recognized upon settlement along with the underlying hedged transaction. Effective January 1, 2001, pursuant to Statement No. 133, which requires that all derivative instruments be recorded on the balance sheet at their fair value, changes in the fair value of PSE's derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as qualifying hedge under the statement and, if it is, the type of hedge transaction. PSE does not consider its current operations to meet the definition of trading activities as described by the Emerging Issues Task Force of the Financial Accounting Standards Issue No. 98-10, “Accounting for Contracts involved in Energy Trading and Risk Management Activities”.
In addition, PSE 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 PSE's policies and procedures. In addition, the Audit Committee of PSE's Board of Directors has oversight of the Risk Management Committee.
PSE believes interest rate risk of PSE primarily relates to the use of short-term debt instruments and new long-term debt financing needed to fund capital requirements. PSE manages its interest rate risk through the issuance of mostly fixed-rate debt of various maturities. PSE 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. PSE may enter into swap instruments to manage the interest rate risk associated with these debts, and three interest rate swaps were outstanding as of December 31, 1999. These swaps terminated in 2000 and PSE did not enter into any other swap instruments as of December 31, 2000. The carrying amounts and fair values of PSE's fixed-rate debt instruments are:
None.
The information required by this item with respect to Puget Sound Energy is incorporated herein by reference, to the material under “Election of Directors” and “Security Ownership of Directors and Executive Officers--Section 16(a) Beneficial Ownership Reporting Compliance” in Puget Energy's proxy statement for its 2001 Annual Meeting of Shareholders, (Commission File No. 1-16305), which is filed as Exhibit 99.1 to this report.Reference is also made to the information regarding Puget Sound Energy's executive officers set forth in Part I of this report.
The information required by this item with respect to Puget Sound Energy is incorporated herein by reference, to the material under “Structure and Compensation of Board of Directors—Director Compensation,” “Executive Compensation” and “Employment Contracts, Termination of Employment and Change-In-Control Arrangements” in Puget Energy's proxy statement for its 2001 Annual Meeting of Shareholders, (Commission File No. 1-16305), which is filed as Exhibit 99.1 to this report.
As of January 31, 2001, all of the issued and outstanding shares of Puget Sound Energy's common stock were held beneficially and of record by Puget Energy.
The information required by this item with respect to Puget Sound Energy is incorporated herein by reference, to the material under “Certain Transactions” in Puget Energy's proxy statement for its 2001 Annual Meeting of Shareholders, (Commission File No. 1-16305), which is filed as Exhibit 99.1 to this report.
The accompanying consolidated financial statements of Puget Sound Energy, Inc. which, therefore, also represent the consolidated financial statements of Puget Energy have been prepared under the direction of management, which is responsible for their integrity and objectivity. The statements have been prepared in accordance with generally accepted accounting principles and include amounts based on judgments and estimates by management where necessary. Management also prepared the other information in the Annual Report on Form 10-K and is responsible for its accuracy and consistency with the financial statements.
Puget Energy and Puget Sound Energy maintain a system of internal control which, in management's opinion, provides reasonable assurance that assets are properly safeguarded and transactions are executed in accordance with management's authorization and properly recorded to produce reliable financial records and reports. The system of internal control provides for appropriate division of responsibility and is documented by written policy and updated as necessary. Puget Sound Energy's internal audit staff assesses the effectiveness and adequacy of the internal controls on a regular basis and recommends improvements when appropriate. Management considers the internal auditor's and independent auditor's recommendations concerning Puget Energy's and Puget Sound Energy's internal controls and takes steps to implement those that they believe are appropriate in the circumstances.
In addition, PricewaterhouseCoopers LLP, the independent accountants, have performed audit procedures deemed appropriate to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Board of Directors pursues its oversight role for the financial statements through the audit committee, which is composed solely of outside Directors. The audit committee meets regularly with management, the internal auditors and the independent auditors, jointly and separately, to review management's process of implementation and maintenance of internal accounting controls and auditing and financial reporting matters. The internal and independent auditors have unrestricted access to the audit committee.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Puget Energy, Inc.: In our opinion, the consolidatedfinancial statements listed onpage 37 of this Annual Report on Form 10-K present fairly, in all material respects, the financial position of Puget Energy, Inc. (formerly Puget Sound Energy, Inc.) and its subsidiaries (the “Company”) at December 31, 2000and 1999, and the results oftheir operations and theircash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed onpage 37 of this documentpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidatedfinancial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Seattle, Washington
February 13, 2001
Consolidated Financial Statements, Financial Statement Schedule and Exhibits Covered by the Foregoing Report of Independent Accountants
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998
Consolidated Balance Sheets, December 31, 2000 and 1999
Consolidated Statements of Capitalization, December 31, 2000 and 1999
Consolidated Statements of Earnings Reinvested in the Business for the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income for the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Schedule:
II. Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2000, 1999 and 1998
All other schedules have been omitted because of the absence of the conditions under which they are required, or because the information required is included in the financial statements or the notes thereto.
Financial statements of PSE's subsidiaries are not filed herewith inasmuch as the assets, revenues, earnings and earnings reinvested in the business of the subsidiaries are not material in relation to those of PSE.
Exhibits:
Exhibit Index
Consolidated Statements of
INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR YEARS ENDED DECEMBER 31 2000 1999 1998
- ---------------------------------------------- ------------- ------------- -------------
Operating revenues:
Electric $2,771,695 $1,558,012 $1,475,208
Gas 612,311 485,488 416,551
Other 57,666 24,444 32,097
- ---------------------------------------------- ------------- ------------- -------------
Total operating revenues 3,441,672 2,067,944 1,923,856
- ---------------------------------------------- ------------- ------------- -------------
Operating expenses:
Energy costs:
Purchased electricity 1,766,625 780,162 752,148
Residential exchange (41,000) (39,000) (55,562)
Purchased gas 332,927 220,009 175,805
Fuel 182,978 59,439 56,557
Utility operations and maintenance 240,094 240,645 231,636
Other operations and maintenance 60,612 27,179 30,102
Depreciation and amortization 196,513 175,710 165,587
Conservation amortization 6,830 7,841 6,199
Taxes other than federal income taxes 203,230 180,141 160,472
Federal income taxes 128,991 108,002 105,814
- ---------------------------------------------- ------------- ------------- -------------
Total operating expenses 3,077,800 1,760,128 1,628,758
- ---------------------------------------------- ------------- ------------- -------------
Operating income 363,872 307,816 295,098
- ---------------------------------------------- ------------- ------------- -------------
Other income 5,061 28,135 13,182
- ---------------------------------------------- ------------- ------------- -------------
Income before interest charges 368,933 335,951 308,280
- ---------------------------------------------- ------------- ------------- -------------
Interest charges:
AFUDC (9,303) (10,582) (7,580)
Interest expense 184,405 160,966 146,248
- ---------------------------------------------- ------------- ------------- -------------
Total interest charges 175,102 150,384 138,668
- ---------------------------------------------- ------------- ------------- -------------
Net income 193,831 185,567 169,612
Less preferred stock dividends accrual 8,994 11,065 13,003
- ---------------------------------------------- ------------- ------------- -------------
Income for common stock $184,837 $174,502 $156,609
- ---------------------------------------------- ------------- ------------- -------------
Common shares outstanding weighted average 85,411 84,613 84,561
- ---------------------------------------------- ------------- ------------- -------------
Basic and diluted earnings per common share $2.16 $2.06 $1.85
- ---------------------------------------------- ------------- ------------- -------------
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Balance Sheets
ASSETS
(DOLLARS IN THOUSANDS)
AT DECEMBER 31 2000 1999
- ------------------------------------------------------------------ ------------- -------------
Utility plant:
Electric plant $4,054,551 $3,966,220
Gas plant 1,459,488 1,371,589
Common plant 351,051 314,770
Less: Accumulated depreciation and amortization (2,026,681) (1,901,658)
- ------------------------------------------------------------------ ------------- -------------
Net utility plant 3,838,409 3,750,921
- ------------------------------------------------------------------ ------------- -------------
Other property and investments:
Investment in Bonneville Exchange Power Contract 58,189 61,716
Other 234,108 202,444
- ------------------------------------------------------------------ ------------- -------------
Total other property and investments 292,297 264,160
- ------------------------------------------------------------------ ------------- -------------
Current assets:
Cash 36,383 65,707
Accounts receivable, net of allowance for doubtful accounts 343,108 213,020
Unbilled revenues 211,784 121,303
Purchased gas receivable 96,050 33,700
Materials and supplies, at average cost 99,001 69,241
Prepayments and other 11,607 9,866
- ------------------------------------------------------------------ ------------- -------------
Total current assets 797,933 512,837
- ------------------------------------------------------------------ ------------- -------------
Long-term assets:
Regulatory asset for deferred income taxes 207,350 228,454
Regulatory asset for PURPA buyout costs 243,071 238,734
Other 177,609 150,500
- ------------------------------------------------------------------ ------------- -------------
Total long-term assets 628,030 617,688
- ------------------------------------------------------------------ ------------- -------------
Total assets $5,556,669 $5,145,606
================================================================== ============= =============
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Balance Sheets
CAPITALIZATION AND LIABILITIES
(DOLLARS IN THOUSANDS)
AT DECEMBER 31 2000 1999
- -------------------------------------------------------------- ------------ ------------
Capitalization:
(See "Consolidated Statements of Capitalization"):
Common equity $1,426,640 $1,379,073
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 2,170,797 1,783,139
- -------------------------------------------------------------- ------------ ------------
Total capitalization 3,815,599 3,387,874
- -------------------------------------------------------------- ------------ ------------
Current liabilities:
Accounts payable 410,619 178,218
Short-term debt 378,316 604,712
Current maturities of long-term debt 19,000 47,620
Accrued expenses:
Taxes 103,996 72,688
Salaries and wages 17,445 18,023
Interest 43,955 43,955
Other 26,685 24,259
- -------------------------------------------------------------- ------------ ------------
Total current liabilities 1,000,016 989,475
- -------------------------------------------------------------- ------------ ------------
Deferred income taxes 608,185 636,735
- -------------------------------------------------------------- ------------ ------------
Other deferred credits 132,869 131,522
- -------------------------------------------------------------- ------------ ------------
Commitments and contingencies -- --
- -------------------------------------------------------------- ------------ ------------
Total capitalization and liabilities $5,556,669 $5,145,606
============================================================== ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of
CAPITALIZATION
(DOLLARS IN THOUSANDS)
AT DECEMBER 31 2000 1999
- ---------------------------------------------------------------------- ----------- -----------
Common equity:
Common stock ($10 stated value) - 150,000,000 shares
Authorized, 85,903,791, and 84,922,405 shares outstanding $859,038 $849,224
Additional paid-in capital 470,179 454,982
Earnings reinvested in the business 92,673 66,019
Accumulated other comprehensive income - net 4,750 8,848
- ---------------------------------------------------------------------- ----------- -----------
Total common equity 1,426,640 1,379,073
- ---------------------------------------------------------------------- ----------- -----------
Preferred stock not subject to mandatory
Redemption - cumulative - $25 par value:*
7.45% series II - 2,400,000 shares authorized and outstanding 60,000 60,000
- ---------------------------------------------------------------------- ----------- -----------
Total preferred stock not subject to mandatory redemption 60,000 60,000
- ---------------------------------------------------------------------- ----------- -----------
Preferred stock subject to mandatory redemption - cumulative
$100 par value:*
4.84% series - 150,000 shares authorized,
14,808 shares outstanding 1,481 1,481
4.70% series - 150,000 shares authorized,
4,311 shares outstanding 431 431
7.75% series - 750,000 shares authorized, 562,500 and 637,500
shares outstanding 56,250 63,750
- ---------------------------------------------------------------------- ----------- -----------
Total 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:
First mortgage bonds and senior notes 2,028,000 1,563,000
Pollution control revenue bonds:
Revenue refunding 1991 series, due 2021 50,900 50,900
Revenue refunding 1992 series, due 2022 87,500 87,500
Revenue refunding 1993 series, due 2020 23,460 23,460
Other notes -- 105,980
Unamortized discount - net of premium (63) (81)
Long-term debt due within one year (19,000) (47,620)
- ---------------------------------------------------------------------- ----------- -----------
Total long-term debt excluding current maturities 2,170,797 1,783,139
- ---------------------------------------------------------------------- ----------- -----------
Total capitalization $3,815,599 $3,387,874
- ---------------------------------------------------------------------- ----------- -----------
* 13,000,000 shares authorized for $25 par value preferred stock and 3,000,000 shares authorized for $100 par
value preferred stock.
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of
EARNINGS REINVESTED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR YEARS ENDED DECEMBER 31 2000 1999 1998
- ----------------------------------------------- --------- --------- ---------
Balance at beginning of year $ 66,019 $ 47,548 $ 46,672
Net income 193,831 185,567 169,612
- ----------------------------------------------- --------- --------- ---------
Total 259,850 233,115 216,284
- ----------------------------------------------- --------- --------- ---------
Deductions:
Dividends declared:
Preferred stock:
Adjustable rate series B -- 38 272
$1.86 per share on 7.45% series II 4,470 4,470 4,470
$2.13 per share on 8.50% series III -- 1,700 2,550
$4.84 per share on 4.84% series 72 72 72
$4.70 per share on 4.70% series 20 20 20
$8.00 per share on 8% series -- -- 25
$7.75 per share on 7.75% series 4,505 5,086 5,667
Common stock 156,929 155,591 155,591
Preferred stock redemptions 1,181 119 69
- ----------------------------------------------- --------- --------- ---------
Total deductions 167,177 167,096 168,736
- ----------------------------------------------- --------- --------- ---------
Balance at end of year $ 92,673 $ 66,019 $ 47,548
- ----------------------------------------------- --------- --------- ---------
Dividends declared per common share $1.84 $1.84 $1.84
- ----------------------------------------------- --------- --------- ---------
Consolidated Statements of
COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
FOR YEARS ENDED DECEMBER 31 2000 1999 1998
- -------------------------------------------------------------------------- ---------- ---------- ---------
Net income $193,831 $185,567 $169,612
- -------------------------------------------------------------------------- ---------- ---------- ---------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on available for sale securities (938) 12,330 (6,152)
Reclassification adjustment for gains included in net income (3,160) (12,284) --
- -------------------------------------------------------------------------- ---------- ---------- ---------
Other comprehensive income (4,098) 46 (6,152)
- -------------------------------------------------------------------------- ---------- ---------- ---------
- -------------------------------------------------------------------------- ---------- ---------- ---------
Comprehensive income $189,733 $185,613 $163,460
- -------------------------------------------------------------------------- ---------- ---------- ---------
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of
CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR YEARS ENDED DECEMBER 31 2000 1999 1998
- --------------------------------------------------------------------- --------- ----------- ----------
Operating activities:
Net income $193,831 $185,567 $169,612
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 196,513 175,710 165,587
Deferred income taxes and tax credits - net (7,446) 21,133 16,560
Gain from sale of investment in Cabot common stock -- (18,899) --
Gain from sale of investment in Homeguard Security Services -- (11,659) --
Gain from sale of securities (6,476) -- --
PURPA buyout costs -- (12,000) --
Other (including conservation amortization) (7,276) (3,708) (14,321)
Change in certain current assets and liabilities (48,863) (25,446) (23,106)
- --------------------------------------------------------------------- --------- ----------- ----------
Net cash provided by operating activities 320,283 310,698 314,332
- --------------------------------------------------------------------- --------- ----------- ----------
Investing activities:
Construction expenditures - excluding equity AFUDC (296,480) (330,976) (335,471)
Energy conservation expenditures (6,931) (5,583) (6,745)
Proceeds from sale of investment in Cabot common stock 37,353 --
Proceeds from sale of investment in Cabot preferred stock 51,463 -- --
Proceeds from sale of Homeguard Security Services -- 13,399 --
Proceeds from sale of Centralia plant 37,449 -- --
Proceeds from sale of securities 6,757 -- --
Purchase of Encogen -- (55,000) --
Investment in InfrastruX (85,506) -- --
Loans to CellNet Data Services (20,874) (31,075) --
Other (14,138) 9,001 8,844
- --------------------------------------------------------------------- --------- ----------- ----------
Net cash used by investing activities (328,260) (362,881) (333,372)
- --------------------------------------------------------------------- --------- ----------- ----------
Financing activities:
Increase (decrease) in short-term debt - net (226,395) 153,807 78,367
Dividends paid (142,886) (160,067) (168,667)
Issuance of common stock -- 1,136 --
Redemption of preferred stock (7,503) (42,575) (5,454)
Issuance of bonds 510,000 250,000 200,000
Redemption of bonds and notes (150,980) (110,370) (81,093)
Other (3,583) (2,257) 13,374
- --------------------------------------------------------------------- --------- ----------- ----------
Net cash provided (used) by financing activities (21,347) 89,674 36,527
- --------------------------------------------------------------------- --------- ----------- ----------
Increase (decrease) in cash from net income (29,324) 37,491 17,487
Cash at beginning of year 65,707 28,216 10,729
- --------------------------------------------------------------------- --------- ----------- ----------
Cash at end of year $36,383 $65,707 $28,216
- --------------------------------------------------------------------- --------- ----------- ----------
The accompanying notes are an integral part of the consolidated financial statements.
