Earnings Release 4th Quarter

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): February 7, 2006

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


1-16305
PUGET ENERGY, INC.
91-1969407
 
A Washington Corporation
 
 
10885 - N.E. 4th Street, Suite 1200
 
 
Bellevue, Washington 98004-5591
 
 
(425) 454-6363
 

 
1-4393
PUGET SOUND ENERGY, INC.
91-0374630
 
A Washington Corporation
 
 
10885 - N.E. 4th Street, Suite 1200
 
 
Bellevue, Washington 98004-5591
 
 
(425) 454-6363
 
 
___________
 
Check the appropriate box below if the Form 8−K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o
 
Soliciting material pursuant to Rule 14a−12 under the Exchange Act (17 CFR 240.14a−12)
 
o
 
Pre−commencement communications pursuant to Rule 14d−2(b) under the Exchange Act (17 CFR 240.14d−2(b))
 
o
 
Pre−commencement communications pursuant to Rule 13e−4(c) under the Exchange Act (17 CFR 240.13e−4(c))
 
 
 
 
 
 
 
Item 2.02 Results of Operations and Financial Condition
 
On February 7, 2006 the Company issued the following press release.

Puget Energy Reports Year-End and Fourth-Quarter 2005 Results

·  
2005 earnings of $1.51 per share including the discontinued operations of InfrastruX Group
·  
2005 income from continuing operations of $1.42 per share
·  
Fourth-quarter 2005 income from continuing operations of 52 cents per share
·   
Reaffirm full-year 2006 guidance of $1.40 to $1.55 per share from continuing operations

BELLEVUE, Wash. (February 7, 2006) — Puget Energy (NYSE: PSD) today reported 2005 net income from continuing operations of $1.42 per diluted share and fourth quarter 2005 earnings from continuing operations of 52 cents per diluted share. Puget Energy's 2005 earnings including the discontinued operations of its utility construction services subsidiary, InfrastruX, totaled $1.51 per diluted share.
In 2005, earnings from continuing operations benefited from customer growth and revenue recovery of new electric generating resources at Puget Energy’s core electric and gas utility business, Puget Sound Energy (PSE). These results were offset by higher operations and maintenance and depreciation expense compared to 2004 levels as a result of PSE’s energy delivery infrastructure additions, service reliability initiatives and energy efficiency programs in 2005. Earnings from continuing operations in 2004 of $1.26 per diluted share were reduced by a regulatory disallowance of $24.5 million after-tax, or 25 cents per diluted share, recorded in the second quarter 2004.
“In 2005 we continued to invest in our energy delivery infrastructure and generation resources to support and maintain Puget Sound Energy’s legacy of reliable service,” said Stephen P. Reynolds, Chairman, President and CEO of Puget Energy. “During the year, we placed into service the 150-megawatt Hopkins Ridge wind powered electric generating facility, began building a second, larger wind facility near Ellensburg, Washington and expanded and reinforced our energy delivery infrastructure. I’m very proud of Puget Sound Energy’s dedicated employees who contributed to this extraordinary effort,” added Reynolds.
“We also reached a number of key regulatory milestones in 2005, notably an all-party settlement related to power costs and resolution of the general rate case filed in 2004. We will continue to work with regulators and other parties to recover necessary infrastructure investments and improve our creditworthiness in a general rate case we're filing this month,” said Reynolds.
Puget Energy’s 2005 earnings including the discontinued operations of its utility construction services subsidiary InfrastruX, totaled $155.7 million, or $1.51 per diluted share, compared to $55.0 million, or 55 cents per diluted share, in 2004. InfrastruX's 2004 financial results reflect a $76.6 million, or 77 cent per diluted share, after-tax non-cash impairment charge.
Table 1: Puget Energy reported earnings
   
 Year ending
 
Earnings per diluted share
  
2005
  
2004
  
Continuing operations (PSE)
  
$
1.42
  
$
1.26
  
Discontinued operations (InfrastruX)
    
0.09
    
(0.71
)
Puget Energy
 
$
1.51
  
$
0.55
  

Puget Energy Calendar Year 2005 Summary:
Table 2 below summarizes the primary items that impacted calendar year 2005 financial results from continuing operations for Puget Energy:
Table 2
Calendar year 2005 vs. Calendar year 2004
EPS Reconciliation
  
Cents per
diluted share
  
Puget Energy’s 2004 earnings from continuing operations
  
$
1.26
  
Impact of a gas supply regulatory disallowance in 2004
    
0.25
  
Increase in electric margin
   
0.09
  
Increase in gas margin
   
0.14
  
Increase in operations and maintenance expense
   
(0.24
)
Increase in depreciation and amortization expense
   
(0.08
)
Increase in other income
   
0.04
  
Impact of dilution from higher common shares outstanding
   
(0.04
)
Puget Energy's 2005 earnings from continuing operations
  
$
1.42
  

Continuing Operations (PSE) Calendar Year 2005 Highlights:
In 2005 PSE’s net income increased by $20.6 million, or 16 cents per share, to $146.8 million, or $1.42 per diluted share, from $126.2 million, or $1.26 per diluted share, for 2004. All items outlined below are pre-tax unless otherwise noted and all share amounts are presented on a diluted basis.
·  
As of December 31, 2005, PSE provided service to 1,018,100 electric customers and 693,500 natural gas customers, representing a 1.6 percent and 3.1 percent increase, respectively, over 2004 levels.

