SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
_____________________________
Commission File Number 1-4393
_____________________________
PUGET SOUND POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Washington 91-0374630
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
411 - 108th Avenue N.E., Bellevue, Washington 98004-5515
(Address of principal executive offices)
(206) 454-6363
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file for such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares of registrant's common stock outstanding at March 31,
1996 was 63,640,861.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Puget Sound Power & Light Company
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31
1996 1995
------- -------
(Unaudited)
(Thousands except shares
and per share amounts)
OPERATING REVENUES $331,009 $338,345
------- -------
OPERATING EXPENSES:
Operation:
Purchased and interchanged power 115,626 111,847
Fuel 8,042 6,390
Other 39,638 46,227
Maintenance 12,677 13,293
Depreciation and amortization 27,478 27,024
Taxes other than federal income taxes 31,827 30,691
Federal income taxes 31,033 32,514
------- -------
Total operating expenses 266,321 267,986
------- -------
OPERATING INCOME 64,688 70,359
------- -------
OTHER INCOME:
Allowance for funds used during construction -
equity portion -- --
Miscellaneous - net of taxes 1,119 1,682
------- -------
Total other income 1,119 1,682
------- -------
INCOME BEFORE INTEREST CHARGES 65,807 72,041
------- -------
INTEREST CHARGES
Interest and amortization on long-term debt 18,415 21,077
Allowance for funds used during
construction - debt portion (1,303) (1,160)
Other 2,276 3,378
------- -------
Total interest charges 19,388 23,295
------- -------
NET INCOME 46,419 48,746
------- -------
DEDUCT:
Preferred stock dividend accrual 3,743 3,962
------- -------
INCOME FOR COMMON STOCK $ 42,676 $ 44,784
======= =======
COMMON SHARES OUTSTANDING -
WEIGHTED AVERAGE 63,640,861 63,640,861
EARNINGS PER COMMON SHARE (Note a) $0.67 $0.70
DIVIDENDS PAID PER COMMON SHARE $0.46 $0.46
The accompanying notes are an integral part of the financial statements.
Puget Sound Power & Light Company
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 December 31
1996 1995
--------- ---------
(Unaudited)
(Thousands of Dollars)
UTILITY PLANT:
Electric Plant, at original cost
(including construction work in
progress of $109,687,000 and
$105,617,000, respectively) $3,421,470 $3,400,723
Less: Accumulated depreciation 1,139,659 1,118,678
--------- ---------
Net utility plant 2,281,811 2,282,045
--------- ---------
OTHER PROPERTY AND INVESTMENTS:
Investment in Bonneville Exchange Power
Contract 92,412 94,241
Investments in and advances to subsidiaries 95,943 95,459
Energy conservation loans to customers 680 783
Other investments, at cost 12,265 11,328
--------- ---------
Total other property and investments 201,300 201,811
--------- ---------
CURRENT ASSETS:
Cash 3,902 12,498
Accounts receivable 142,203 124,086
Estimated unbilled revenue 60,263 80,363
PRAM accrued revenues 45,647 59,123
Materials and supplies, at average cost 45,062 46,407
Prepayments and Other 4,021 4,352
--------- ---------
Total current assets 301,098 326,829
--------- ---------
LONG-TERM ASSETS:
Regulatory asset for deferred income taxes 246,015 249,731
PRAM accrued revenues (net of current portion) 44,211 55,673
Unamortized debt expense 9,960 10,264
Unamortized energy conservation charges (Note b) 39,010 37,889
Other 115,826 104,753
--------- ---------
Total long-term assets 455,022 458,310
--------- ---------
TOTAL ASSETS $3,239,231 $3,268,995
========= =========
The accompanying notes are an integral part of the financial statements.