NOTES
To Consolidated Financial Statements
Note 1.
Summary of Significant Accounting Policies
BASIS OF PRESENTATION
On January 1, 2001, Puget Sound Energy, Inc. ("PSE") reorganized into a holding company structure. This reorganization resulted in the creation of a new holding company, Puget Energy, Inc. ("Puget Energy"). Puget Energy was incorporated in the State of Washington and all of its operations are conducted through its subsidiaries. Pursuant to the reorganization, Puget Energy became the owner of all PSE's outstanding common stock. Holders of PSE's existing common stock exchanged their stock on a one-for-one basis for common stock of Puget Energy. Puget Energy is a public utility holding company under the Public Utility Holding Company Act of 1935 but is exempt from regulation under such Act. In addition, to its ownership of PSE, Puget Energy also owns InfrastruX Group, Inc. (“InfrastruX”), a Washington corporation.
The consolidated financial statements include the accounts of PSE and all its significant wholly-owned subsidiaries and, therefore, also represent the consolidated financial statements of Puget Energy and its wholly-owned subsidiaries. Significant intercompany transactions have been eliminated. Certain reclassifications have been made to the prior year financial statements to conform to the current year's presentation with no material effect on consolidated net income, total assets or common equity.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
UTILITY PLANT
The costs of additions to utility plant, including renewals and betterments, are capitalized at original cost. Costs include indirect costs such as engineering, supervision, certain taxes and pension and other employee benefits, and an allowance for funds used during construction. Replacements of minor items of property are included in maintenance expense. The original cost of operating property together with removal cost, less salvage, is charged to accumulated depreciation when the property is retired and removed from service.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS Puget Energy prepares its financial statements in accordance with Statement of Financial Accounting Standards No. 121 (“Statement No. 121”), “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” Statement No 121 establishes accounting standards for determining if long-lived assets are impaired and how losses, if any, should be recognized. Puget Energy believes that the net cash flows are sufficient to cover the carrying value of the assets.
REGULATORY ASSETS & AGREEMENTS
Puget Energy prepares its financial statements in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("Statement No. 71"). Statement No. 71 requires Puget Energy to defer certain costs that would otherwise be charged to expense, if it is probable that future rates will permit recovery of such costs. Accounting under Statement No. 71 is appropriate as long as: rates are established by or subject to approval by independent, third-party regulators; rates are designed to recover the specific enterprise's cost-of-service; and in view of demand for service, it is reasonable to assume that rates set at levels that will recover costs can be charged to and collected from customers. In applying Statement No. 71, Puget Energy must give consideration to changes in the level of demand or competition during the cost recovery period. In accordance with Statement No. 71, Puget Energy capitalizes certain costs in accordance with regulatory authority whereby those costs will be expensed and recovered in future periods.
Net regulatory assets and liabilities at December 31, 2000 and 1999, included the following:
(DOLLARS IN MILLIONS) 2000 1999
- ------------------------------------------------------ --------- ----------
Deferred income taxes $207.4 $228.5
PURPA electric energy supply contract buyout costs 243.1 238.7
Investment in BEP Exchange Contract 58.1 61.7
Unamortized energy conservation charges 6.3 4.6
Storm damage costs - electric 30.1 31.2
Purchased gas receivable 96.1 33.7
Deferred AFUDC 26.8 25.0
Various other costs 56.2 53.4
Deferred gains on property sales (17.9) (17.1)
Various other liabilities (13.0) (19.4)
- ------------------------------------------------------ --------- ----------
Total $693.2 $640.3
- ------------------------------------------------------ --------- ----------
If Puget Energy, at some point in the future, determines that all or a portion of the utility operations no longer meet the criteria for continued application of Statement No. 71, Puget Energy would be required to adopt the provisions of Statement of Financial Accounting Standards No. 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71" ("Statement No. 101"). Adoption of Statement No. 101 would require Puget Energy to write off the regulatory assets and liabilities related to those operations not meeting Statement No. 71 requirements. Discontinuation of Statement No. 71 could have a material impact on Puget Energy's financial statements.
The Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) has issued its Consensus 97-4 which addresses when an entity should discontinue the application of Statement No. 71, and how Statement No. 101 should be applied to a portion of an entity subject to a transition-to-competition plan. The EITF states that Statement No. 71 shall be discontinued at a date no later than when the details of the transition-to-competition plan for all or a portion of the entity subject to such plan are known. Additionally, the EITF reached a consensus that stranded costs which are to be recovered through cash flows derived from another portion of the entity which continues to apply Statement No. 71 should not be written off; rather, they should be considered regulatory assets of the segment which will continue to apply Statement No. 71.
PSE, in prior years, incurred costs associated with its 5% interest in a now-terminated nuclear generating project (identified herein as “Investment in Bonneville Exchange Power” (“BEP”)). Under terms of a settlement agreement with the Bonneville Power Administration (“BPA”), which settled claims of PSE relating to construction delays associated with that project, PSE is receiving, power from the federal power system resources marketed by BPA. Approximately two-thirds of PSE's investment in BEP is included in rate base and amortized on a straight-line basis over the life of the contract (amortization is included in “Purchased and interchanged power”). The remainder of PSE's investment was recovered in rates over the ten years ended December 31, 1999, without a return during the recovery period (the related amortization is included in “Depreciation and Amortization,” pursuant to a FERC accounting order).
PSE has regulatory assets of approximately $243 million related to the buyout of purchased power and gas sales contracts of two non-utility generation projects. Washington Commission accounting orders have approved payments pursuant to these contracts for deferral and collection in rates over the remaining life of the energy supply contracts. Under terms of the orders, PSE is allowed to accrue as an additional regulatory asset certain carrying costs of the deferred balances.
PSE has an agreement under which ConneXt, a wholly-owned subsidiary of PSE, performs certain billing and customer information technology functions. Under an accounting order approved by the Washington Commission, PSE records payments to ConneXt as if such costs were paid to third-party providers and these costs will be reviewed in a future rate filing.
OPERATING REVENUES
Operating utility revenues are recorded on the basis of service rendered, which includes estimated unbilled revenue. Non-utility subsidiaries recognize revenue when services are performed or upon the sale of assets.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts is calculated based upon historical write-offs as compared to operating revenues. Puget Energy has also provided for a reserve on sales transactions related to the California Independent System Operator and counterparties based upon probability of collection. The allowance for doubtful accounts for 2000 and 1999 was $41.0 million and $1.5 million, respectively.
ENERGY CONSERVATION
PSE offers programs designed to help new and existing customers use energy efficiently. The primary emphasis is to provide information and technical services to enable customers to make energy-efficient choices with respect to building design, equipment and building systems, appliance purchases and operating practices.
Since May 1997, PSE has recovered electric energy conservation expenditures through a tariff rider mechanism. The rider mechanism allows PSE to defer the conservation expenditures and amortize them to expense as PSE concurrently collects the conservation expenditures in rates over a one-year period. As a result of the rider, there is no effect on earnings per share.
Since 1995, PSE has been authorized by the Washington Commission to defer gas energy conservation expenditures and recover them through a tariff tracker mechanism. The tracker mechanism allows PSE to defer conservation expenditures and recover them in rates over the subsequent year. The tracker mechanism also allows PSE to recover an Allowance for Funds Used to Conserve Energy (AFUCE) on any outstanding balance that is not being recovered in rates.
SELF-INSURANCE
PSE currently has no insurance coverage for storm damage and is self-insured for a portion of the risk associated with comprehensive liability, industrial accidents and catastrophic property losses. With approval of the Washington Commission, PSE is able to defer for collection in future rates certain uninsured storm damage costs associated with major storms.
DEPRECIATION AND AMORTIZATION
For financial statement purposes, Puget Energy provides for depreciation on a straight-line basis. The depreciation of automobiles, trucks, power-operated equipment and tools is allocated to asset and expense accounts based on usage. The annual depreciation provision stated as a percent of average original cost of depreciable electric utility plant was 2.9% in 2000, 3.0% in 1999 and 1998; depreciable gas utility plant was 3.3%% in 2000, 3.4% in 1999 and 1998; and depreciable common utility plant was 1.9% in 2000 and 2.3% in 1999. Depreciation on other property, plant and equipment is calculated primarily on a straight-line basis over the useful lives of the assets.
GOODWILL AND INTANGIBLES
Goodwill and intangibles are amortized on a straight-line basis over the expected periods to be benefited up to 30 years. The goodwill and intangibles are the result of InfrastruX acquiring companies during 2000. Puget Energy assesses the recoverability by determining whether the amortization of the goodwill and intangibles balance over its remaining life can be recovered through discounted future operating cash flows of the acquired operation.
FEDERAL INCOME TAXES
Puget Energy normalizes, with the approval of the Washington Commission, certain items. Deferred taxes have been determined under Statement of Financial Accounting Standards No. 109. Investment tax credits are deferred and amortized based on the average useful life of the related property in accordance with regulatory and income tax requirements. (See Note 13).
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
The Allowance for Funds Used During Construction (“AFUDC”) represents the cost of both the debt and equity funds used to finance utility plant additions during the construction period. The amount of AFUDC recorded in each accounting period varies depending principally upon the level of construction work in progress and the AFUDC rate used. AFUDC is capitalized as a part of the cost of utility plant and is credited as a non-cash item to other income and interest charges currently. Cash inflow related to AFUDC does not occur until these charges are reflected in rates.
The AFUDC rate allowed by the Washington Commission for gas utility plant additions was 9.15% in 2000, 1999 and 1998. The allowed AFUDC rate on electric utility plant was 8.94% during the same period. To the extent amounts calculated using this rate exceed the AFUDC calculated rate using the Federal Energy Regulatory Commission (“FERC”) formula, Puget Energy capitalizes the excess as a deferred asset, crediting miscellaneous income. The amounts included in income were $2.8 million for 2000, $4.3 million for 1999 and $3.4 million for 1998. The deferred asset is being amortized over the average useful life of Puget Energy's non-project utility plant.
RATE ADJUSTMENT MECHANISM
PSE does not have an electric power cost or fuel adjustment mechanism to adjust for changes in energy and fuel costs or variances in hydro and weather conditions.
The differences between the actual cost of PSE's gas supplies and gas transportation contracts and that currently allowed by the Washington Commission are deferred and recovered or repaid through the purchased gas adjustment (“PGA”) mechanism.
On June 25, 1998, PSE received approval from the Washington Commission to begin a new performance-based mechanism for strengthening its gas-supply purchasing and gas-storage practices. The 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 program are shared between customers and shareholders. After the first $0.5 million, which is allocated to customers, gains and losses are shared 40%/60% between PSE and customers up to $26.5 million and 33%/67% thereafter. Gains or losses are determined relative to a weighted average index which is reflective of PSE's gas supply and transportation contract costs. PSE's share of incentive gains under the PGA Incentive Mechanism in 2000, 1999 and 1998 was approximately $7.5 million, $7.2 million and $1.1 million, respectively, while customers received approximately $11.7 million, $11.3 million and $2.0 million in benefits, respectively.
OFF-SYSTEM SALES AND CAPACITY RELEASE
PSE sells excess gas supplies, enters into gas supply exchanges with third parties outside of its distribution area and releases to third parties excess interstate gas pipeline capacity and gas storage rights on a short-term basis. PSE contracts for firm gas supplies and holds firm transportation and storage capacity sufficient to meet the expected peak winter demand for gas for space heating by its firm customers. Due to the variability in weather and other factors, however, PSE holds contractual rights to gas supplies and transportation and storage capacity in excess of its immediate requirements to serve firm customers on its distribution system for much of the year which, therefore, are available for third-party gas sales, exchanges and capacity releases. The proceeds, net of transactional costs, from such activities are accounted for as reductions in the cost of purchased gas and passed on to customers through the PGA mechanism, with no direct impact on net income. As a result, PSE does not reflect sales revenue or associated cost of sales for these transactions in its income statement.
ENERGY RISK MANAGEMENT
PSE's energy related businesses are exposed to risks related to changes in commodity prices. As part of its business, PSE markets power to wholesale customers by entering into contracts to purchase or supply electric energy or natural gas at specified delivery points and at specified future delivery dates. PSE's energy risk management function manages PSE's core electric and gas supply portfolios.
PSE 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 PSE financial results; and
(iii) Optimize the value of PSE's energy supply assets.
PSE enters into physical and financial instruments for the purpose of hedging commodity price risk. Gains or losses on these derivatives are generally deferred and recognized upon settlement along with the underlying sales or purchase contract. PSE has established policies and procedures to manage these risks. A Risk Management Committee separate from the units that create these risks monitors compliance with PSE's policies and procedures. In addition, the Audit Committee of PSE's Board of Directors has oversight of the Risk Management Committee.
Currently, PSE accounts for these activities pursuant to EITF Issue No. 98-10, “Accounting for Contracts Involved in Energy Trading and Risk Management Activities. The conclusion reached by the EITF was that such contracts should be recorded at fair value when entered into for trading purposes with the mark-to-market gains or losses recorded in current earnings. PSE does not consider its current operations to meet the definition of trading activities as described by EITF 98-10. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as qualifying cash flow hedge under the statement. Puget Energy will recognize the cumulative effect of this change in accounting principle by recording an after-tax decrease to current earnings of approximately $14.7 million for electric derivative transactions. In addition, Puget Energy will record a deferred asset for electric energy contracts designated as a qualifying cash flow hedges of approximately $286.9 million at the adoption with a corresponding increase of approximately $286.9 million in other comprehensive income.
