8-K 1 f8k072303.htm 2ND QUARTER EARNINGS RELEASE 8k 1st Quarter Earnings Release

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549


FORM 8-K



CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): July 23, 2003



  Exact name of registrant as specified I.R.S.
  in its charter, state of incorporation, Employer
Commission address of principal executive offices, Identification
File Number Telephone Number


1-16305 PUGET ENERGY, INC. 91-1969407
  A Washington Corporation.  
  10885 - N.E. 4th Street  
  Bellevue, Washington 98004-5515  
  (425) 454-6363  


1-4393 PUGET SOUND ENERGY, INC. 91-0374630
  A Washington Corporation  
  10885 - N.E. 4th Street  
  Bellevue, Washington 98004-5515.  
  (425) 454-6363  

ITEM 9. Regulation FD Disclosure

On July 23, 2003 the Company issued the following press release.

Puget Energy reports second-quarter 2003 earnings

        Bellevue, Wash. (July 23, 2003) — Puget Energy (NYSE: PSD) today reported second-quarter results that were in accordance with its expectations. Income for common stock for the second quarter of 2003 was $20.6 million, or 22 cents per diluted share. This compares with $29.4 million, or 34 cents per diluted share, for the second quarter in 2002.
        “We are pleased that Puget Sound Energy (PSE), our regulated utility subsidiary, performed as we expected during the second quarter and is on track to achieving its full-year 2003 forecast,” said Puget Energy President and CEO Stephen P. Reynolds. “PSE’s customer growth and energy sales continue to be solid in spite of the general economic slowdown in the Puget Sound region.
        “While the core utility business is performing as expected, our non-regulated utility construction services subsidiary, InfrastruX Group, continues to face the effects of unfavorable weather conditions and slow-paced spending by its utility customers,” added Reynolds.

Second-Quarter Results

• Puget Sound Energy (PSE) reported second-quarter 2003 income for common stock of $17.8 million, or 19 cents per diluted share, compared with $26.9 million, or 31 cents per diluted share, for the same period in 2002.

• PSE’s electric margin was approximately $25.6 million lower in the second quarter 2003 compared with the comparable period one year ago.

• PSE’s gas margin was approximately $6.2 million higher in the second quarter of 2003 compared with the second quarter of 2002.

• Income tax expense in the second quarter of 2003 reflects a one-time $6.2 million tax benefit related to a favorable resolution of a federal income tax matter from years 1997 to 2002. The benefit had been anticipated and had been included in the Company’s full year guidance for 2003. In the second quarter of 2002, a one-time reduction of $4.1 million in federal income tax expense was realized from an Internal Revenue Service refund for taxes paid in calendar years 1998 and 1999.

• Interest expense declined $2.7 million in the second quarter of 2003 compared with the same period in 2002, resulting from investing the net proceeds from a November 2002 common stock sale in PSE to reduce debt, reflecting the company’s continued efforts to improve PSE’s financial strength.

• PSE’s common equity ratio was 36.4 percent at June 30, 2003. PSE is well ahead of the requirement in its July 2002 rate settlement to rebuild its common equity ratio to 39 percent over a 3½- year period, with milestones of 34 percent, 36 percent and 39 percent at the end of 2003, 2004 and 2005 respectively.

• InfrastruX Group, which provides new construction, maintenance and repair services to electric and natural gas utilities, reported income of $2.8 million net of minority interest, or 3 cents per share, for the second of quarter 2003. This compares with net earnings of $2.6 million, or 3 cents per share, for the same period in 2002.

Electric Margin

        The $25.6 million reduction in electric margin in the second quarter of 2003 compared with the same period in 2002 primarily reflects:

• The second quarter 2003 impact of an annual general electric rate increase of $59 million effective in July 2002, compared with $25 million of interim electric rate relief received in the second quarter of 2002.
• PSE absorbed $7.3 million of excess variable power costs under its Power Cost Adjustment (PCA) mechanism in the second quarter of 2003.
• Second quarter 2003 temperatures were about normal, while second quarter 2002 temperatures were 12 percent colder than normal.