·  
Overall, 2005 temperatures in the Pacific Northwest were similar compared to 2004 levels, but warmer than historic averages, reducing energy sales in both years.
 
·  
After adjusting for an electric generation gas supply regulatory disallowance recorded in the second quarter 2004, PSE’s electric margin in 2005 (electric sales to retail and transportation customers less the cost of generating and purchasing electricity) increased by $13.6 million, or 9 cents per share, primarily due to a 3 percent increase in retail sales volumes from customer growth. The $13.6 million electric margin increase in 2005 also reflects a one-time benefit of $6.0 million, or 4 cents per share, related to the recovery of power costs incurred in prior periods.
·  
PSE’s natural gas margin (natural gas sales to retail and transportation customers less the cost of purchasing and transporting natural gas) increased by $22 million, or 14 cents per share, as a result of a 2.4 percent increase in retail sales volumes and a 3.5 percent rate increase effective March 4, 2005. PSE’s 2005 gas margin was reduced by a true-up of previously reported natural gas costs resulting in a $3.3 million after-tax, or 3 cent per share, charge to net income.

·  
PSE’s 2005 utility operations and maintenance expense increased by $42 million over 2004 levels, of which $4.3 million relates to low income customers and is fully recovered in rates. The $37.7 million, or 24 cent per share, net operations and maintenance expense increase reflects higher planned electric and gas retail distribution systems maintenance costs to support growth and reliability initiatives.
 
·  
PSE’s depreciation and amortization expense increased by $13.1 million, or 8 cents per share, due to additional utility plant placed in service in 2004 and 2005.

·  
In October 2005, Puget Energy sold 15 million shares of common stock in a secondary offering. Net proceeds totaling approximately $310 million were invested in PSE and used to reduce short-term debt incurred primarily to fund the utility’s construction program. The average number of fully diluted common shares outstanding at year-end 2005 increased to 103.1 million compared with 99.9 million at year-end 2004. Earnings dilution in calendar year 2005 as a result of higher shares outstanding reduced earnings by 4 cents per share in 2005.
 
Puget Energy Continuing Operations Fourth-Quarter 2005 Summary:
Table 3 below summarizes the primary items that impacted fourth quarter 2005 results from continuing operations:
Table 3 
Fourth Quarter 2005 vs. Fourth Quarter 2004
EPS Reconciliation
  
Cents per
diluted share
  
Puget Energy’s fourth quarter 2004 earnings from continuing operations
  
$
0.59
  
Increase in gas margin
   
0.08
  
Increase in utility operations and maintenance expense
   
(0.10
)
Increase in depreciation and amortization expense
   
(0.03
)
Increase in other income
   
0.02
  
Impact of dilution from higher common shares outstanding
   
(0.04
)
Puget Energy’s fourth quarter 2005 earnings from continuing operations
  
$
0.52
  

Continuing Operations (PSE) Fourth-Quarter 2005 Highlights:
PSE’s 2005 fourth quarter earnings were $56.3 million, or 52 cents per diluted share, compared to $59.2 million, or 59 cents per diluted share, in the fourth quarter of 2004. Average temperatures in the fourth quarter 2005 were near normal compared to slightly warmer temperatures in 2004. Fourth quarter 2005 natural gas margin increased by $13 million, or 8 cents per share, while electric margin was flat compared to 2004 levels. Depreciation and amortization expense and utility operations and maintenance expense increased by $4.8 million, and $15.9 million, or 3 and 10 cents per share, respectively.

Puget Energy 2006 Outlook:
Puget Energy anticipates its 2006 financial results from continuing operations to be within the previously disclosed range of $1.40 to $1.55 per diluted share.

Discontinued Operations (InfrastruX) Calendar Year 2005 Highlights:
Discontinued operations for Puget Energy reflect the financial results of InfrastruX, Puget Energy’s utility construction services subsidiary as well as certain carrying value adjustments. InfrastruX earned $10.1 million compared to $5.9 million in 2004, net of minority interest and before impairment charges. The increase in earnings during calendar year 2005 reflect favorable industry conditions in the utility construction services sector as well as the strong operating performance in InfrastruX’s various business lines.
At year-end 2005, Puget Energy’s net equity interest in InfrastruX was $43.5 million compared to 3.8 million in 2004. InfrastruX's net debt and capitalized leases at year-end 2005 totaled $141.5 million compared to $166.4 million in 2004.
A sales process is currently under way to divest the InfrastruX business.
 
Conference Call:
Puget Energy will provide additional information regarding its calendar year and fourth-quarter 2005 results during a conference call for analysts scheduled at 10:00 a.m. ET (7:00 a.m. PT) on Wednesday, February 8, 2006. The call will be broadcast live through a Web cast at www.pugetenergy.com. The Web cast will be archived and available for replay following the call. A tape-recorded replay of the call will be available two hours after completion of the conference call on February 8, 2006 through midnight (ET) on Wednesday, February 22, 2006 by dialing 1-888-286-8010 and entering the conference identification number at 36933122.
 