OTHER
Debt premium, discount and expenses are amortized over the life of the related debt. The premiums and costs associated with reacquired debt are being amortized over the life of the related new issuances, in accordance with ratemaking treatment.
EARNINGS PER COMMON SHARE
Basic earnings per common share have been computed based on weighted average common shares outstanding of 85,411,000, 84,613,000 and 84,561,000 for 2000, 1999 and 1998, respectively. Diluted earnings per common share have been computed based on weighted average common shares outstanding of 85,690,000, 84,847,000 and 84,768,000 for 2000, 1999 and 1998, respectively, which include the dilutive effect of securities related to employee stock-based compensation plans.
Note 2.Utility Plant
Utility plant at December 31, 2000 and 1999 included the following:
(DOLLARS IN THOUSANDS)
DECEMBER 31 2000 1999
- ---------------------------------------------------------- -------------- --------------
Electric, gas and common utility plant classified by
prescribed accounts at original cost:
Distribution plant $3,177,277 $2,970,643
Production plant 1,097,953 1,116,351
Transmission plant 694,053 666,318
General plant 375,457 383,075
Construction work in progress 164,221 311,317
Plant acquisition adjustment 76,623 72,495
Intangible plant (including capitalized software) 243,904 103,276
Underground storage 22,570 14,801
Plant held for future use 8,225 9,755
Other 4,807 4,548
Less accumulated provision for depreciation 2,026,681 1,901,658
- ---------------------------------------------------------- -------------- --------------
Net utility plant $3,838,409 $3,750,921
- ---------------------------------------------------------- -------------- --------------
In April 2000, PSE placed its new customer information system software in service for a total of $147 million. The cost of the ConsumerLinX software is being amortized over 10 years.
On March 6, 2000, the Washington Commission authorized PSE to sell its 7% ownership interest in the coal-fired Centralia Electric Generating plant located in southwest Washington State. On May 4, 2000, the plant was sold to TECWA Power, Inc. Of the resulting pre-tax gain, $21 million was allocated to customers and $2.5 million to PSE in accordance with the order.
On November 1, 1999, PSE purchased a 160-megawatt natural gas-fired cogeneration plant from Encogen Northwest L.P. for $164 million. Pursuant to an October 27, 1999 order from the Washington Commission approving the purchase, PSE will depreciate the original owner's net book value of the plant over the remaining 23 year useful life of the project. The difference between the purchase price and the net book value of the plant (approximately $76.6 million) has been recorded as plant acquisition adjustment and is being amortized over nine years.
Note 3.Capital Stock
PREFERRED STOCK COMMON STOCK
---------------------------------------------- ---------------------
NOT SUBJECT TO SUBJECT TO
MANDATORY REDEMPTION MANDATORY
REDEMPTION WITHOUT PAR VALUE
$25 PAR VALUE $100 PAR VALUE ($10 STATED VALUE)
- --------------------------------------------------- ----------------------- ------------------- ------------------------
SHARES OUTSTANDING JANUARY 1, 1998 3,819,506 781,343 84,560,645
- --------------------------------------------------- ----------------------- ------------------- ------------------------
Issued to shareholders under the Stock Purchase
and Dividend Reinvestment Plan:
1999 -- -- 361,944
2000 -- -- 981,549
- --------------------------------------------------- ----------------------- ------------------- ------------------------
Acquired for sinking fund:
1998 -- (49,500) --
1999 -- (75,000) --
2000 -- (75,000) --
- --------------------------------------------------- ----------------------- -------------------- -----------------------
Called for redemption or reacquired and
canceled:
1998 (16,500) (224) --
1999 (1,403,006) -- --
- --------------------------------------------------- ----------------------- ------------------- ------------------------
Fractional share redemptions in connection with
merger exchange:
1998 -- -- (84)
1999 -- -- (100)
2000 -- -- (163)
- --------------------------------------------------- ----------------------- ------------------- ------------------------
Shares outstanding December 31, 2000 2,400,000 581,619 85,903,791
- --------------------------------------------------- ----------------------- ------------------- ------------------------
See “Consolidated Statements of Capitalization” for details on specific series.
On October 23, 2000, the Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding common share of Puget Energy. The dividend was paid on December 29, 2000 to shareholders of record on that date. The Rights will become exercisable only if a person or group acquires 10% or more of the Puget Energy's outstanding common stock or announces a tender offer which, if consummated, would result in ownership by a person or group of 10% or more of the outstanding common stock. Each right will entitle the holder to purchase from Puget Energy one one-hundredth of a share of preferred stock with economic terms similar to that of one share of the Puget Energy's common stock at a purchase price of $65, subject to adjustments. The Rights expire on December 21, 2010, unless earlier redeemed or exchanged by Puget Energy.
The weighted average dividend rate for the Adjustable Rate Cumulative Preferred Stock (“ARPS”), Series B ($25 par value) was 4.23% for 1999 and 4.83% for 1998. PSE reacquired 16,500 shares of ARPS Series B through open-market purchases during 1998 and redeemed the remaining ARPS on February 2, 1999 at $25 par plus accrued dividends through February 2, 1999. The 8.50% Series Preferred was redeemed at par plus accrued dividends on September 1, 1999. The 7.45% Series Preferred may be redeemed at par on or after November 1, 2003.
Note 4.Preferred Stock Subject to Mandatory Redemption
PSE is required to deposit funds annually in a sinking fund sufficient to redeem the following number of shares of each series of preferred stock at $100 per share plus accrued dividends: 4.70% Series and 4.84% Series, 3,000 shares each and 7.75% Series, 37,500 shares. All previous sinking fund requirements have been satisfied. At December 31, 2000, there were 46,689 shares of the 4.70% Series and 30,192 shares of the 4.84% Series acquired by PSE and available for future sinking fund requirements. Upon involuntary liquidation, all preferred shares are entitled to their par value plus accrued dividends.
The preferred stock subject to mandatory redemption may also be redeemed by PSE at the following redemption prices per share plus accrued dividends: 4.70% Series, $101 and 4.84% Series, $102. The 7.75% Series may be redeemed by PSE, subject to certain restrictions, at $103.62 per share plus accrued dividends through February 15, 2001, and at per share amounts which decline annually to a price of $100 after February 15, 2007.
Note 5.Company-Obligated, Mandatorily Redeemable Preferred Securities
In 1997, PSE formed Puget Sound Energy Capital Trust I (the “Trust”) for the sole purpose of issuing and selling common and preferred securities (“Trust Securities”). The proceeds from the sale of Trust Securities were used to purchase Junior Subordinated Debentures (“Debentures”) from PSE. The Debentures are the sole assets of the Trust and PSE owns all common securities of the Trust.
The Debentures have an interest rate of 8.231% and a stated maturity date of June 1, 2027. The Trust Securities are subject to mandatory redemption at par on the stated maturity date of the Debentures. The Trust Securities may be redeemed earlier, under certain conditions, at the option of PSE. Dividends relating to preferred securities are included in interest expense.
Note 6.Additional Paid-in Capital
The changes in Additional Paid-in Capital are as follows:
(DOLLARS IN THOUSANDS) 2000 1999 1998
- -------------------------------------------- ----------- ---------- ----------
Balance at beginning of year $454,982 $450,724 $450,845
Excess of proceeds over stated values of
common stock issued 13,295 4,198 --
Retained earnings adjustment for
preferred redemption 1,181 150 --
Issue costs and other expenses (309) (90) (121)
Issuance of preferred stock of subsidiary 1,030 -- --
- -------------------------------------------- ----------- ---------- ----------
Balance at end of year $470,179 $454,982 $450,724
- -------------------------------------------- ----------- ---------- ----------
Note 7.Earnings Reinvested in the Business
The payment of dividends on common stock is restricted by provisions of certain covenants applicable to preferred stock and long-term debt contained in PSE's Articles of Incorporation and Mortgage Indentures. Under the most restrictive covenants, earnings reinvested in the business unrestricted as to payment of cash dividends were approximately $228 million at December 31, 2000.
Note 8.Long-Term Debt
FIRST MORTGAGE BONDS AND SENIOR NOTES
AT DECEMBER 31 (DOLLARS IN THOUSANDS)
SERIES DUE 2000 1999
6.61% 2000 -- $ 10,000
9.60% 2000 -- 25,000
8.51 8.55% 2001 19,000 19,000
7.53 7.91% 2002 30,000 30,000
7.85% 2002 30,000 30,000
7.07% 2002 27,000 27,000
7.15% 2002 5,000 5,000
7.625% 2002 25,000 25,000
6.23 - 6.31% 2003 28,000 28,000
7.02% 2003 30,000 30,000
6.20% 2003 3,000 3,000
6.40% 2003 11,000 11,000
6.07 & 6.10% 2004 18,500 18,500
7.70% 2004 50,000 50,000
7.80% 2004 30,000 30,000
6.92 & 6.93% 2005 31,000 31,000
6.58% 2006 10,000 10,000
8.06% 2006 46,000 46,000
8.14% 2006 25,000 25,000
7.02 & 7.04% 2007 25,000 25,000
7.75% 2007 100,000 100,000
8.40% 2007 10,000 10,000
6.51 & 6.53% 2008 4,500 4,500
7.61% 2008 25,000 --
6.61 & 6.62% 2009 8,000 8,000
6.46% 2009 150,000 150,000
7.12% 2010 7,000 7,000
7.96% 2010 225,000 --
7.69% 2011 260,000 --
8.59% 2012 5,000 5,000
8.20% 2012 30,000 30,000
6.83% & 6.90% 2013 13,000 13,000
7.35 & 7.36% 2015 12,000 12,000
6.74% 2018 200,000 200,000
9.57% 2020 25,000 25,000
8.25 - 8.40% 2022 35,000 35,000
7.19% 2023 3,000 13,000
7.35% 2024 55,000 55,000
7.15 & 7.20% 2025 17,000 17,000
7.02% 2027 300,000 300,000
7.00% 2029 100,000 100,000
- --------------------------- --------------------- --------------------
Total $2,028,000 $1,563,000
- --------------------------- --------------------- --------------------
In September 1998, PSE 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, PSE 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, PSE issued $225 million principal amount of 7.96% Senior Medium-Term Notes, Series B due February 22, 2010. On September 8, 2000, PSE issued the remaining $25 million principal amount of Senior Notes from the shelf registration. The 7.61% Senior Medium-Term Notes, Series B are due September 8, 2008.
In October 2000, PSE 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, Subordinated Debentures or Trust Preferred Securities. On November 9, 2000, PSE issued $260 million principal amount of 7.69% Senior Medium-Term Notes, Series C. The Notes are due February 1, 2011.
Substantially all utility properties owned by PSE are subject to the lien of PSE's electric and gas mortgage indentures.
POLLUTION CONTROL BONDS
PSE has outstanding three series of Pollution Control Bonds. Amounts outstanding were borrowed from the City of Forsyth, Montana (“the City”). The City obtained the funds from the sale of Customized Pollution Control Refunding Bonds issued to finance pollution control facilities at Colstrip Units 3 and 4.
Each series of bonds is collateralized by a pledge of PSE's First Mortgage Bonds, the terms of which match those of the Pollution Control Bonds. No payment is due with respect to the related series of First Mortgage Bonds so long as payment is made on the Pollution Control Bonds. Interest rates for the 1992 and 1993 series are 6.80% and 5.875%, respectively. The 1991 series consists of $27.5 million principal amount bearing interest at 7.05% and $23.4 million principal amount bearing interest at 7.25%.
PROJECT DEBT
On November 1, 1999, PSE assumed approximately $109 million of project debt under the agreement to purchase the 160-megawatt natural gas-fired cogeneration plant from Encogen Northwest L.P. Interest rates on the project debt ranged from 8.64% to 13.03%. In February 2000, PSE used a portion of the proceeds from the issuance of $225 million principal amount of Senior Medium-Term notes to pay off the project debt. At December 31, 1999, the project debt was included in Other notes.
LONG-TERM DEBT MATURITIES
The principal amounts of long-term debt maturities for the next five years are as follows:
(DOLLARS IN THOUSANDS) 2001 2002 2003 2004 2005
- -------------------------------------------------------------------------------
Maturities of:
Long-term debt $ 19,000 $117,000 $ 72,000 $ 98,500 $31,000
Note 9Short-Term Debt and Other Financing Arrangements
At December 31, 2000, PSE had short-term borrowing arrangements which included a $375 million line of credit with thirteen banks which expires on February 13, 2003. The agreement provides PSE with the ability to borrow at different interest rate options and includes variable fee levels. The options are: (1) the higher of the prime rate or the Federal Funds rate plus .50% or (2) the Eurodollar rate plus .25%. The current availability fee is .08% per annum on the unused loan commitment.
In addition, PSE 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. PSE also uses commercial paper to fund its short-term borrowing requirements.
(DOLLARS IN THOUSANDS)
AT DECEMBER 31 2000 1999 1998
- -------------------------------------- ---------- -------- --------
Short-term borrowings outstanding:
Commercial paper notes $204,019 $105,712 $142,105
Bank line of credit borrowing $2,377 -- $25,000
Uncommitted bank borrowings $171,750 $499,000 $283,800
Notes Payable $170 -- --
Weighted average interest rate 7.33% 6.59% 5.90%
Revolving Credit Facility1 $12,000 -- --
Credit availability2 $375,000 $375,000 $375,000
PSE has, on occasion, entered into interest rate swap agreements to reduce the impact of changes in interest rates on portions of its floating-rate debt.
Note 10.Estimated Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of PSE's financial instruments at December 31, 2000 and 1999:
2000 2000 1999 1999
CARRYING FAIR CARRYING FAIR
(DOLLARS IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------
Financial assets:
Cash $ 36.4 $ 36.4 $ 65.7 $ 65.7
Cabot preferred stock -- -- $ 51.6 $ 51.6
Equity securities3 $ 7.5 $ 7.5 $ 13.7 $ 13.7
Notes receivable $ 53.3 $ 53.3 $ 31.1 $ 31.1
Financial liabilities:
Short-term debt $377.2 $377.2 $604.7 $604.7
Preferred stock subject to
Mandatory redemption $58.2 $ 58.5 $ 65.7 $ 65.2
Corporation obligated, mandatorily
Redeemable preferred securities of
Subsidiary trust holding solely
junior subordinated debentures of
the corporation $100.0 $ 102.4 $100.0 $ 91.8
Long-term debt $2,189.9 $2,183.0 $1,724.8 $1,618.3
Project debt -- -- $106.0 $109.4
Unrecognized financial instruments:
Interest rate swaps -- -- -- $ (0.6)
- -------------------------------------------------------------------------------------------
1 The revolving credit facility requires Utilx to maintain certain financial services covenants, including requirements to maintain certain levels of net worth and debt coverage. The agreement also places certain restrictions on expenditures, other indebtedness and executive compensation.
2 Provides liquidity support for PSE's outstanding commercial paper and borrowing from credit line banks in the amount of $204.0 million, $105.7 million and $167.1 million for 2000, 1999 and 1998 respectively, effectively reducing the available borrowing capacity under these credit lines to $171.0 million, $269.3 million and $207.9 million, respectively.