        PSE’s electric margin represents electrical sales to its retail and transportation customers less the cost of generating and purchasing electric energy sold to customers, including transmission costs to bring electric energy to PSE’s service territory.
        Puget Sound Energy’s PCA mechanism allows the company to recover variable power costs on a shared basis with its customers if PSE’s costs vary from a normalized level established in electric rates. All significant variable power-supply costs are included in the PCA mechanism (hydroelectric generation variability, market price variability for purchased power and surplus power sales, natural gas and coal fuel price variability, generation unit forced outage risk and wheeling cost variability). Under the PCA, PSE’s cumulative maximum pre-tax earnings exposure due to power-supply cost variations over the four year period ending June 30, 2006 is limited to $40 million plus 1 percent of the excess. As previously reported, the Company expects to reach the $40 million cumulative cap under the PCA mechanism by the end of 2003, primarily as a result of below normal hydroelectric conditions in the Pacific Northwest region.
        The number of electric customers grew by 2.0 percent to 967,775 customers in the second quarter of 2003 compared to 948,623 in the second quarter of 2002.

Gas Margin

        The $6.2 million increase in gas margin in the second quarter 2003 reflects continued customer growth coupled with the result of the $35 million annual increase in the general gas tariff that went into effect in September 2002. These were offset in part by near normal temperatures in the second quarter of 2003 compared with temperatures that were 12 percent colder than normal in the same period of 2002.
        PSE’s gas margin represents gas sales to its retail and transportation customers less the cost of gas purchased, including costs to bring gas to PSE’s service territory.
        In June 2002 PSE lowered gas commodity prices to its gas customers under its Purchased Gas Adjustment (PGA) mechanism, resulting in lower revenues in the second quarter of 2003 compared to the 2002 period. The PGA periodically passes through to customers increases or decreases in the price of purchased natural gas. PSE’s gas margin and net income are not affected by changes in gas commodity prices under the PGA.
        The number of gas customers grew by 3.2 percent to 632,758 customers in the second quarter of 2003 compared with 613,264 in the second quarter of 2002.

2003 Outlook

        Puget Energy anticipates its 2003 financial results will be within the low end of the previously announced $1.40 – $1.50 per share range, due to continued nationwide softness in the construction and maintenance industry as reflected in InfrastruX Group’s financial results and near-term outlook. The company affirms the earnings guidance for its regulated utility subsidiary, Puget Sound Energy, at $1.25 to $1.35 per share.
        “The anticipated InfrastruX Group earnings associated with construction projects, primarily in the Northeast and Mid-Atlantic regions where a prolonged and severe winter delayed these projects, were difficult to predict due to economic uncertainty,” added Reynolds. “Our long-term outlook for InfrastruX remains positive as the need continues for utility maintenance and replacement services.” With the slowdown in the national economy, several of InfrastruX’s major utility customers have delayed or eliminated their planned spending on certain utility construction projects or initiatives in 2003.
        The estimate for Puget Energy’s full-year 2003 earnings guidance includes the impact of PSE absorbing approximately 25 cents a share of excess variable power costs in 2003 and the reduction of approximately 10 cents a share in PSE’s earnings due to the adverse impacts of warm temperatures on electric and gas customer sales in the first quarter of 2003. These reductions are not expected to recur in 2004, given that the utility’s exposure to increases in variable power costs will be mitigated in 2004 by the PCA and the El Nino weather pattern which produced the unusually warm winter has dissipated.