Puget Sound Power & Light Company
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
March 31 December 31
1996 1995
--------- ---------
(Unaudited)
(Thousands of Dollars)
CAPITALIZATION:
Common shareholders' investment:
Common stock, $10 stated value,
80,000,000 shares authorized,
63,640,861 shares outstanding $ 636,409 $ 636,409
Additional paid-in capital 328,963 328,963
Earnings reinvested in the business 223,892 210,532
--------- ---------
Total common equity 1,189,264 1,175,904
Preferred stock not subject to
mandatory redemption 125,000 125,000
Preferred stock subject to
mandatory redemption 87,839 89,039
Long-term debt 920,476 920,439
--------- ---------
Total capitalization 2,322,579 2,310,382
--------- ---------
CURRENT LIABILITIES
Accounts payable 41,886 50,269
Short-term debt 133,740 167,049
Current maturities of long-term debt 8,000 43,000
Accrued expenses:
Taxes 76,450 36,321
Salaries and wages 21,643 22,011
Interest 23,152 22,921
Other 29,785 27,356
--------- ---------
Total current liabilities 334,656 368,927
--------- ---------
DEFERRED INCOME TAXES:
Deferred income taxes 523,973 528,400
Investment tax credits 207 311
--------- ---------
Total deferred income taxes 524,180 528,711
--------- ---------
OTHER DEFERRED CREDITS:
Customer advances for construction 19,559 19,972
Other 38,257 41,003
--------- ---------
Total other deferred credits 57,816 60,975
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $3,239,231 $3,268,995
========= =========
The accompanying notes are an integral part of the financial statements.
Puget Sound Power & Light Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31
1996 1995
------- -------
(Unaudited)
(Thousands of Dollars)
OPERATING ACTIVITIES:
- --------------------
Net income $ 46,419 $ 48,746
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 27,478 27,024
Deferred income taxes and tax credits - net (815) 6,744
PRAM accrued revenues 24,938 1,325
Other (8,967) (1,270)
Change in certain current assets
and liabilities (Note c) 37,696 27,968
- ---------------------------------------------------------------------------
Net Cash Provided by Operating Activities 126,749 110,537
- ---------------------------------------------------------------------------
INVESTING ACTIVITIES:
- --------------------
Construction expenditures - excluding equity AFUDC (28,628) (25,948)
Additions to energy conservation program (1,828) (3,171)
Decrease in energy conservation loans 103 148
Other (including advances to subsidiaries) (2,418) (1,379)
- ---------------------------------------------------------------------------
Net Cash Used by Investing Activities (32,771) (30,350)
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES:
- --------------------
Decrease in short-term debt (33,309) (45,294)
Dividends paid (33,059) (33,264)
Redemption of bonds and notes (35,000) (2)
Redemption of preferred stock (1,200) (1,992)
Issue costs of bonds and stock (6) (197)
- ---------------------------------------------------------------------------
Net Cash Used by Financing Activities (102,574) (80,749)
- ---------------------------------------------------------------------------
Decrease in Cash (8,596) (562)
Cash at Beginning of Period 12,498 5,284
- ---------------------------------------------------------------------------
Cash at End of Period $ 3,902 $ 4,722
===========================================================================
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(a) Earnings Per Common Share
Earnings per common share for the three months ended March 31, 1996 and 1995
have been computed by dividing income for common stock by the weighted
average number of common shares outstanding.
(b) Unamortized Energy Conservation Costs
The Company's energy conservation expenditures are accumulated, included in
rate base and amortized over a ten-year period at the direction of the
Washington Utilities and Transportation Commission (the "Washington
Commission"). In June 1995, the Company sold approximately $202.5 million
of its investment in customer-owned energy conservation measures to a
grantor trust which, in turn, issued securities backed by a Washington state
statute enacted in 1994. The securities were issued by the trust in June
1995, and carry a coupon rate of 6.45 percent. The Company recognized no
gain or loss on the sale. The Company's total remaining unamortized
conservation balance at March 31, 1996 was $39.0 million.
(c) Consolidated Statements of Cash Flows
The following provides additional information concerning cash flow
activities:
Three Months Ended March 31
1996 1995
- ---------------------------------------------------------------------------
(Thousands)
Changes in current assets and current liabilities:
Accounts receivable $(18,117) $(13,841)
Unbilled revenues 20,100 22,743
Materials and supplies 1,345 (884)
Prepayments and Other 331 329
Accounts payable (8,383) (9,161)
Accrued expenses and Other 42,420 28,782
- ---------------------------------------------------------------------------
Net change in current assets and current liabilities $37,696 $ 27,968
===========================================================================
Cash payments:
Interest (net of capitalized interest): $ 19,644 $ 24,774
Income taxes $ 1,000 $ 4,700
- ---------------------------------------------------------------------------
(d) Other
On September 22, 1995, the Washington Commission issued a rate order
relating to the Company's fifth annual rate adjustment under the PRAM. The
Company had requested a $62.8 million revenue increase and the Commission
allowed $58.8 million. The decrease included $3.3 million related to
resource cost projections that are subject to true-up during the PRAM period
and a flow-through to customers of $0.7 million related to tax benefits on
the Company's conservation expenditures. In addition to approval of the
rate adjustment, the Commission also agreed, pursuant to a negotiated
settlement, to discontinue the PRAM on September 30, 1996, the end of the
current PRAM period. Under the terms of the settlement agreement, PRAM
accrued revenues outstanding at that time will be recovered in rates over a
period not to exceed two years. With the discontinuance of the PRAM, the
annual regulatory adjustments for variations in weather and hydro conditions
provided for in the PRAM will also be discontinued.