3 2000 carrying amount includes an adjustment of $7.3 million to report the available-for-sale securities at market value. This amount has been included as a component of other comprehensive income net of deferred taxes of $2.6 million.
The fair value of outstanding bonds including current maturities is estimated based on quoted market prices.
The preferred stock subject to mandatory redemption and corporation obligated, mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of the corporation is estimated based on dealer quotes.
The carrying value of short-term debt is considered to be a reasonable estimate of fair value. The carrying amount of cash, which includes temporary investments with original maturities of three months or less, is also considered to be a reasonable estimate of fair value.
The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that PSE would receive or pay to terminate each swap agreement at the reporting date, taking into account current interest rates and the current creditworthiness of all the parties to each swap.
Derivative instruments have been used by PSE on a limited basis. PSE has a policy that financial derivatives are to be used only to mitigate business risk and not for speculative purposes.
Note 11.Supplementary Income Statement Information
(DOLLARS IN THOUSANDS) 2000 1999 1998
- ---------------------------------------- ----------- ------------- -------------
Taxes:
Real estate and personal property $ 47,357 $ 48,036 $ 40,422
State business 83,485 70,047 62,855
Municipal, occupational and other 65,155 52,739 48,090
Other 30,905 19,445 20,010
- ---------------------------------------- ----------- ------------- -------------
Total taxes $226,902 $190,267 $171,377
- ---------------------------------------- ----------- ------------- -------------
Charged to:
Operating expense $203,230 $180,141 $160,472
Other accounts, including
construction work in progress 23,672 10,126 10,905
- ---------------------------------------- ----------- ------------- -------------
Total taxes $226,902 $190,267 $171,377
- ---------------------------------------- ----------- ------------- -------------
See "Consolidated Statements of Income" for maintenance and depreciation expense.
Advertising, research and development expenses and amortization of intangibles are not significant. PSE pays no royalties.
Note 12.Leases
PSE treats all leases as operating leases for ratemaking purposes as required by the Washington Commission. Certain leases contain purchase options, renewal and escalation provisions. Capitalized leases are not material.
Rental and operating lease expense for the years ended December 31, 2000, 1999 and 1998, were approximately $18.2 million, $16.9 million and $16.5 million, respectively. Payments received, for the sublease of properties were approximately $2.4 million, $2.3 million, and $1.2 million for the years ended December 31, 2000, 1999 and 1998, respectively.
Future minimum lease payments for noncancelable leases are approximately $21.0 million for 2001, $17.2 million for 2002, $14.9 million for 2003, $8.7 million for 2004, $3.4 million for 2005 and in the aggregate, $6.7million thereafter. Future minimum sublease receipts for noncancelable subleases are $2.0 million for 2001, $2.0 million for 2002, and $2.0 million for 2003.
Note 13.Federal Income Taxes
The details of federal income taxes (“FIT”) are as follows:
(DOLLARS IN THOUSANDS) 2000 1999 1998
- ---------------------------------------------- ------------ ------------- ------------
Charged to operating expense:
Current $128,138 $93,354 $88,606
Deferred - net 1,557 15,373 17,948
Deferred investment tax credits (704) (725) (740)
- ---------------------------------------------- ------------ ------------- ------------
Total FIT charged to operations 128,991 108,002 105,814
- ---------------------------------------------- ------------ ------------- ------------
Charged to miscellaneous income:
Current 7,843 (503) 4,634
Deferred - net (10,150) 4,574 (648)
- ---------------------------------------------- -------------- ----------- ------------
Total FIT charged to miscellaneous income (2,307) 4,071 3,986
- ---------------------------------------------- -------------- ----------- ------------
Total FIT $126,684 $112,073 $109,800
- ---------------------------------------------- ------------ ------------- ------------
The following is a reconciliation of the difference between the amount of FIT computed by multiplying pre-tax book income by the statutory tax rate, and the amount of FIT in the Consolidated Statements of Income:
(DOLLARS IN THOUSANDS) 2000 1999 1998
- -------------------------------------------------- ---------- ----------- ----------
FIT at the statutory rate $112,180 $104,174 $97,794
- -------------------------------------------------- ---------- ----------- ----------
Increase (decrease):
Depreciation expense deducted in the
Financial statements in excess of tax
Depreciation, net of depreciation
Treated as a temporary difference 10,807 8,678 7,756
AFUDC included in income in the financial
Statements but excluded from taxable income (3,274) (4,345) (3,953)
Accelerated benefit on early retirement
of depreciable assets (834) (812) (1,241)
Investment tax credit amortization (704) (725) (740)
Energy conservation expenditures - net 10,634 13,434 12,754
Other - net (2,125) (8,331) (2,570)
- -------------------------------------------------- ---------- ----------- ----------
Total FIT $126,684 $112,073 $109,800
- -------------------------------------------------- ---------- ----------- ----------
Effective tax rate 39.5% 37.7% 39.3%
- -------------------------------------------------- ---------- ----------- ----------
The following are the principal components of FIT as reported:
(DOLLARS IN THOUSANDS) 2000 1999 1998
- --------------------------------------------------- ---------- ---------- ----------
Current FIT $135,981 $92,851 $93,240
- --------------------------------------------------- ---------- ---------- ----------
Deferred FIT - other:
Conservation tax settlement 1,776 2,927 3,257
Periodic rate adjustment mechanism (PRAM) -- -- 107
Cabot preferred stock sale (10,635) -- --
Deferred taxes related to insurance reserves (384) (1,225) (1,224)
Reversal of Statement No. 90 present
value adjustments -- 92 255
Residential Purchase and Sale Agreement - net 2,226 -- 3,441
Normalized tax benefits of the
accelerated cost recovery system 10,931 14,452 20,118
Energy conservation program (1,666) (983) (2,437)
Environmental remediation 721 947 (2,946)
WNP 3 tax settlement (1,126) (826) (826)
Merger costs -- 409 42
Demand charges (79) 14 3,273
Allowance for doubtful accounts (13,821) -- --
Other 3,464 4,140 (5,760)
- --------------------------------------------------- ---------- ---------- ----------
Total deferred FIT - other (8,593) 19,947 17,300
- --------------------------------------------------- ---------- ---------- ----------
Deferred investment tax credits -
net of amortization (704) (725) (740)
- --------------------------------------------------- ---------- ---------- ----------
Total FIT $126,684 $112,073 $109,800
- --------------------------------------------------- ---------- ---------- ----------
Deferred tax amounts shown above result from temporary differences for tax and financial statement purposes. Deferred tax provisions are not recorded in the income statement for certain temporary differences between tax and financial statement purposes because they are not allowed for ratemaking purposes.
PSE calculates its deferred tax assets and liabilities under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“Statement No. 109”). Statement No. 109 requires recording deferred tax balances, at the currently enacted tax rate, for all temporary differences between the book and tax bases of assets and liabilities, including temporary differences for which no deferred taxes had been previously provided because of use of flow-through tax accounting for ratemaking purposes. Because of prior and expected future ratemaking treatment for temporary differences for which flow-through tax accounting has been utilized, a regulatory asset for income taxes recoverable through future rates related to those differences has also been established. At December 31, 2000, the balance of this asset is $207.4 million.
The deferred tax liability at December 31, 2000 and 1999 is comprised of amounts related to the following types of temporary differences:
(DOLLARS IN THOUSANDS) 2000 1999
- ---------------------------------------- -------------- -------------
Utility plant $571,772 $574,064
Investment in Cabot stock -- 10,635
Energy conservation charges 31,212 41,833
Contributions in aid of construction (37,275) (33,927)
Bonneville Exchange Power 20,258 22,618
Cabot Gas Contract Purchase 4,533 4,200
Other 17,685 17,312
- ---------------------------------------- -------------- -------------
Total $608,185 $636,735
- ---------------------------------------- -------------- -------------
The totals of $608.2 million and $636.7 million for 2000 and 1999 consist of deferred tax liabilities of $706.8 million and $719.7 million net of deferred tax assets of $98.6 million and $83.0 million, respectively.
Note 14.Retirement Benefits
Puget Energy has a defined benefit pension plan covering substantially all of its employees. Benefits are a function of both age and salary. Additionally, Puget Energy maintains a non-qualified supplemental retirement plan for officers and certain director-level employees.
In addition to providing pension benefits, Puget Energy provides certain health care and life insurance benefits for retired employees. These benefits are provided principally through an insurance company whose premiums are based on the benefits paid during the year.
PENSION BENEFITS OTHER BENEFITS
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $349,160 $352,422 $26,003 $29,438
Service cost 9,005 9,259 224 245
Interest cost 25,500 24,181 1,965 1,868
Amendments 77 500 -- --
Actuarial (gain)/loss 4,058 (14,548) 1,187 (3,600)
Benefits paid (21,318) (22,654) (1,811) (1,948)
-----------------------------------------------------------------------------------------------
Benefit obligation at end of year $366,482 $349,160 $27,568 $26,003
-----------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $524,827 $464,195 $14,738 $14,132
Actual return on plan assets (8,151) 82,300 910 740
Employer contribution 1,110 986 1,824 1,814
Benefits paid (21,318) (22,654) (1,811) (1,948)
-----------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $496,468 $524,827 $15,661 $14,738
-----------------------------------------------------------------------------------------------
(continued)
PENSION BENEFITS OTHER BENEFITS
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Funded status $129,986 $175,667 $(11,907) $(11,265)
Unrecognized actuarial gain (128,268) (189,609) (3,506) (4,870)
Unrecognized prior service cost 19,333 22,218 (395) (429)
Unrecognized net initial (asset)/obligation (5,103) (6,333) 7,521 8,148
- --------------------------------------------------------------------------------- ----------------------------
Net amount recognized $15,948 $1,943 $(8,287) $(8,416)
- --------------------------------------------------------------------------------- ----------------------------
Amounts recognized on statement of
financial position consist of:
Prepaid benefit cost $34,326 $17,698 $(8,287) $(8,416)
Accrued benefit liability (25,861) (23,670) -- --
Intangible asset 7,483 7,915 -- --
- --------------------------------------------------------------------------------- ----------------------------
Net amount recognized $15,948 $1,943 $(8,287) $(8,416)
- --------------------------------------------------------------------------------- ----------------------------
In accounting for pension and other benefits costs under the plans, the following weighted average actuarial assumptions were used:
PENSION BENEFITS OTHER BENEFITS
2000 1999 1998 2000 1999 1998
--------------------------------------- ------------ ---------- ----------- --------- ------------ ------------
Discount rate 7.5% 7.5% 7.0% 7.5% 7.5% 7.0%
Return on plan assets 9.75% 9.75% 9.75% 6-8.5% 6-8.5% 6-8.5%
Rate of compensation increase 5.0% 5.0% 5.0% -- -- --
Medical trend rate -- -- -- 7.0% 7.0% 7.5%
- ---------------------------------------- ------------ ---------- ----------- --------- ------------ ------------
PENSION BENEFITS OTHER BENEFITS
(DOLLARS IN THOUSANDS) 2000 1999 1998 2000 1999 1998
-------------------------------------- ------------ ----------- ---------- --------- ------------ ------------
Components Net Periodic Benefit Cost:
Service cost $9,005 $9,259 $8,550 $224 $245 $229
Interest cost 25,500 24,180 22,862 1,965 1,868 1,985
Expected return on plan assets (42,280) (37,310) (33,744) (892) (857) (867)
Amortization of prior service cost 2,884 3,330 3,330 (34) (34) (34)
Recognized net actuarial gain (6,851) (3,117) (3,180) (195) (145) (97)
Amortization of transition (1,230) (1,230) (1,230) 627 627 627
(asset)/obligation
Special recognition of prior service costs 77 462 -- -- -- --
---------------------------------------- ------------- ------------ --------- --- --------- ------------ ------------
Net pension benefit cost (12,895) (4,426) (3,412) 1,695 1,704 1,843
Regulatory adjustment -- 932 1,263 -- -- --
- ---------------------------------------- ------------- ------------ --------- --------- ------------ ------------
Net periodic benefit cost $(12,895) $(3,494) $(2,149) $1,695 $1,704 $1,843
- ---------------------------------------- ------------- ------------ --------- --------- ------------ ------------
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $32.2 million, $25.9 million, and $0, respectively, as of December 31, 2000.
The assumed medical inflation rate is 7.0% in 2000 decreasing to 6.0% in 2003. A 1% change in the assumed medical inflation rate would have the following effects:
2000 1999
1% 1% 1% 1%
(DOLLARS IN THOUSANDS) INCREASE DECREASE INCREASE DECREASE
- -------------------------------------------------------------------------------------------------
Effect on service and interest cost components $661 $(583) $596 $(579)
Effect on postretirement benefit obligation $ 49 $ (42) $ 40 $ (39)
Note 15.Employee Investment Plan and Employee Stock Purchase Plan
Puget Energy has qualified Employee Investment Plans under which employee salary deferrals and after-tax contributions are used to purchase several different investment fund options.
Puget Energy contributions to the Employee Investment Plan were $7.2 million, $7.1 million, and $6.5 million for the years 2000, 1999 and 1998, respectively. The shareholders have authorized the issuance of up to 2,000,000 shares of common stock under the PSE plan, of which 959,142 were issued through December 31, 2000. The Employee Investment Plan eligibility requirements are set forth in the plan documents.
Puget Energy also has an Employee Stock Purchase Plan which was approved by shareholders on May 19, 1997, and commenced July 1, 1997, under which options are granted to eligible employees who elect to participate in the plan on January 1st and July 1st of each year. Participants are allowed to exercise those options six months later to the extent of payroll deductions or cash payments accumulated during that six-month period. The option price under the plan during 2000 was 85% of either the fair market value of the common stock at the grant date or the fair market value at the exercise date, whichever is less. Puget Energy contributions to the Plan were $301,610, $88,900 and $98,200 for 2000, 1999 and 1998, respectively.
On February 1, 1998, Puget Energy granted 50 performance shares to 2,800 eligible employees in recognition of their efforts to implement Puget Energy's strategies. On February 1, 2000, those performance shares and dividend equivalents were converted to common stock. Total cost of the performance share grant program was $4.1 million, which was recognized as an accounting expense over the two-year vesting period.
Note 16.Other Investments
In May 1994, PSE merged its oil and gas exploration and production subsidiary, Washington Energy Resources Company (“Resources”), with a wholly-owned subsidiary of Cabot Oil and Gas Corporation (“Cabot”) in a tax-free exchange in which PSE received common and preferred stock of Cabot. The investment in Cabot stock was classified as available-for-sale. In May 1999, PSE sold the 2,133,000 shares of Cabot common stock and recorded an after-tax gain of $12.3 million. At the time of the common stock sale, the fair value of the stock was $37.4 million and an unrealized gain of $12.3 million, net of tax, was included as a component of other comprehensive income. The $12.3 million unrealized gain on the sale was reclassified out of accumulated other comprehensive income at the time of the sale. In May 2000, PSE sold all of its 1,134,000 shares of 6% convertible redeemable preferred stock in Cabot for $51.4 million, after expenses. The sale resulted in approximately $40.8 million in after-tax cash proceeds. There was no significant gain or loss on the transaction. As a result of these two transactions, PSE no longer holds any securities of Cabot.