SECOND-QUARTER 2003 EARNINGS ANALYST TELECONFERENCE

        A conference call for analysts to discuss with management the second-quarter results and the outlook for future performance is scheduled at 10 a.m. EDT (7 a.m. PDT) Thursday, July 24, 2003. The call will be broadcast live through a Web cast at www.pse.com by accessing the Investors section of the Web site. The Web cast will be archived and available for replay following the live call. A recorded replay of the conference call also will be available two hours after completion of the conference on July 24 through midnight (EDT) on August 7, 2003. To access the recording, dial 1-888-286-8010 and enter the conference I.D. number 86938761.
        Puget Energy is an energy services holding company that conducts all of its operations through its subsidiaries, Puget Sound Energy (PSE) and InfrastruX Group. PSE is a regulated utility company that generates, purchases and sells electricity and purchases, transports and sells natural gas. The service territory of PSE covers approximately 6,000 square miles, principally in the Puget Sound region of Washington State. InfrastruX specializes in contracting services to other gas and electric utilities primarily in the Midwest, Texas and the eastern United States.

_________________

Certain statements contained in this news release are “forward-looking statements” within the meaning of the federal securities laws. Although Puget Energy and Puget Sound Energy believe that the expectations reflected in such statements are reasonable, there can be no assurance that the expected results will be achieved. For additional information concerning certain assumptions, risks, and uncertainties involved in the forward-looking statements contained herein, please refer to Puget Energy’s reports on file with the SEC.



PUGET ENERGY — SUMMARY INCOME STATEMENT
(In thousands, except per-share amounts)

Unaudited Unaudited
Three months ended 6/301 Six months ended 6/30
        2003     20022     2003     20022  
Operating revenues    
    Electric     $ 348,196   $ 316,122   $ 765,194   $ 679,371  
    Gas       116,747     144,384     304,535     458,875  
    Other       92,913     80,313     164,089     141,633  
       Total operating revenues       557,856     540,819     1,233,818     1,279,879  
Operating expenses    
    Purchased electricity       191,600     127,924     432,036     309,911  
    Purchased gas       57,372     88,520     144,326     293,318  
    Electric generation fuel       11,088     14,680     26,162     79,860  
    Residential exchange       (36,977 )   (30,964 )   (89,656 )   (73,711 )
    Unrealized (gain) loss on derivative instruments       (44 )   (252 )   (521 )   (11,748 )
    Utility operations & maintenance       73,895     73,630     143,950     139,571  
    Other operations & maintenance       77,117     62,087     147,637     116,708  
    Depreciation & amortization       59,321     57,357     117,266     113,306  
    Conservation amortization       6,295     3,605     14,017     5,769  
    Taxes other than income taxes       46,950     53,757     104,611     118,914  
    Income taxes       4,832     13,642     36,198     34,577  
       Total operating expenses       491,449     463,986     1,076,026     1,126,475  
Operating income       66,407     76,833     157,792     153,404  
Other income (net of tax)       2,247     3,441     2,952     3,825  
Income before interest charges & minority interest       68,654     80,274     160,744     157,229  
Interest charges       45,980     48,682     93,645     99,080  
Minority interest       282     223     (50 )   302  
Net income before cumulative effect of    
    accounting change       22,392     31,369     67,149     57,847  
FAS-143 transition adjustment loss (net of tax)       --     --     169     --  
Net Income       22,392     31,369     66,980     57,847  
Less preferred stock dividend accruals       1,794     1,940     3,661     3,952  
Income for common stock     $ 20,598   $ 29,429   $ 63,319   $ 53,895  
Common shares outstanding       93,928     87,448     93,833     87,309  
Diluted shares outstanding       94,440     87,646     94,346     87,508  
Basic earnings per common share before    
    cumulative effect of accounting change     $ 0.22   $ 0.34   $ 0.68   $ 0.62  
Cumulative effect of accounting change       --     --     --     --  
Basic earnings per common share     $ 0.22   $ 0.34   $ 0.68   $ 0.62  
Diluted earnings per common share before    
    cumulative effect of accounting change     $ 0.22   $ 0.34   $ 0.67   $ 0.62  
Cumulative effect of accounting change       --     --     --     --  
Diluted earnings per common share3     $ 0.22   $ 0.34   $ 0.67   $ 0.62  

1 Partial-year results may not accurately predict full-year performance, as earnings are significantly affected by weather.
2 Certain amounts previously reported have been reclassified to conform with current year presentations with no effect on net income.
3 Diluted earnings per common share include the dilutive effect of securities related to employee compensation plans.