On March 20, 1996, shareholders of the Company and Washington Energy Company
("WECo"), voting as separate groups, gave their approval to an Agreement and
Plan of Merger between the two companies. The merger, which would merge
WECo and Washington Natural Gas Company ("WNG"), a wholly-owned subsidiary
of WECo, with and into Puget Power, had been unanimously approved by the
Company's Board of Directors as well as the Boards of Directors of WECo and
WNG in October 1995. The name of the merged company, Puget Sound Energy,
was also announced at the March 20 meetings. Before the merger becomes
final, however, it must also be approved by the Washington Commission, which
regulates the utility operations of each entity. The regulatory approval
process is expected to be completed at the end of 1996.
The Agreement calls for each share of WECo common stock to be exchanged for
0.86 share of the Company's common stock. Based on the capitalization of
the Company and WECo on March 31, 1996, holders of the Company's and WECo's
common stock would have held approximately 75% and 25% respectively, of the
aggregate number of outstanding shares of the merged company's common stock
had the merger been consummated at that date. In addition, the Agreement
calls for the preferred stock of WNG to be converted into preferred shares
of the merged company. The merger is structured as a tax-free exchange of
shares, and is expected to be accounted for as a pooling of interests.
The Hart-Scott-Rodino Antitrust Improvement Act of 1978("HSR Act") and the
rules and regulations thereunder provide that the merger may not be
consummated until certain information has been submitted to the Antitrust
Division of the United States Department of Justice and the Federal Trade
Commission and specified HSR Act waiting period requirements have been
satisfied.
In connection with its application for approval of the merger with WECo, the
Company filed with the Washington Commission, in February 1996, a proposed
rate stability plan which, if adopted, would among other things, increase
general electric rates by 1% annually from 1997 through 2000.
Also in connection with the merger, the Company, on December 11, 1995,
offered a voluntary early separation plan to approximately 890 employees.
The plan, which offers a severance package based on years of service, was
accepted by 204 employees on January 31, 1996. Under the terms of the plan,
the Company has the right to retain the employees for up to 60 days after
the merger is completed. If, for any reason, the merger plans are
discontinued prior to the employee's separation date, the employee's
participation in the plan will thereupon be considered terminated and no
severance benefits will be paid. The costs of the plan will be recognized
when the Company releases specific employees. Total additional costs of
this voluntary separation plan are currently estimated to be $7 million.
As of March 31, 1996, the Company has accumulated and deferred costs
associated with the merger of approximately $3.7 million.
The financial statements contained in this Form 10-Q are unaudited; however,
in the opinion of the Company, they include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair statement of the
results of operations for the periods shown.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1996, was $46.4 million on
operating revenues of $331.0 million, compared with net income of $48.7
million on operating revenues of $338.3 million for the same period in 1995.
Income for common stock was $42.7 million for the first quarter of 1996
compared to $44.8 million for the first quarter of 1995. Earnings per share
were $0.67 for the first quarter of 1996 compared to $0.70 for the first
quarter of 1995 based on 63.6 million weighted average common shares
outstanding for both periods.
Total kilowatt-hour sales were 6.7 billion, including 1.0 billion in sales
to other utilities, for the first quarter of 1996, compared to 6.3 billion,
including 0.9 billion in sales to other utilities, for the first quarter of
1995.
The Company's operating revenues and associated expenses are not generated
evenly during the year. Variations in energy usage by consumers do occur
from season to season and from month to month within a season, primarily as
a result of weather conditions. The Company normally experiences its
highest energy sales in the first and fourth quarters of the year. Sales to
other utilities also vary by quarter and year depending principally upon
water conditions for the generation of hydroelectric power, customer usage
and the energy requirements of other utilities. With the implementation of
the PRAM in October 1991, earnings have not been significantly influenced,
up or down, by sales of surplus electricity to other utilities or by weather
or hydro conditions. The PRAM, however, will end effective September 30,
1996 under a stipulated negotiated settlement approved by the Washington
Commission. Under terms of the settlement, PRAM accrued revenues at that
time would be recovered in rates over a period not to exceed two years.