In March 1998, PSE entered into an agreement with CellNet Data Services Inc. (“CellNet”) under which PSE would lend CellNet up to $35 million in the form of multiple draws so that CellNet can finance an Automated Meter Reading (“AMR”) network system to be deployed in PSE's service territory. In September 1999, PSE announced it was expanding its AMR network system from 800,000 meters to 1,325,000 meters and as a result increased the authorized loan amount to $72 million. On June 30, 1999, PSE made the first loan under the loan agreement and as of December 31, 1999 and 2000, there were loans outstanding of $31.1 million and $51.9 million, respectively. During 2000, Schlumberger completed the acquisition of CellNet which was approved by the bankruptcy court.
Note 17.Commitments and Contingencies
COMMITMENTS – ELECTRIC
For the twelve months ended December 31, 2000, approximately 17.2% of PSE's energy output was obtained at an average cost of approximately 11.4 mills per KWH through long-term contracts with several of the Washington public utility districts (“PUDs”) owning hydro-electric projects on the Columbia River.
The purchase of power from the Columbia River projects is generally on a “cost-of-service” basis under which PSE pays a proportionate share of the annual cost of each project in direct proportion to the amount of power annually purchased by PSE from such project. Such payments are not contingent upon the projects being operable. These projects are financed through substantially level debt service payments, and their annual costs should not vary significantly over the term of the contracts unless additional financing is required to meet the costs of major maintenance, repairs or replacements or license requirements. PSE's share of the costs and the output of the projects is subject to reduction due to various withdrawal rights of the PUDs and others over the lives of the contracts.
As of December 31, 2000, PSE was entitled to purchase portions of the power output of the PUDs' projects as set forth in the following tabulation:
BONDS COMPANY'S ANNUAL AMOUNT
OUTSTANDING PURCHASABLE (APPROXIMATE)
-------------------------------------------------
CONTRACT LICENSE1 12/31/002 % OF MEGAWATT COSTS3
PROJECT EXP. DATE EXP. DATE (MILLIONS) OUTPUT CAPACITY (MILLIONS)
- ------------------------- --------------- ------------- ----------------- ---------------- ----------------- --------------
Rock Island
Original units 2012 2029 82.2 50.0 457 39.0
Additional units 2012 2029 330.0 97.5 -- --
Rocky Reach 2011 2006 258.6 38.9 505 23.0
Wells 2018 2012 176.9 31.3 261 9.6
Priest Rapids 2005 2005 165.4 8.0 72 2.4
Wanapum 2009 2005 179.7 10.8 98 3.7
----------------- --------------
Total 1,393 77.7
1PSE is unable to predict whether the licenses under the Federal Power Act will be renewed to the current licensees. The FERC has issued orders for the Rocky Reach, Wells and Priest Rapids/Wanapum projects under Section 22 of the Federal Power Act, which affirm PSE's contractual rights to receive power under existing terms and conditions even if a new licensee is granted a license prior to expiration of the contract term.
2The contracts for purchases initially were generally coextensive with the term of the PUD bonds associated with the project. Under the terms of some financings and refinancings, however, long-term bonds were sold to finance certain assets whose estimated useful lives extend beyond the expiration date of the power sales contracts. Of the total outstanding bonds sold for each project, the percentage of principal amount of bonds which mature beyond the contract expiration date are: 41.0% at Rock Island; 46.9% at Rocky Reach; 83.2% at Priest Rapids; 51.5% at Wanapum; and 5.3% at Wells.
3 The components of 2000 costs associated with the interest portion of debt service are: Rock Island, $22.0 million for all units; Rocky Reach, $6.2 million; Wells, $2.8 million; Priest Rapids, $0.7 million; and Wanapum, $1.0 million.
PSE's estimated payments for power purchases from the Columbia River projects are $87.4 million for 2001, $87.0 million for 2002, $86.0 million for 2003, $84.0 million for 2004, $84.0 million for 2005 and in the aggregate, $588 million thereafter through 2018.
PSE also has numerous long-term firm purchased power contracts with other utilities in the region. PSE is generally not obligated to make payments under these contracts unless power is delivered. PSE's estimated payments for firm power purchases from other utilities, excluding the Columbia River projects, are $144 million for 2001, $138 million for 2002, $125 million for 2003, $73 million for 2004, $69 million for 2005 and in the aggregate, $465 million thereafter through 2037. These contracts have varying terms and may include escalation and termination provisions.
As required by the federal Public Utility Regulatory Policies Act (“PURPA”), PSE entered into long-term firm purchased power contracts with non-utility generators. PSE purchases the net electrical output of four significant projects at fixed and annually escalating prices which were intended to approximate PSE's avoided cost of new generation projected at the time these agreements were made. PSE's estimated payment under these three contracts are $264 million for 2001, $244 million for 2002, $221 million for 2003, $229 million for 2004, $217 million for 2005 and in the aggregate, $1.4 billion thereafter through 2012.
The following table summarizes PSE's obligations for future power purchases.
2006 &
THERE-
(In Millions) 2001 2002 2003 2004 2005 AFTER TOTAL
- -------------------------- ------ ------ ------ ------ ------ -------- --------
Columbia River Projects $87 $87 $86 $84 $84 $588 $1,016
Other utilities 144 138 125 73 69 465 1,014
Non-Utility Generators 264 244 221 229 217 1,437 2,612
- -------------------------- ------ ------ ------ ------ ------ -------- --------
Total $495 $469 $432 $386 $370 $2,490 $4,642
- -------------------------- ------ ------ ------ ------ ------ -------- --------
Total purchased power contracts provided PSE with approximately 15.1 million, 16.1 million and 15.8 million MWH of firm energy at a cost of approximately $506.5 million, $487.4 million and $481.6 million for the years 2000, 1999 and 1998, respectively.
As part of its electric operations and in connection with the 1997 restructuring of the Tenaska Power Purchase Agreement, PSE is obligated to deliver to Tenaska up to 48,000 MMBtu per day of natural gas for operation of Tenaska's cogeneration facility. This obligation continues for the remaining term of the agreement, provided that no deliveries are required during the month of May. The price paid by Tenaska for this gas is reflective of the daily price of gas at the United States/Canada border near Sumas, Washington.
The following table indicates PSE's percentage ownership and the extent of PSE's investment in jointly-owned generating plants in service at December 31, 2000:
COMPANY'S SHARE
------------------------------------------------
ENERGY COMPANY'S PLANT IN SERVICE ACCUMULATED
PROJECT SOURCE (FUEL) OWNERSHIP SHARE (%) AT COST (MILLIONS) DEPRECIATION (MILLIONS)
- --------------------- ------------------ ------------------------ --------------------- --------------------------
Colstrip 1 and 2 Coal 50% $191.4 $116.9
Colstrip 3 and 4 Coal 25% 452.6 204.4
Financing for a participant's ownership share in the projects is provided for by such participant. PSE's share of related operating and maintenance expenses is included in corresponding accounts in the Consolidated Statements of Income.
On May 5, 2000, PSE sold its 7% interest in the 1,340-megawatt Centralia coal-fired generating project to TECWA Power, Inc., a subsidiary of TransAlta Corporation of Calgary, Canada. The sales price of approximately $37.4 million resulted in a pre-tax gain of approximately $23.5 million. Under the order issued by the Washington Commission, approximately $2.5 million of this gain ($1.6 million after-tax) goes to Company shareholders and $21.0 million has been deferred for pass through to electric customers in the form of a one-time refund to electric customers, based on electric consumption during the month of November 2000. Any final true-up of the gain will be collected or refunded through PSE's conservation rider.
On July 20, 2000, PSE and PPL Global, LLC (formerly PP&L Global, Inc.) terminated an Asset Purchase Agreement dated as of November 1, 1998, under which PPL Global, LLC had proposed purchasing PSE's 735-megawatt interest in the four-unit Colstrip power plants and associated transmission capacity across Montana. As a result, PSE will retain its 50% interest in Colstrip Units 1 and 2 and 25% interest in Colstrip Units 3 and 4.
As part of its electric operations and in connection with the 1999 buy-out of the Cabot gas supply contract, PSE is obligated to deliver to Encogen up to 21,800 MMBtu per day of natural gas for operation of the Encogen cogeneration facility. This obligation continues for the remaining term of the original Cabot agreement. PSE entered into a financial arrangement to hedge future gas supply costs associated with this obligation, 10,000 MMBtu per day for the remaining term of the agreement. Encogen has two gas supply agreements that comprise 40% of the plant's requirements with remaining terms of 7.5 years. The obligations under these contracts are $12.2 million in 2001, $12.8 million in 2002, $13.5 million in 2003, $14.2 million in 2004, $14.9 million in 2005 and $40.6 million in the aggregate thereafter.
GAS
PSE has also entered into various firm supply, transportation and storage service contracts in order to assure adequate availability of gas supply for its firm customers. Many of these contracts, which have remaining terms from one to 23 years, provide that PSE must pay a fixed demand charge each month, regardless of actual usage. Certain of PSE's firm gas supply agreements also obligate PSE to purchase a minimum annual quantity at market-based contract prices. Generally, if the minimum volumes are not purchased and taken during the year, PSE is obligated to either: 1) pay a monthly or annual gas inventory charge calculated as a percentage of the then-current contract commodity price times the minimum quantity not taken; or 2) pay for gas not taken. Alternatively, under some of the contracts, the supplier may exercise a right to reduce its subsequent obligation to provide firm gas to PSE. PSE incurred demand charges in 2000 for firm gas supply, firm transportation service and firm storage and peaking service of $31.8 million, $52.9 million and $8.9 million, respectively.
The following tables summarize PSE's obligations for future demand charges through the primary terms of its existing contracts and the minimum annual take requirements under the gas supply agreements. The quantified obligations are based on current contract prices and FERC authorized rates, which are subject to change.
DEMAND CHARGE OBLIGATIONS
2006 &
THERE-
(In Millions) 2001 2002 2003 2004 2005 AFTER TOTAL
- ------------------------------ ------- ------- ------- ------- ------- -------- --------
Firm gas supply $31.7 $30.9 $25.0 $12.6 $0.8 $4.5 $105.5
Firm transportation service 52.1 52.1 52.1 46.8 15.8 102.3 321.2
Firm storage service 9.2 9.2 9.2 8.9 7.6 71.2 115.3
- ------------------------------ ------- ------- ------- ------- ------- -------- --------
Total $93.0 $92.2 $86.3 $68.3 $24.2 $178.0 $542.0
- ------------------------------ ------- ------- ------- ------- ------- -------- --------
MINIMUM ANNUAL TAKE OBLIGATIONS
2006 &
THERE-
(In thousands of therms) 2001 2002 2003 2004 2005 AFTER TOTAL
- ------------------------- --------- ---------- --------- --------- --------- ---------- -----------
Firm gas supply 868,107 531,967 430,542 215,661 680 -- 2,046,957
PSE believes that all demand charges will be recoverable in rates charged to its customers. Further, pursuant to implementation of FERC Order No. 636, PSE has the right to resell or release to others any of its unutilized gas supply or transportation and storage capacity.
PSE does not anticipate any difficulty in achieving the minimum annual take obligations shown, as such volumes represent less than 77% of expected annual sales for 2001 and less than 48% of expected sales in subsequent years.
PSE's current firm gas supply contracts obligate the suppliers to provide, in the aggregate, annual volumes up to those shown below:
MAXIMUM SUPPLY AVAILABLE UNDER CURRENT FIRM SUPPLY CONTRACTS
2006 &
THERE-
(In thousands of therms) 2001 2002 2003 2004 2005 AFTER TOTAL
- -------------------------- --------- ---------- --------- --------- ---------- ------------ -----------
Firm gas supply 931,740 593,160 462,880 245,420 6,680 36,033 2,275,913
During 2000, Washington Energy Gas Marketing Company (“WEGM”), a wholly-owned subsidiary, held firm transportation rights to transport natural gas through various pipelines from Alberta, Canada to the northern border of Idaho, as well as certain gas storage rights in Alberta and Washington state. During 2000, WEGM assigned substantially all of the rights and obligations with the transportation and storage services to various third parties. As of December 31, 2000, WEGM has a reserve for future losses associated with the remaining contractual obligations of $1.7 million. In the third quarter of 1999, WEGM recorded a $4.9 million ($3.2 million after-tax) charge based on the sale of its interest in the PGT pipeline capacity and actual mitigation results in 1999. In the fourth quarter of 1999, WEGM recorded a $0.7 million ($0.5 million after-tax) charge to adjust the remaining reserve for expected future losses. During 2000, 1999 and 1998, pre-tax losses totaling $0.8 million, $8.4 million and $1.9 million, respectively, were charged against the reserve. Future obligation for demand charges through the primary term of the gas transportation and storage contracts that may be reassigned are $27,800 from 2001 through 2004, 65,800 for 2005 and $752,700 thereafter.
CONTINGENCIES
Puget Energy is subject to environmental regulation by federal, state and local authorities. PSE has been named a Potentially Responsible Party by the Environmental Protection Agency (“EPA”) at several contaminated sites and manufactured gas plant sites. PSE has implemented an ongoing program to test, replace and remediate certain underground storage tanks as required by federal and state laws and this process is nearing completion. Remediation and testing of Company vehicle service facilities and storage yards is also continuing.
During 1992, the Washington Commission issued orders regarding the treatment of costs incurred by PSE for certain sites under its environmental remediation program. The orders authorize PSE to accumulate and defer prudently incurred cleanup costs paid to third parties for recovery in rates established in future rate proceedings. PSE believes a significant portion of its past and future environmental remediation costs are recoverable from either insurance companies, third parties or under the Washington Commission's order.
On December 12, 2000, certain industrial customers who receive electric service under a market index-based tariff filed a complaint with the Washington Commission seeking emergency relief from this tariff. These and other industrial customers had demanded the market index-based tariff in return for supporting PSE's 1997 merger with Washington Natural Gas Company. On December 13, 2000, PSE filed a petition requesting that PSE be allowed to defer and recover any lost revenue resulting from any relief granted to these customers.
The Washington Commission held a number of hearings on this subject and on January 22, 2001, while concluding no emergency relief was warranted, ordered continued hearings as to whether and how some relief in the form of a “soft” price cap could be temporarily put in place for these customers. PSE immediately filed testimony with the Washington Commission detailing the significant adverse financial impact of such a proposal at rate cap levels being contemplated ($125 to $150 per megawatt hour). PSE also filed suit in King County Superior Court against certain of the customers seeking damages for their attempt to void their agreement to buy electricity under the market index-based tariffs.
Subsequent to those actions, the Washington Commission suspended the hearings to allow all parties to work on a settlement. The settlement proposal, which currently is being finalized in writing, would result in the significant portion of the industrial loads in question (in excess of 250 average megawatts) being expected to purchase electricity from other suppliers and in return give up any rights to PSE's embedded cost resources. Customers representing a small portion of the load (approximately 25 average megawatts) have the opportunity to transfer to a tariff with a new “small customer” rate schedule. It is expected that the settlement proposal will be submitted to the Washington Commission in March 2001.
The information presented here as it relates to estimates of future liability is as of December 31, 2000.
ELECTRIC SITES
PSE has expended approximately $16.3 million related to the remediation activities covered by the Washington Commission's order and has accrued approximately $2.0 million as a liability for future remediation costs for these and other remediation activities. To date, PSE has recovered approximately $16.5 million from insurance carriers.