PUGET SOUND ENERGY1   — UTILITY OPERATING DATA

Three months ended 6/30
 Six months ended 6/30
2003
 2002
 2003
 2002
Energy sales revenues ($ in thousands; unaudited)                    
    Electricity   
     Residential   $ 137,059   $ 148,341   $ 327,731   $ 352,047  
     Commercial    128,555    127,151    276,103    270,551  
     Industrial    21,706    21,583    44,841    45,215  
     Other retail sales2       (1,645 )   (3,740 )   (15,264 )   (19,588 )
       Subtotal, retail sales    285,675    293,335    633,411    648,225  
     Transportation2     3,436    4,519    6,611    8,081  
     Sales to other utilities & marketers3    52,420    13,129    109,639    31,042  
     Other4     6,665    5,139    15,533    (7,977 )
       Total electricity sales    348,196    316,122    765,194    679,371  
    Gas   
     Residential    70,899    82,174    195,391    282,462  
     Commercial    33,904    46,360    83,535    141,460  
     Industrial    5,935    10,066    13,158    23,433  
       Subtotal, retail sales    110,738    138,600    292,084    447,355  
     Transportation    3,349    3,025    6,860    5,956  
     Other    2,660    2,759    5,591    5,564  
       Total gas sales    116,747    144,384    304,535    458,875  
    Total energy sales revenues    $ 464,943   $ 460,506   $ 1,069,729   $ 1,138,246  
Energy sales volumes (Unaudited)   
    Electricity (in mWh)   
     Residential    2,224,345    2,302,267    5,325,451    5,537,103  
     Commercial    1,928,289    1,883,185    4,042,246    3,993,215  
     Industrial    344,628    349,139    689,148    695,181  
     Other2     (40,222 )  (150,211 )  (260,145 )  (349,052 )
       Subtotal, retail sales    4,457,040    4,384,380    9,796,700    9,876,447  
     Transportation2     508,536    516,882    1,000,113    1,070,756  
     Sales to other utilities & marketers3     1,797,334    784,226    3,078,344    1,352,709  
       Total mWh    6,762,910    5,685,488    13,875,157    12,299,912  
    Gas (in 000's of therms)   
     Residential    85,112    86,751    272,680    304,372  
     Commercial    52,079    58,533    143,776    172,163  
     Industrial    9,648    13,261    23,510    28,945  
     Transportation    51,851    49,013    109,132    103,756  
       Total gas volumes    198,690    207,558    549,098    609,236  
Margins5 ($ in thousands; unaudited)   
    Electric    $ 146,155   $ 171,792   $ 318,692   $ 295,856  
    Gas     46,212    39,963    127,794    122,321  
Customers served6 (Unaudited)   
    Electricity   
     Residential    853,340    839,979    850,366    837,857  
     Commercial    108,415    102,801    107,570    101,829  
     Industrial    3,948    3,920    3,946    3,942  
     Other    2,056    1,908    2,033    1,875  
     Transportation    16    15    16    15  
       Total electricity customers    967,775    948,623    963,931    945,518  
    Gas   
     Residential    582,516    563,909    579,049    561,404  
     Commercial    47,391    46,457    47,149    46,431  
     Industrial    2,716    2,774    2,727    2,789  
     Transportation    135    124    136    113  
       Total gas customers    632,758    613,264    629,061    610,737  
Weather (Unaudited)   
    Actual heating degree days    903    994    2,697    3,089  
    Normal heating degree days7     888    888    2,830    2,830  


1 Puget Sound Energy is the electric and natural gas utility subsidiary of Puget Energy.
2 Includes change in unbilled revenues.
3 Includes optimization transactions reported net in the income statement as required by EITF 02-03, effective after June 30, 2002. Prior periods have been reclassified to conform with the presentation.
4 Includes Conservation Trust collection and sales of non-core gas supplies.
5 Electric margin is electric sales to retail and transportation customers less the cost of generating and purchasing electric energy sold to customers, including transmission costs, to bring electric energy to PSE’s service territory. Gas margin is gas sales to retail and transportation customers less the cost of gas purchased, including gas transportation costs, to bring gas to PSE’s service territory.
6 Quarterly data represents average served during June; Six months ended data represents average for the six months ended.
7 Seattle-Tacoma Airport statistics reported by NOAA which are based on a 30-year average, 1971-2000.