Preferred stock dividends decreased $0.2 million for the three month period
ending March 31, 1996 compared to the same period in 1995. The decrease was
due to a lower average dividend rate on the $50 million, Adjustable Rate
Cumulative Preferred Stock, Series B ($25 par value).
Comparative Periods Ending
March 31, 1996 vs. March 31, 1995
Increase (Decrease)
Three Month Periods
-------------------
(In Millions)
Operating revenue changes
PRAM surcharge billed $17.6
Accrual of revenue under the PRAM - Net (23.6)
BPA Residential Purchase & Sale Agreement (6.0)
Sales to other utilities (3.5)
Revenue sold to Conservation Trust (10.2)
Load and other changes 18.4
-----
Total operating revenue change (7.3)
Operating expense changes
Purchased & interchanged power 3.8
Fuel 1.7
Other operation expenses (6.6)
Maintenance (0.6)
Depreciation and amortization 0.4
Taxes other than federal income taxes 1.1
Federal income taxes (1.5)
-----
Total operating expense change (1.7)
Allowance for funds used during
construction (AFUDC) 0.1
Other income (0.6)
Interest charges excluding AFUDC (3.8)
-----
NET INCOME CHANGE $(2.3)
=====
The following is additional information pertaining to the changes outlined
in the above table.
Operating Revenues
Revenues since October 1, 1995 increased as a result of rates authorized
by the Washington Commission in its fifth PRAM order issued on September
22, 1995. (See discussion of the Periodic Rate Adjustment Mechanism in
"Other.")
Revenues in 1996 and 1995 were reduced because of the credit that the
Company received through the Residential Purchase and Sale Agreement with
the Bonneville Power Administration ("BPA"). The agreement enables the
Company's residential and small farm customers to receive the benefits of
lower-cost federal power. A corresponding reduction is included in
purchased and interchanged power expenses.
Revenues in 1996 were reduced by $10.2 million as a result of the
Company's sale of revenues, in June 1995, associated with $202.5 million
of its investment in conservation assets to a grantor trust. The revenue
decrease represents the portion of rate revenues that were sold and
forwarded to the trust. The impact of this revenue decrease, however, was
offset by related reductions in other operation and interest expenses.
Revenues from kilowatt-hour sales, excluding PRAM, were higher in the
first quarter of 1996 as compared to the same period in 1995 due to colder
winter weather and continued growth in the number of customers.
Operating Expenses
Purchased and interchanged power expenses increased $3.8 million for the
first quarter of 1996 compared to the same period in 1995. Higher levels
of purchased power, which contributed an increase of $10.5 million, were
due primarily to increased power purchases from both firm and secondary
sources. These higher costs were partially offset by increased credits of
$5.8 million associated with the Residential Purchase and Sale Agreement
with BPA. (See discussion of Residential Purchase and Sale Agreement in
"Operating Revenues.")
Fuel expense increased $1.7 million for the three month comparative period
due in part to a credit in 1995 of $4.6 million resulting from an
Arbitration Panels' decision of a dispute involving the coal supply
agreement at the Company's fifty percent-owned Colstrip 1 and 2 plants.
This increase was partially offset by a decrease of $2.9 million in fuel
expense at the Company's Colstrip 3 and 4 plants.
Other operation expenses decreased $6.6 million in the first quarter of
1996 compared to the same period in 1995. The decrease was due to a $7.5
million decrease in amortization expense associated with the Company's
conservation program. In June 1995 the Company sold, to a grantor trust,
approximately $202.5 million of its investment in customer-owned energy
conservation measures. This decrease was partially offset by an $0.8
million increase in transmission and distribution expenses.
Maintenance expense decreased $0.6 million in 1996 due primarily to higher
distribution maintenance expenses in 1995 resulting from winter storm
damage to Company facilities.
Depreciation and amortization expense increased $0.4 million for the first
quarter of 1996 from the same period in 1995 due to the effects of new
plant placed into service during the past year.