GAS SITES
Several former WNG or predecessor companies manufactured gas plant (“MGP”) sites are currently undergoing investigation, remediation activities or monitoring actions relating to environmental contamination. Legal and remediation activities incurred to date total approximately $53.8 million and approximately $6.8 million has been accrued for future remediation costs for these and other remediation sites. To date, PSE has recovered approximately $57.5 million from insurance carriers and other third parties.
Based on all known facts and analyses, PSE believes it is not likely that the identified environmental liabilities will result in a material adverse impact on PSE's financial position, operating results or cash flow trends.
LITIGATION
Other contingencies, arising out of the normal course of Puget Energy's business, exist at December 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 Puget Energy.
Note 18.Accounting for Derivative Instruments and Hedging Activities
On January 1, 2001, Puget Energy adopted Statement No. 133, as amended by Statement No. 138. Statement No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Puget Energy enters into both physical and financial contracts to manage its energy resource portfolio. Certain of these contracts outstanding on December 31, 2000 meet the derivative classification requirements of the statement and will be reported at fair value in the balance sheet. Beginning with the implementation of Statement No. 133, changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as a qualifying cash flow hedge under the statement. Puget Energy will recognize the cumulative effect of this change in accounting principle by recording an after-tax decrease to current earnings of approximately $14.7 million for electric derivative transactions. In addition, Puget Energy will record a deferred asset for electric energy contracts designated as qualifying cash flow hedges of approximately $286.9 million at the adoption with a corresponding increase of approximately $286.9 million in other comprehensive income. Puget Energy anticipates approximately $207.9 million of the $286.9 million will reverse during 2001 and will, as a result, report a corresponding decrease to the deferred asset and to other comprehensive income to report this reversal. The decrease in the deferred asset and in other comprehensive income will have no net effect on current earnings. These estimates are based upon the forward market prices for energy at December 31, 2000. Retail gas related derivative transactions are deferred under Puget Energy's Purchased Gas Adjustment Mechanism and recorded in earnings as the transactions are executed under the PGA Incentive Mechanism.
Note 19.Supplemental Quarterly Financial Data (Unaudited)
The following unaudited amounts, in the opinion of Puget Energy, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods. Quarterly amounts vary during the year due to the seasonal nature of the utility business.
(UNAUDITED; DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
- ------------------------------------ ----------------- ------------------ ----------- ------------
2000 Quarter First Second Third Fourth
- ------------------------------------ ----------------- ------------------ ----------- ------------
Operating revenues $ 647,223 $ 538,801 $ 978,981 $1,276,667
Operating income 115,885 63,119 57,598 127,270
Other income 4,390 6,878 5,273 (11,480)
Net income 78,192 27,369 18,995 69,275
Basic and diluted earnings
per common share $ 0.89 $ 0.29 $ 0.20 $ 0.78
- ------------------------------------ ----------------- ------------------ ----------- ------------
(UNAUDITED; DOLLARS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
- ------------------------------------ ----------------- ------------------ ----------- ------------
1999 Quarter First Second Third Fourth
- ------------------------------------ ----------------- ------------------ ----------- ------------
Operating revenues $575,385 $436,064 $411,391 $645,104
Operating income 101,923 52,620 51,444 101,829
Other income 3,754 15,379 9,805 (803)
Net income 69,755 31,065 24,912 59,835
Basic and diluted earnings
per common share $ 0.79 $ 0.33 $ 0.26 $ 0.68
- ------------------------------------ ----------------- ------------------ ----------- ------------
Note 20.Consolidated Statement of Cash Flows
For purposes of the Statement of Cash Flows, Puget Energy considers all temporary investments to be cash equivalents. These temporary cash investments are securities held for cash management purposes, having maturities of three months or less. The net change in current assets and current liabilities for purposes of the Statement of Cash Flows excludes short-term debt and current maturities of long-term debt. At December 31, 2000, 1999 and 1998, book overdrafts of $0.3 million, $22.2 million and $15.7 million were included in accounts payable. Non-cash transactions in 2000 and 1999 included the issuance of $23.1 million and $6.8 million of Company common stock for Puget Energy's Dividend Reinvestment Plan and the assumption in 1999 of $109 million in long-term debt as part of the purchase of the Encogen partnership which was paid off in 2000.
The following provides additional information concerning cash flow activities:
- ------------------------------------------------------------- ----------- ----------- ---------
YEAR ENDED DECEMBER 31 (DOLLARS IN THOUSANDS) 2000 1999 1998
- ------------------------------------------------------------- ----------- ----------- ---------
Changes in certain current assets and current liabilities:
Accounts receivable $(130,088) $(23,382) $(29,042)
Unbilled revenue (90,480) 5,437 (3,909)
Materials and supplies (29,760) (10,707) (4,111)
Prepayments and other (1,742) (1,832) (2,175)
Purchased gas liability (62,350) (28,208) (6,368)
Accounts payable 232,402 15,077 25,650
Accrued expenses and other 33,155 18,169 (3,151)
- ------------------------------------------------------------- ----------- ----------- ---------
Net change in certain current assets
and current liabilities $(48,863) $(25,446) $(23,106)
- ------------------------------------------------------------- ----------------------- ---------
Cash payments:
Interest (net of capitalized interest) $176,895 $153,093 $131,567
Income taxes $114,100 $99,959 $119,664
- ------------------------------------------------------------- ----------- ----------- ---------
Note 21.Acquisition of Utilx and Lineal Industries
On August 1, 2000, InfrastruX Group Inc. (“InfrastruX”), a wholly-owned subsidiary of Puget Energy, purchased 88% of the outstanding shares of Utilx Corporation (“Utilx”) pursuant to a cash tender offer. The remaining shares were acquired on September 15, 2000. Utilx is a provider of infrastructure construction services to utilities and telecommunications providers in the United States and around the world. Its primary business is installing, replacing and restoring underground cables and pipes. On September 28, 2000, InfrastruX completed the acquisition of Lineal Industries (“Lineal”), a privately held pipeline infrastructure construction company. Lineal provides pipeline construction, maintenance and rehabilitation services primarily for the natural gas and petroleum industries and currently operates in seven states. These acquisitions mark Puget Energy's entry into the business of providing design, construction and engineering services to the utility industry. The total purchase price of the two acquisitions was approximately $87.1 million.
The acquisitions of Utilx and Lineal have been accounted for using the purchase method of accounting and, accordingly, the operating results of Utilx and Lineal have been included in Puget Energy's consolidated financial statements since the date of acquisition. Goodwill representing the excess of cost over the net tangible and identifiable intangible assets of the acquired businesses was approximately $40.7 million. Goodwill is being amortized on a straight-line basis up to 30 years. The pro forma combined revenues, net income, and earnings per common share of Puget Energy presented below give effect to the acquisitions as if they had occurred on January 1, 2000 and 1999, respectively. This pro forma information is not necessarily indicative of the results of operations that would have occurred had the acquisition been consummated for the period for which it is being given effect.
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE TWELVE MONTHS ENDING DECEMBER 31, 2000 1999
-------------------------------------------------------------------
Operating revenues $3,520,817 $2,183,289
Net income 192,558 186,836
Basic earnings per common share $2.15 $2.08
Diluted earnings per common share $2.14 $2.07
Note 22.Segment Information
PSE primarily operates in one business segment, Regulated Utility Operations. PSE's regulated utility operation generates, purchases and sells electricity and purchases, transports and sells natural gas. The service territory of PSE covers approximately 6,000 square miles in the State of Washington.
Principal non-utility lines of business include development and marketing of customer information and billing system software, specialized contracting services to utilities and telecommunication companies and real estate investment and development. Reconciling items between segments are not material.
InfrastruX was formed as a wholly-owned subsidiary of PSE in the second quarter of 2000. Utilx and Lineal were acquired as subsidiaries of InfrastruX in the third quarter of 2000. InfrastruX became a wholly-owned subsidiary of Puget Energy, Inc. on January 1, 2001.
In the fourth quarter of 2000, Hydro Energy Development Corp., a wholly-owned subsidiary of PSE, recorded a net loss of $12.1 million. $11.8 million of this consists of an impairment loss reserve related to a group of small hydro-electric project investments.
In the third quarter of 1999, PSE sold the assets, liabilities and trade name of Homeguard Security Services, Inc., its wholly-owned home security services subsidiary, and recorded a net gain of approximately $7.6 million.
Financial data for business segments are as follows:
(DOLLARS IN THOUSANDS) REGULATED
2000 UTILITY OTHER TOTAL
- ----------------------------------------------------------------------------------------
Revenues $3,384,006 $57,666 $3,441,672
Depreciation and amortization 194,228 2,285 196,513
Federal income tax 130,430 (1,439) 128,991
Operating income 363,559 313 363,872
Interest charges, net of AFUDC 174,914 188 175,102
Net income 204,720 (10,889) 193,831
Total assets 5,339,669 217,000 5,556,669
Construction expenditures - excluding equity AFUDC 296,480 -- 296,480
- ----------------------------------------------------------------------------------------
REGULATED
1999 UTILITY OTHER TOTAL
- ----------------------------------------------------------------------------------------
Revenues $2,043,500 $24,444 $2,067,944
Depreciation and amortization 175,610 100 175,710
Federal income tax 110,026 (2,024) 108,002
Operating income 309,006 (1,190) 307,816
Interest charges, net of AFUDC 150,384 -- 150,384
Net income 174,914 10,653 185,567
Total assets 4,999,020 146,586 5,145,606
Construction expenditures - excluding equity AFUDC 330,976 -- 330,976
- ----------------------------------------------------------------------------------------
REGULATED
1998 UTILITY OTHER TOTAL
- ----------------------------------------------------------------------------------------
Revenues $1,891,759 $32,097 $1,923,856
Depreciation and amortization 165,491 96 165,587
Federal income tax 106,967 (1,153) 105,814
Operating income 292,337 2,761 295,098
Interest charges, net of AFUDC 138,561 107 138,668
Net income 170,435 (823) 169,612
Total assets 4,596,893 112,794 4,709,687
Construction expenditures - excluding equity AFUDC 335,471 -- 335,471
- ----------------------------------------------------------------------------------------
Note 23.Impairment of Long-Lived Assets
In the fourth quarter of 2000 Hydro Energy Development Corp., a wholly-owned subsidiary of PSE, recorded an after-tax loss of approximately $11.8 million in Other Income of the non-regulated business segment. The loss provision represents the difference between the carrying value of 13 small hydroelectric generating projects Hydro Energy Development Corp. was seeking approval to develop in western Washington state and management's estimate of their net realizable value. Federal and state regulatory agencies that have jurisdiction over the construction and operation of the proposed projects have made it increasingly difficult to complete and operate the projects in an economic manner. Hydro Energy Development Corp. owns and operates a 3.7 mwh hydroelectric project located in western Washington state.
Schedule II.Valuation and Qualifying Accounts and Reserves
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
(DOLLARS IN THOUSANDS) OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
------------------ ----------------- ----------------- ----------------
- ----------------------------------------------
YEAR ENDED DECEMBER 31, 2000
- ----------------------------------------------
Accounts deducted from assets
on balance sheet:
Allowance for doubtful
Accounts receivable $1,503 $47,040 $7,517 $41,026
Gas transportation contracts reserve $1,780 $660 $783 $1,657
- ---------------------------------------------- ------------------ ----------------- ----------------- ----------------
YEAR ENDED DECEMBER 31, 1999
- ----------------------------------------------
Accounts deducted from assets
on balance sheet:
Allowance for doubtful
Accounts receivable $1,020 $6,885 $6,402 $1,503
Gas transportation contracts reserve $4,611 $5,598 $8,429 $1,780
- ---------------------------------------------- ------------------ ----------------- ----------------- ----------------
YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------
Accounts deducted from assets
on balance sheet:
Allowance for doubtful
Accounts receivable $ 971 $5,905 $5,856 $1,020
Gas transportation contracts reserve $6,527 -- $1,916 $4,611
EXHIBIT INDEX
Certain of the following exhibits are filed herewith. Certain other of the following exhibits have
heretofore been filed with the Commission and are incorporated herein by reference.
3(i).1 Restated Articles of Incorporation of Puget Energy (Incorporated by reference to Exhibit 99.2,
Puget Energy's Current Report on Form 8-K filed January 2, 2001, Commission File No. 333-77491.
3(i).2 Restated Articles of Incorporation of PSE (included as Annex F to the Joint Proxy
Statement/Prospectus filed February 1, 1996, Registration No. 333-617).
3(ii).1Bylaws of Puget Energy (Incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-4 of Puget Energy (No. 333-77491)).
3(ii).2Restated Bylaws of PSE (Exhibit 3 to PSE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, Commission File No. 1-4393).
4.1 Fortieth through Seventy-eighth Supplemental Indentures defining the rights of the holders of PSE's
First Mortgage Bonds (Exhibit 2-d to Registration No. 2-60200; Exhibit 4-c to Registration No. 2-13347; Exhibits
2-e through and including 2-k to Registration No. 2-60200; Exhibit 4-h to Registration No. 2-17465; Exhibits 2-l,
2-m and 2-n to Registration No. 2-60200; Exhibits 2-m to Registration No. 2-37645; Exhibit 2-o through and
including 2-s to Registration No. 2-60200; Exhibit 5-b to Registration No. 2-62883; Exhibit 2-h to Registration
No. 2-65831; Exhibit (4)-j-1 to Registration No. 2-72061; Exhibit (4)-a to Registration No. 2-91516; Exhibit
(4)-b to Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4393;
Exhibits (4)(a) and (4)(b) to Company's Current Report on Form 8-K, dated April 22, 1986; Exhibit (4)a to
Company's Current Report on Form 8-K, dated September 5, 1986; Exhibit (4)-b to Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1986, Commission File No. 1-4393; Exhibit (4)-c to Registration No.
33-18506; Exhibit (4)-b to Annual Report on Form 10-K for the fiscal year ended December 31, 1989, Commission
File No. 1-4393; Exhibit (4)-b to Annual Report on Form 10-K for the fiscal year ended December 31, 1990,
Commission File No. 1-4393; Exhibits (4)-b and (4)-c to Registration No. 33-45916; Exhibit (4)-c to Registration
No. 33-50788; Exhibit (4)-a to Registration No. 33-53056; Exhibit 4.3 to Registration No. 33-63278; Exhibit 4.25
to Registration No. 333-41181; Exhibit 4.27 to Current Report on Form 8-K dated March 5, 1999; and Exhibit 4.2 to
Current Report on Form 8-K dated November 2, 2000).
4.2 Indenture defining the rights of the holders of PSE's senior notes. (incorporated herein by
reference to Exhibit 4-a to PSE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, Commission
File No. 1-4393)
4.3 First Supplemental Indenture defining the rights of the holders of PSE's Senior Notes, Series A.
(incorporated herein by reference to Exhibit 4-b to PSE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, Commission File No. 1-4393).
4.4 Second Supplemental Indenture defining the rights of the holders of PSE's Senior Notes, Series B.
(incorporated herein be reference to Exhibit 4.6 to PSE's Current Report on Form 8-K, dated March 5, 1999,
Commission File No. 1-4393)
4.5 Third Supplemental Indenture defining the rights of the holders of PSE's Senior Notes, Series C.
(incorporate herein by reference to Exhibit 4.1 to PSE's Current Report on Form 8-K, dated November 2, 2000,
Commission File No. 1-4393).