PUGET ENERGY — SEGMENT RESULTS
(In thousands)

Three months ended 6/30/03 (Unaudited) Puget Sound
Energy		 InfrastruX Other1 Puget Energy
Total
Revenues     $ 464,943   $ 92,343   $ 570   $ 557,856  
Depreciation and amortization    54,661    4,601    59    59,321  
Income taxes    2,290    2,568    (26 )  4,832  
Operating income    61,958    4,325    124    66,407  
Interest charges, net of AFUDC    44,814    1,148    18    45,980  
Net income    17,562    2,833    1,997    22,392  
Goodwill, net    --    132,162    --    132,162  
Total assets    5,154,879    343,562    128,161    5,626,602  
Three months ended 6/30/02 (Unaudited)   
Revenues   $ 460,506   $ 76,122   $ 4,191   $ 540,819  
Depreciation and amortization    54,000    3,253    104    57,357  
Income taxes    9,874    2,315    1,453    13,642  
Operating income    70,547    4,177    2,109    76,833  
Interest charges, net of AFUDC    47,340    1,342    --    48,682  
Net income    26,662    2,598    2,109    31,369  
Six months ended 6/30/03 (Unaudited)   
Revenues   $ 1,069,729   $ 163,020   $ 1,069   $ 1,233,818  
Depreciation and amortization    109,194    7,960    112    117,266  
Income taxes    36,787    (528 )  (61 )  36,198  
Operating income    155,773    1,846    173    157,792  
Interest charges, net of AFUDC    91,170    2,457    18    93,645  
Net income    65,543    (609 )  2,046    66,980  
Six months ended 6/30/02 (Unaudited)   
Revenues   $ 1,138,246   $ 136,883   $ 4,750   $ 1,279,879  
Depreciation and amortization    107,673    5,525    108    113,306  
Income taxes    29,963    2,950    1,664    34,577  
Operating income    145,021    6,162    2,221    153,404  
Interest charges, net of AFUDC    96,683    2,397    --    99,080  
Net income    52,280    3,524    2,043    57,847  
Goodwill at 12/31/02   $ --   $ 125,555   $ --   $ 125,555  
Total assets at 12/31/02    5,208,487    319,248    129,756    5,657,491  
1 Includes the non-regulated subsidiaries of Puget Sound Energy and miscellaneous holding company expenses. The principal non-regulated subsidiary of PSE is a real estate development company.

PUGET SOUND ENERGY - CAPITALIZATION

(In thousands) (Unaudited)
At June 30,
2003 		At December 31,
2002
Amount % Amount %
Short-term debt     $ 33,013     0 .8% $ 30,340     0 .7%
Long-term debt, including current maturities    2,133,839    53 .4%  2,093,832    53 .0%
Preferred Stock    95,639    2 .4%  103,162    2 .6%
Corporation obligated, mandatorily redeemable    280,250    7 .0%  300,000    7 .6%
  securities of subsidiary trust holding solely  
  junior subordinated debentures of the corporation  
Common Equity    1,458,012    36 .4%  1,426,121    36 .1%
Total capitalization including short-term debt   $ 4,000,753    100 .0% $ 3,953,455    100 .0%
PUGET SOUND ENERGY   
Unrestricted cash     $ 131,717         $ 161,475        

SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.

  PUGET ENERGY, INC.

  PUGET SOUND ENERGY, INC.


  /s/ Stephen A. McKeon
  Stephen A. McKeon
  Sr. Vice President Finance and Chief Financial Officer
Date: July 23, 2003