Taxes other than federal income taxes increased $1.1 million for the three
month comparative period due primarily to higher Washington state property
tax and municipal tax payments.
Federal income taxes on operations decreased $1.5 million for the first
quarter of 1996 from the same period in 1995 due to lower pre-tax
operating income.
AFUDC
AFUDC, which does not represent current cash income, is normally included
partially in other income and partially as an offset to interest expense.
Other income
Other income decreased $0.6 million in the first quarter of 1996 from the
same period in 1995. The decrease was due in part to decreased earnings
of subsidiaries and a reduction in Allowance for Funds Used to Conserve
Energy ("AFUCE") resulting from lower energy conservation expenditures.
Interest charges
Interest charges, which consist of interest and amortization on long-term
debt and other interest, decreased $3.8 million for the first quarter of
1996 compared to the same period in 1995.
Interest and amortization on long-term debt alone decreased $2.7 million
for the first quarter of 1996. This decrease includes reduced interest of
$2.5 million resulting from the retirement, over the previous eight
months, of four issues of First Mortgage Bonds totaling $143 million.
Other interest expense decreased $1.1 million for the first quarter of
1996 compared to the same period last year due to lower levels of
outstanding short-term debt and lower short-term interest rates.
Construction expenditures (excluding AFUDC and AFUCE) for the first
quarter of 1996 were $28.9 million, including $1.5 million of energy
conservation expenditures, compared to $27.4 million, including $2.6
million of energy conservation expenditures, for the first quarter of
1995. Construction expenditures (excluding AFUDC and AFUCE) for the
twelve months ended March 31, 1996 were $129.5 million, including $12.0
million of energy conservation expenditures. Construction expenditures
(excluding AFUDC and AFUCE) for the twelve months ended March 31, 1995
were $224.5 million, including $24.1 million of energy conservation
expenditures. Construction expenditures (excluding AFUDC and AFUCE) for
1996 and 1997 are expected to be $134 million and $144 million,
respectively.
Cash provided by operations (net of dividends, AFUDC and AFUCE) as a
percentage of construction expenditures (excluding AFUDC and AFUCE) were
319.5% and 276.1% for the first quarters of 1996 and 1995, respectively.
Cash provided by operations (net of dividends, AFUDC and AFUCE) as a
percentage of construction expenditures (excluding AFUDC and AFUCE) were
100.1% and 55.9% for the twelve months ended March 31, 1996 and 1995,
respectively. The Company expects cash from operations (net of dividends,
AFUDC and AFUCE) in 1996 and 1997 will, on average, be approximately 114%
of average estimated construction expenditures (excluding AFUDC and AFUCE)
during the same period. Construction expenditure estimates are subject to
periodic review and adjustment.
On March 31, 1996, the Company had available $176.5 million in lines of
credit with various banks, which provide credit support for outstanding
commercial paper of $114.7 million, effectively reducing the available
borrowing capacity under these lines of credit to $61.8 million. In
addition, the Company has agreements with several banks to borrow on an
uncommitted, as available, basis at money-market rates quoted by the
banks. There are no costs, other than interest, for these arrangements.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Contingencies arising out of the normal course of the Company's business,
exist at March 31, 1996. The ultimate resolution of these issues is not
expected to have a material adverse impact on the financial condition,
results of operations or liquidity of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
12-a Statement setting forth computation of ratios of
earnings to fixed charges (1991 through 1995 and twelve
months ended March 31, 1996).
12-b Statement setting forth computation of ratios of earnings
to combined fixed charges and preferred stock dividends
(1991 through 1995 and twelve months ended March 31,
1996).
27 Financial Data Schedule
99 Pro Forma Statements of Puget Sound Energy
(b) Reports on Form 8-K
1. Form 8-K dated February 21, 1996, Item 5 - Other Events,
related to merger proposal of Puget Sound Power & Light
Company and Washington Energy Company, parent company of
Washington Natural Gas Company filed with the Washington
Utilities and Transportation Commission.
2. Form 8-K dated March 21, 1996, Item 5 - Other Events, related
to shareholder approval of the proposed merger between Puget
Sound Power & Light Company and Washington Energy Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUGET SOUND POWER & LIGHT COMPANY
s/s William S. Weaver
_____________________________
William S. Weaver
Executive Vice President and
Chief Financial Officer
Date: May 14, 1996 Principal financial officer and
officer duly authorized to sign this
report on behalf of the registrant