4.6 Rights Agreement dated as of December 21, 2000, between Puget Energy and Mellon Investor Services
LLC, as Rights Agent. (incorporated herein by reference to Exhibit 2.1 to PSE Registration Statement on Form 8-A,
dated January 2, 2001, Commission File No. 1-16305).
4.7 Indenture between PSE and the First National Bank of Chicago, dated June 6, 1997. (incorporated
herein by reference to Exhibit 4.1 of PSE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
Commission File No. 1.-4393).
4.8 Amended and Restated Declaration of Trust between Puget Sound Energy Capital Trust I and the First
National Bank of Chicago, dated June 6, 1997. (incorporated herein by reference to Exhibit 4.2 of PSE's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, Commission File No. 1.-4393).
4.9 Series A Capital Securities Guarantee Agreement between PSE and the First National Bank of Chicago,
dated June 6, 1997. (incorporated herein by reference to Exhibit 4.3 of PSE's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, Commission File No. 1.-4393).
4.10 Pledge Agreement dated August 1, 1991, between PSE and The First National Bank of Chicago, as
Trustee (Exhibit (4)-j to Registration No. 33-45916).
4.11 Loan Agreement dated August 1, 1991, between the City of Forsyth, Rosebud County, Montana and PSE
(Exhibit (4)-k to Registration No. 33-45916).
4.12 Pledge Agreement, dated as of March 1, 1992, by and between PSE and Chemical Bank relating to a
series of first mortgage bonds. (Exhibit 4.15 to Annual Report on Form 10-K for the fiscal year ended December
31, 1993, Commission File No. 1-4393).
4.13 Pledge Agreement, dated as of April 1, 1993, by and between PSE and The First National Bank of Chicago,
relating to a series of first mortgage bonds. (Exhibit 4.16 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, Commission File No. 1-4393).
4.14 Indenture of First Mortgage dated as of April 1, 1957 (Exhibit 4-B, Registration No. 2-14307).
4.15 First Supplemental Indenture dated as of October 1, 1959 (Exhibit 4-D to Registration No. 2-17876).
4.16 Sixth Supplemental Indenture dated as of August 1, 1966 (Exhibit to Form 8-K for month of August 1966,
File No. 0-951).
4.17 Sixteenth Supplemental Indenture dated as of June 1, 1977 (Exhibit 6-05 to Registration No. 2-60352).
4.18 Seventeenth Supplemental Indenture dated as of August 9, 1978 (Exhibit 5-K.18 to Registration No.
2-64428).
4.19 Twenty-second Supplemental Indenture dated as of July 15, 1986 (Exhibit 4-B.20 to Form 10-K for the year
ended September 30, 1986, File No. 0-951).
4.20 Twenty-sixth Supplemental Indenture dated as of September 1, 1990 (Exhibit 4-B.19, Form 10-K for the
year ended September 30, 1990, File No. 0-951).
4.21 Twenty-seventh Supplemental Indenture dated as of September 1, 1990 (Exhibit 4-B.20, Form 10-K for the
year ended September 30, 1988, File No. 0-951).
4.22 Twenty-eighth Supplemental Indenture dated as of July 31, 1991 (Exhibit 4-A, Form 10-Q for the quarter
ended March 31, 1993, File No. 0-951).
4.23 Twenty-ninth Supplemental Indenture dated as of June 1, 1993 (Exhibit 4-A to Registration No. 33-49599).
4.24 Thirtieth Supplemental Indenture dated as of August 15, 1995 (incorporated herein by reference to
Exhibit 4-A of Washington Natural Gas Company's S-3 Registration Statement, Registration No. 33-61859).
4.25 Statement of Relative Rights and Preferences for the 7 3/4% Series Preferred Stock Cumulative, $100 Par
Value. (Exhibit 1.6 to Registration Statement on Form 8-A filed February 14, 1994, Commission File No. 1-4393)
10.1 Assignment and Agreement, dated as of August 13, 1964, between Public Utility District No. 1 of Chelan
County, Washington and PSE, relating to the Rock Island Project (Exhibit 13-b to Registration No. 2-24262).
10.2 First Amendment, dated as of October 4, 1961, to Power Sales Contract between Public Utility
District No. 1 of Chelan County, Washington and PSE, relating to the Rocky Reach Project (Exhibit 13-d to
Registration No. 2-24252).
10.3 Assignment and Agreement, dated as of August 13, 1964, between Public Utility District No. 1 of
Chelan County, Washington and PSE, relating to the Rocky Reach Project (Exhibit 13-e to Registration No. 2-24252).
10.4 Assignment and Agreement, dated as of August 13, 1964, between Public Utility District No. 2 of
Grant County, Washington and PSE, relating to the Priest Rapids Development (Exhibit 13-j to Registration No.
2-24252).
10.5 Assignment and Agreement, dated as of August 13, 1964, between Public Utility District No. 2 of
Grant County, Washington and PSE, relating to the Wanapum Development (Exhibit 13-n to Registration No. 2-24252).
10.6 First Amendment, dated February 9, 1965, to Power Sales Contract between Public Utility District
No. 1 of Douglas County, Washington and PSE, relating to the Wells Development (Exhibit 13-p to Registration No.
2-24252).
10.7 First Amendment, executed as of February 9, 1965, to Reserved Share Power Sales Contract between
Public Utility District No. 1 of Douglas County, Washington and PSE, relating to the Wells Development (Exhibit
13-r to Registration No. 2-24252).
10.8 Assignment and Agreement, dated as of August 13, 1964, between Public Utility District No. 1 of
Douglas County, Washington and PSE, relating to the Wells Development (Exhibit 13-u to Registration No. 2-24252).
10.9 Pacific Northwest Coordination Agreement, executed as of September 15, 1964, among the United
States of America, PSE and most of the other major electrical utilities in the Pacific Northwest (Exhibit 13-gg
to Registration No. 2-24252).
10.10 Contract dated November 14, 1957, between Public Utility District No. 1 of Chelan County,
Washington and PSE, relating to the Rocky Reach Project (Exhibit 4-1-a to Registration No. 2-13979).
10.11 Power Sales Contract, dated as of November 14, 1957, between Public Utility District No. 1 of
Chelan County, Washington and PSE, relating to the Rocky Reach Project (Exhibit 4-c-1 to Registration No.
2-13979).
10.12 Power Sales Contract, dated May 21, 1956, between Public Utility District No. 2 of Grant
County, Washington and PSE, relating to the Priest Rapids Project (Exhibit 4-d to Registration No. 2-13347).
10.13 First Amendment to Power Sales Contract dated as of August 5, 1958, between PSE and Public
Utility District No. 2 of Grant County, Washington, relating to the Priest Rapids Development (Exhibit 13-h to
Registration No. 2-15618).
10.14 Power Sales Contract dated June 22, 1959, between Public Utility District No. 2 of Grant
County, Washington and PSE, relating to the Wanapum Development (Exhibit 13-j to Registration No. 2-15618).
10.15 Reserve Share Power Sales Contract dated June 22, 1959, between Public Utility District No. 2
of Grant County, Washington and PSE, relating to the Priest Rapids Project (Exhibit 13-k to Registration No.
2-15618).
10.16 Agreement to Amend Power Sales Contracts dated July 30, 1963, between Public Utility District
No. 2 of Grant County, Washington and PSE, relating to the Wanapum Development (Exhibit 13-1 to Registration No.
2-21824).
10.17 Power Sales Contract executed as of September 18, 1963, between Public Utility District No. 1
of Douglas County, Washington and PSE, relating to the Wells Development (Exhibit 13-r to Registration No.
2-21824).
10.18 Reserved Share Power Sales Contract executed as of September 18, 1963, between Public Utility
District No. 1 of Douglas County, Washington and PSE, relating to the Wells Development (Exhibit 13-s to
Registration No. 2-21824).
10.19 Construction and Ownership Agreement dated as of July 30, 1971, between The Montana Power Company
and PSE (Exhibit 5-b to Registration No. 2-45702).
10.20 Operation and Maintenance Agreement dated as of July 30, 1971, between The Montana Power Company
and PSE (Exhibit 5-c to Registration No. 2-45702).
10.21 Coal Supply Agreement, dated as of July 30, 1971, among The Montana Power Company, PSE and Western
Energy Company (Exhibit 5-d to Registration No. 2-45702).
10.22 Ownership Agreement among PSE, Washington Public Power Supply System and others dated September 17,
1973 (Exhibit 5-a-29 to Registration No. 2-60200).
10.23 Contract dated June 19, 1974, between PSE and P.U.D No. 1 of Chelan County (Exhibit D to Form 8-K
dated July 5, 1974).
10.24 Exchange Agreement executed August 13, 1964, between the United States of America, Columbia Storage
Power Exchange and PSE, relating to Canadian Entitlement (Exhibit 13-ff to Registration No. 2-24252).
10.25 Loan Agreement dated as of December 1, 1980 and related documents pertaining to Whitehorn turbine
construction trust financing (Exhibit 10.52 to Annual Report on Form 10-K for the fiscal year ended December 31,
1980, Commission File No. 1-4393).
10.26 Letter Agreement dated March 31, 1980, between PSE and Manufacturers Hanover Leasing Corporation
(Exhibit b-8 to Registration No. 2-68498).
10.27 Coal Transportation Agreement dated as of July 10, 1981 (Exhibit 20-a to Quarterly Report on Form
10-Q for the quarter ended September 30, 1981, Commission File No. 1-4393).
10.28 Power sales contract dated August 27, 1982 between PSE and Bonneville Power Administration (Exhibit
10-a to Quarterly Report on Form 10-Q for the quarter ended September 30, 1982, Commission File No. 1-4393).
10.29 Settlement Agreement and Covenant Not to Sue executed by the United States Department of Energy
acting by and through the Bonneville Power Administration and PSE dated September 17, 1985 (Exhibit (10)-49 to
Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4393).
10.30 Agreement to Dismiss Claims and Covenant Not to Sue dated September 17, 1985 between Washington
Public Power Supply System ("Energy Northwest") and PSE (Exhibit (10)-50 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1985, Commission File No. 1-4393).
10.31 Irrevocable Offer of Washington Public Power Supply System ("Energy Northwest") Nuclear Project No.
3 Capability for Acquisition executed by PSE, dated September 17, 1985 (Exhibit A of Exhibit (10)-50 to Annual
Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4393).
10.32 Settlement Exchange Agreement ("Bonneville Exchange Power Contract") executed by the United States
of America Department of Energy acting by and through the Bonneville Power Administration and PSE, dated
September 17, 1985 (Exhibit B of Exhibit (10)-50 to Annual Report on Form 10-K for the fiscal year ended December
31, 1985, Commission File No. 1-4393).
10.33 Settlement Agreement and Covenant Not to Sue between PSE and Northern Wasco County People's Utility
District, dated October 16, 1985 (Exhibit (10)-53 to Annual Report on Form 10-K for the fiscal year ended
December 31, 1985, Commission File No. 1-4393).
10.34 Settlement Agreement and Covenant Not to Sue between PSE and Tillamook People's Utility District,
dated October 16, 1985 (Exhibit (10)-54 to Annual Report on Form 10-K for the fiscal year ended December 31,
1985, Commission File No. 1-4393).
10.35 Settlement Agreement and Covenant Not to Sue between PSE and Clatskanie People's Utility District,
dated September 30, 1985 (Exhibit (10)-55 to Annual Report on Form 10-K for the fiscal year ended December 31,
1985, Commission File No. 1-4393).
10.36 Stipulation and Settlement Agreement between PSE and Muckleshoot Tribe of the Muckleshoot Indian
Reservation, dated October 31, 1986 (Exhibit (10)-55 to Annual Report on Form 10-K for the fiscal year ended
December 31, 1986, Commission File No. 1-4393).
10.37 Transmission Agreement dated April 17, 1981, between the Bonneville Power Administration and PSE
(Colstrip Project) (Exhibit (10)-55 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987,
Commission File No. 1-4393).
10.38 Transmission Agreement dated April 17, 1981, between the Bonneville Power Administration and
Montana Intertie Users (Colstrip Project) (Exhibit (10)-56 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, Commission File No. 1-4393).
10.39 Ownership and Operation Agreement dated as of May 6, 1981, between PSE and other Owners of the
Colstrip Project (Colstrip 3 and 4) (Exhibit (10)-57 to Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, Commission File No. 1-4393).
10.40 Colstrip Project Transmission Agreement dated as of May 6, 1981, between PSE and Owners of the
Colstrip Project (Exhibit (10)-58 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987,
Commission File No. 1-4393).
10.41 Common Facilities Agreement dated as of May 6, 1981, between PSE and Owners of Colstrip 1 and 2,
and 3 and 4 (Exhibit (10)-59 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987,
Commission File No. 1-4393).
10.42 Agreement for the Purchase of Power dated as of October 29, 1984, between South Fork II, Inc. and
PSE (Weeks Falls Hydro-electric Project) (Exhibit (10)-60 to Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, Commission File No. 1-4393).
10.43 Agreement for the Purchase of Power dated as of October 29, 1984, between South Fork Resources,
Inc. and PSE (Twin Falls Hydro-electric Project) (Exhibit (10)-61 to Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, Commission File No. 1-4393).
10.44 Agreement for Firm Purchase Power dated as of January 4, 1988, between the City of Spokane,
Washington and PSE (Spokane Waste Combustion Project) (Exhibit (10)-62 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, Commission File No. 1-4393).
10.45 Agreement for Evaluating, Planning and Licensing dated as of February 21, 1985 and Agreement for
Purchase of Power dated as of February 21, 1985 between Pacific Hydropower Associates and PSE (Koma Kulshan
Hydro-electric Project) (Exhibit (10)-63 to Annual Report on Form 10-K for the fiscal year ended December 31,
1987, Commission File No. 1-4393).
10.46 Power Sales Agreement dated as of August 1, 1986, between Pacific Power & Light Company
("PacifiCorp")and PSE (Exhibit (10)-64 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987,
Commission File No. 1-4393).
10.47 Agreement for Purchase and Sale of Firm Capacity and Energy dated as of August 1, 1986 between The
Washington Water Power Company ("Avista") and PSE (Exhibit (10)-65 to Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, Commission File No. 1-4393).
10.48 Amendment dated as of June 1, 1968, to Power Sales Contract between Public Utility District No. 1
of Chelan County, Washington and PSE (Rocky Reach Project) (Exhibit (10)-66 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, Commission File No. 1-4393).
10.49 Settlement Agreement dated April 24, 1987 between Public Utility District No. 1 of Chelan County,
the National Marine Fisheries Service, the State of Washington, the State of Oregon, the Confederated Tribes and
Bands of the Yakima Indian Nation, Colville Indian Reservation, Umatilla Indian Reservation, the National
Wildlife Federation and PSE (Rock Island Project) (Exhibit (10)-71 to Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, Commission File No. 1-4393).
10.50 Amendatory Agreement No. 1 dated August 27, 1982, and Amendatory Agreement No. 2 dated August 27,
1982 to the Power Sales Contract between PSE and the Bonneville Power Administration dated August 27, 1982
(Exhibit (10)-73 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Commission File No.
1-4393).
10.51 Transmission Agreement dated as of December 30, 1987 between the Bonneville Power Administration
and PSE (Rock Island Project) (Exhibit (10)-74 to Annual Report on Form 10-K for the fiscal year ended December
31, 1988, Commission File No. 1-4393).
10.52 Agreement for Purchase and Sale of Firm Capacity and Energy between The Washington Water Power
Company and PSE dated as of January 1, 1988 (Exhibit (10)-1 to Quarterly Report on Form 10-Q for the quarter
ended March 31, 1988, Commission File No. 1-4393).
10.53 Amendment dated as of August 10, 1988 to Agreement for Firm Purchase Power dated as of January 4,
1988 between the City of Spokane, Washington and PSE (Spokane Waste Combustion Project)(Exhibit (10)-76 to Annual
Report on Form 10-K for the fiscal year ended December 31, 1988, Commission File No. 1-4393).
10.54 Agreement for Firm Power Purchase dated October 24, 1988 between Northern Wasco People's Utility
District and PSE (The Dalles Dam North Fishway) (Exhibit (10)-77 to Annual Report on Form 10-K for the fiscal
year ended December 31, 1988, Commission File No. 1-4393).
10.55 Agreement for the Purchase of Power dated as of October 27, 1988 between Pacific Power & Light
Company (PacifiCorp) and PSE (Exhibit (10)-78 to Annual Report on Form 10-K for the fiscal year ended December
31, 1988, Commission File No. 1-4393).
10.56 Agreement for Sale and Exchange of Firm Power dated as of November 23, 1988 between the Bonneville
Power Administration and PSE (Exhibit (10)-79 to Annual Report on Form 10-K for the fiscal year ended December
31, 1988, Commission File No. 1-4393).
10.57 Agreement for Firm Power Purchase, dated as of February 24, 1989 between Sumas Energy, Inc. and PSE
(Exhibit (10)-1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1989, Commission File No.
1-4393).
10.58 Settlement Agreement, dated as of April 27, 1989 between Public Utility District No. 1 of Douglas
County, Washington, Portland General Electric Company ("Enron"), PacifiCorp, The Washington Water Power Company
("Avista") and PSE (Exhibit (10)-1 to Quarterly Report on Form 10-Q quarter ended September 30, 1989, Commission
File No. 1-4393).
10.59 Agreement for Firm Power Purchase (Thermal Project), dated as of June 29, 1989 between San Juan
Energy Company and PSE (Exhibit (10)-2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1989,
Commission File No. 1-4393).
10.60 Agreement for Verification of Transfer, Assignment and Assumption, dated as of September 15, 1989
between San Juan Energy Company, March Point Cogeneration Company and PSE (Exhibit (10)-3 to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1989, Commission File No. 1-4393).
10.61 Power Sales Agreement between The Montana Power Company and PSE, dated as of October 1, 1989
(Exhibit (10)-4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1989, Commission File No.
1-4393).
10.62 Conservation Power Sales Agreement dated as of December 11, 1989 between Public Utility District
No. 1 of Snohomish County and PSE (Exhibit (10)-87 to Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, Commission File No. 1-4393).
10.63 Amendment No. 1 to the Colstrip Project Transmission Agreement dated as of February 14, 1990 among
the Montana Power Company, The Washington Water Power Company ("Avista"), Portland General Electric Company
("Enron"), PacifiCorp and PSE (Exhibit (10)-91 to Annual Report on Form 10-K for the fiscal year ended December
31, 1990, Commission File No. 1-4393).
10.64 Amendment No. 1 to the Fifteen-Year Power Sales Agreement dated as of April 18, 1990 between
PacifiCorp and PSE (Exhibit (10)-93 to Annual Report on Form 10-K for the fiscal year ended December 31, 1990,
Commission File No. 1-4393).
10.65 Settlement Agreement dated as of October 1, 1990, among Public Utility District No. 1 of Douglas
County, Washington, PSE, Pacific Power and Light Company ("PacifiCorp"), The Washington Water Power Company
("Avista"), Portland General Electric Company ("Enron"), the Washington Department of Fisheries, the Washington
Department of Wildlife, the Oregon Department of Fish and Wildlife, the National Marine Fisheries Service, the
U.S. Fish and Wildlife Service, the Confederated Tribes and Bands of the Yakima Indian Nation, the Confederated
Tribes of the Umatilla Reservation, and the Confederated Tribes of the Colville Reservation (Exhibit (10)-95 to
Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-4393).
10.66 Agreement for Firm Power Purchase (Thermal Project) dated December 27, 1990 among March Point
Cogeneration Company, a California general partnership comprising San Juan Energy Company, a California
corporation; Texas-Anacortes Cogeneration Company, a Delaware corporation; and PSE (Exhibit (10)-4 to Quarterly
Report on Form 10-Q for the quarter ended March 31, 1991, Commission File No. 1-4393).
10.67 Agreement for Firm Power Purchase dated March 20, 1991 between Tenaska Washington, Inc., a Delaware
corporation, and PSE (Exhibit (10)-1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1991,
Commission File No. 1-4393).
10.68 Letter Agreement dated April 25, 1991 between Sumas Energy, Inc. and PSE, to amend the Agreement
for Firm Power Purchase dated as of February 24, 1989 (Exhibit (10)-2 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, Commission File No. 1-4393).
10.69 Amendment dated June 7, 1991, to Letter Agreement dated April 25, 1991 between Sumas Energy, Inc.
and PSE (Exhibit (10)-3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, Commission File No.
1-4393).
10.70 Amendatory Agreement No. 3, dated August 1, 1991 to the Pacific Northwest Coordination Agreement,
executed September 15, 1964 among the United States of America, PSE and most of the other major electrical
utilities in the Pacific Northwest (Exhibit (10)-4 to Quarterly Report on Form 10-Q for the quarter ended June
30, 1991, Commission File No. 1-4393).
10.71 Agreement between the 40 parties to the Western Systems Power Pool (PSE being one party) dated July
27, 1991 (Exhibit (10)-2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1991, Commission
File No. 1-4393).
10.72 Memorandum of Understanding between PSE and the Bonneville Power Administration dated September 18,
1991 (Exhibit (10)-3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1991, Commission File
No. 1-4393).
10.73 Amendment of Seasonal Exchange Agreement, dated December 4, 1991 between Pacific Gas and Electric
Company and PSE (Exhibit (10)-107 to Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
Commission File No. 1-4393).
10.74 Capacity and Energy Exchange Agreement, dated as of October 4, 1991 between Pacific Gas and
Electric Company and PSE (Exhibit (10)-108 to Annual Report on Form 10-K for the fiscal year ended December 31,
1991, Commission File No. 1-4393).
10.75 Intertie and Network Transmission Agreement, dated as of October 4, 1991 between Bonneville Power
Administration and PSE (Exhibit (10)-109 to Annual Report on Form 10-K for the fiscal year ended December 31,
1991, Commission File No. 1-4393).
10.76 Amendatory Agreement No. 4, executed June 17, 1991 to the Power Sales Agreement dated August 27,
1982 between the Bonneville Power Administration and PSE (Exhibit (10)-110 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, Commission File No. 1-4393).
10.77 Amendment to Agreement for Firm Power Purchase, dated as of September 30, 1991 between Sumas
Energy, Inc. and PSE (Exhibit (10)-112 to Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
Commission File No. 1-4393).
10.78 Letter Agreement dated October 12, 1992 between Tenaska Washington Partners, L.P. and PSE regarding
clarification of issues under the Agreement for Firm Power Purchase (Exhibit (10)-121 to Annual Report on Form
10-K for the fiscal year ended December 31, 1992, Commission File No. 1-4393).
10.79 Consent and Agreement dated October 12, 1992 between PSE and The Chase Manhattan Bank, N.A., as
agent (Exhibit (10)-122 to Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission
File No. 1-4393).
10.80 Contract with W. S. Weaver, Executive Vice President & Chief Financial Officer, dated April 24,
1991 (Exhibit 10.114 to Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File
No. 1-4393).
10.81 General Transmission Agreement dated as of December 1, 1994 between the Bonneville Power
Administration and PSE (BPA Contract No. DE-MS79-94BP93947) (Exhibit 10.115 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, Commission File No. 1-4393).
10.82 PNW AC Intertie Capacity Ownership Agreement dated as of October 11, 1994 between the Bonneville
Power Administration and PSE (BPA Contract No. DE-MS79-94BP94521) (Exhibit 10.116 to Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, Commission File No. 1-4393).
10.83 Power Exchange Agreement dated as of September 27, 1995 between British Columbia Power Exchange
Corporation and PSE (Exhibit 10.117 to Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 1-4393).
10.84 Contract with W. S. Weaver, Executive Vice President and Chief Financial Officer, dated October 18,
1996 (Exhibit 10.118 to Annual Report on Form 10-K for the fiscal year ended December 31, 1996, Commission File
No. 1-4393).
10.85 Contract with G. B. Swofford, Senior Vice President Customer Operations, dated October 18, 1996
(Exhibit 10.120 to Annual Report on Form 10-K for the fiscal year ended December 31, 1996, Commission File No.
1-4393).
10.86 Service Agreement dated April 14, 1993 between Questar Pipeline Corporation and Washington Natural
Gas Company for FSS-1 firm storage service at Clay Basin (Exhibit 10-B Form 10-K for the year ended September 30,
1994, File No. 11271).
10.87 Service Agreement dated November 1, 1989 with Northwest Pipeline Corporation covering liquefaction
storage gas service filed under cover of Form SE dated December 27, 1989.
10.88 Firm Transportation Service Agreement dated October 1, 1990 between Northwest Pipeline Corporation
and Washington Natural Gas Company (Exhibit 10-D Form 10-K for the year ended September 30, 1994, File No. 11271).
10.89 Gas Transportation Service Contract dated June 29, 1990 between Washington Natural Gas Company and
Northwest Pipeline Corporation (Exhibit 4-A Form 10-Q for the quarter ended March 31, 1993, File No. 0-951).
10.90 Gas Transportation Service Contract dated July 31, 1991 between Washington Natural Gas Company and
Northwest Pipeline Corporation (Exhibit 4-A Form 10-Q for the quarter ended March 31, 1993, File No. 0-951).
10.91 Amendment to Gas Transportation Service Contract dated July 31, 1991 between Washington Natural Gas
Company and Northwest Pipeline Corporation (Exhibit 10-E.2 Form 10-K for the year ended September 30, 1995, File
No. 11271).
10.92 Gas Transportation Service Contract dated July 15, 1994 between Washington Natural Gas Company and
Northwest Pipeline Corporation (Exhibit 10-E.3 Form 10-K for the year ended September 30, 1995, File No. 11271).
10.93 Amendment to Gas Transportation Service Contract dated August 15, 1994 between Washington Natural
Gas Company and Northwest Pipeline Corporation (Exhibit 10-E.4 Form 10-K for the year ended September 30, 1995,
File No. 11271).
10.94 Interest Rate Swap Agreement dated September 27, 1989 between Thermal Resources, Inc. and the First
National Bank of Chicago, filed under cover of Form SE dated December 27, 1989 (Exhibit 10-N, Form 10-K for the
year ended September 30, 1994, File No. 1-11271).
10.95 Firm Transportation Service Agreement dated March 1, 1992 between Northwest Pipeline Corporation
and Washington Natural Gas Company (Exhibit 10-O, Form 10-K for the year ended September 30, 1994, File No.
1-11271).
10.96 Firm Transportation Service Agreement dated January 12, 1994 between Northwest Pipeline Corporation
and Washington Natural Gas Company for firm transportation service from Jackson Prairie (Exhibit 10-P, Form 10-K
for the year ended September 30, 1994, File No. 1-11271).
10.97 Firm Transportation Service Agreement dated January 12, 1994 between Northwest Pipeline Corporation
and Washington Natural Gas Company for firm transportation service from Jackson Prairie (Exhibit 10-Q, Form 10-K
for the year ended September 30, 1994, File No. 1-11271).
10.98 Firm Transportation Service Agreement dated January 12, 1994 between Northwest Pipeline Corporation
and Washington Natural Gas Company for firm transportation service from Plymouth, LNG (Exhibit 10-R, Form 10-K
for the year ended September 30, 1994, File No. 1-11271).
10.99 Service Agreement dated July 9, 1991 with Northwest Pipeline Corporation for SGS-2F Storage Service
filed under cover of Form SE dated December 23, 1991 (Exhibit 10-S, Form 10-K for the year ended September 30,
1994, File No. 1-11271).
10.100 Firm Transportation Agreement dated October 27, 1993 between Pacific Gas Transmission Company and
Washington Natural Gas Company for firm transportation service from Kingsgate (Exhibit 10-T, Form 10-K for the
year ended September 30, 1994, File No. 1-11271).
10.101 Firm Storage Service Agreement and Amendment dated April 30, 1991 between Questar Pipeline Company
and Washington Natural Gas Company for firm storage service at Clay Basin filed under cover of Form SE dated
December 23, 1991.
10.102 Change in control agreement with T. J. Hogan, dated August 17, 1995 (Exhibit 10.152 to Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File No. 1-4393).
10.103 Asset Purchase Agreement between PP&L Global, Inc. and PSE (Exhibit 2a to Current Report on Form
8-K dated November 13, 1998).
10.104 Employment agreement with S. A. McKeon, Vice President and General Counsel, dated May 27, 1997
(Exhibit 10.152 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998, Commission File No.
1-4393).
10.105 Employment agreement with R. L. Hawley, Vice President and Chief Financial Officer, dated March 16, 1998
(Exhibit 10.153 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998, Commission File No.
1-4393).
10.106 Puget Energy, Inc. Nonemployee Director Stock Plan. (incorporated herein by reference to
Exhibit 99.1 to Puget Energy's Post Effective Amendment No. 1 to Form S-8 Registration Statement, dated
January 2, 2001, Commission File No. 333-41157-99).
10.107 Puget Energy, Inc. Employee Stock Purchase Plan. (incorporated herein by reference to Exhibit
99.1 to Puget Energy's Post Effective Amendment No. 1 to Form S-8 Registration Statement, dated January 2, 2001,
Commission File No. 333-41113-99).
*10.1081995 Long-Term Incentive Compensation Plan.
10.109 1995 Long-Term Incentive Compensation Plan. (incorporated herein by reference to Exhibit 99.1 to Puget
Energy's Post Effective Amendment No. 1 to Form S-8 Registration Statement, dated January 2, 2001, Commission
File No. 333-61851-99).
*10.110Credit Agreement dated December 18, 1996, among PSE and various banks named therein, Bank of
America NW, N.A. as Administrative Agent.
*10.111Supplemental agreement of the October 1996 employment contract with W.S. Weaver, President and Chief Executive Officer, dated
November 14, 2000.
*12-a Statement setting forth computation of ratios of earnings to fixed charges (1996 through 2000).
*12-b Statement setting forth computation of ratios of earnings to combined fixed charges and preferred
stock dividends (1996 through 2000).
*21.1 Subsidiaries of Puget Energy.
*21.2 Subsidiaries of PSE.
*23.1 Consent of PricewaterhouseCoopers LLP.
*99.1 Puget Energy proxy statement for 2001 Annual Meeting of Shareholders, (Commission File No.
1-16305).
---------------------------------
*Filed herewith.