Form 10K and Annual Report for 2005
Puget Energy will file its Form 10-K Annual Report for 2005 with the Securities and Exchange Commission (SEC) on or before March 16, 2006, a copy of which will be available through the SEC’s website at www.sec.gov or the Company’s website at www.pugetenergy.com. Investors are encouraged to read the financial statements and disclosures that will be contained in the Form 10-K filing.
Puget Energy is an energy services holding company that conducts all of its operations through its subsidiaries, 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 south-central and eastern United States regions. InfrastruX is presented as discontinued operations.

CAUTIONARY STATEMENT: Certain statements contained in this press release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, among which include Puget Energy’s plans with respect to InfrastruX and any proceeds from its possible sale or monetization, Puget Sound Energy’s plans relating to utility plant additions and expenses, and factors that could impact Puget Energy’s earnings guidance for the year-end 2006. Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could affect actual results include, among others, governmental policies and regulatory actions, including those of the WUTC, and weather conditions. More information about these and other factors that potentially could affect the company’s financial results is included in Puget Energy's and PSE's most recent annual report on Form 10-K, quarterly report on Form 10-Q and in their other public filings filed with the Securities and Exchange Commission. Except as required by law, Puget Energy and PSE undertake no obligation to update any forward-looking statements.

 
 
                    
PUGET ENERGY -- SUMMARY INCOME STATEMENT
                          
(In thousands, except per-share amounts)
                          
 
 
Unaudited 
    
Unaudited
  
 
    
Three months  ended 12/311
  
Twelve months ended 12/31
  
     
2005
    
2004
    
2005
    
2004
  
                           
Operating revenues
                          
Electric
  
$
472,323
  
$
404,778
  
$
1,612,869
  
$
1,423,034
  
Gas
    
357,778
   
284,703
   
952,515
   
769,306
 
Other
    
960
   
2,531
   
7,826
   
6,537
 
Total operating revenues
    
831,061
   
692,012
   
2,573,210
   
2,198,877
 
Operating expenses
                          
Purchased electricity
    
272,439
   
205,764
   
860,422
   
723,567
 
Electric generation fuel
    
18,919
   
20,640
   
73,318
   
80,772
 
Residential exchange
    
(53,814
)
  
(50,674
)
  
(180,491
)
  
(174,473
)
Purchased gas
    
233,083
   
180,618
   
592,120
   
451,302
 
Unrealized net (gain) loss on derivative instruments
    
77
   
516
   
472
   
(526
)
Utility operations & maintenance
    
92,957
   
77,083
   
333,256
   
291,232
 
Other operations & maintenance
    
613
   
811
   
2,657
   
2,326
 
Depreciation & amortization
    
63,351
   
58,530
   
241,634
   
228,566
 
Conservation amortization
    
7,562
   
4,942
   
24,308
   
22,688
 
Taxes other than income taxes
    
68,737
   
59,503
   
233,742
   
208,989
 
Income taxes
    
33,957
   
36,135
   
88,609
   
76,756
 
Total operating expenses
    
737,881
   
593,868
   
2,270,047
   
1,911,199
 
Operating income
    
93,180
   
98,144
   
303,163
   
287,678
 
Other income (deductions):
                          
Other income
    
4,125
   
2,368
   
8,309
   
4,362
 
Interest Charges:
                          
AFUDC
    
3,310
   
1,613
   
9,493
   
5,420
 
Interest expense
    
(44,284
)
  
(43,163
)
  
(174,591
)
  
(171,959
)
Mandatorily redeemable securities interest expense
    
(23
)
  
(23
)
  
(91
)
  
(91
)
Net income from continuing operations
    
56,308
   
58,939
   
146,283
   
125,410
 
Income (loss) from discontinued operations, net of tax
    
8,607
   
(74,626
)
  
9,514
   
(70,388
)
Net income (loss) before cumulative effect of
                          
accounting change
    
64,915
   
(15,687
)
  
155,797
   
55,022
 
Asset retirement obligation cumulative effect
    
71
   
---
   
71
   
---
 
Net Income (loss)
 
$
64,844
  
$
(15,687
)
$
155,726
  
$
55,022
  
Common shares outstanding
   
108,067
   
99,765
   
102,570
   
99,470
 
Diluted shares outstanding
   
108,598
   
99,765
   
103,101
   
99,911
 
Basic earnings per common share from
                          
continuing operations
  
$
0.52
  
$
0.59
  
$
1.43
  
$
1.26
  
Basic earnings from discontinued operations
    
0.08
   
(0.75
)
  
0.09
   
(0.71
)
Asset retirement obligation cumulative effect
    
---
   
---
   
---
   
---
 
Basic earnings per common share
  
$
0.60
  
$
(0.16
)
$
1.52
  
$
0.55
  
                           
Diluted earnings per common share from
                          
continuing operations
  
$
0.52
  
$
0.59
  
$
1.42
  
$
1.26
  
Diluted earnings from discontinued operations
    
0.08
   
(0.75
)
  
0.09
   
(0.71
)
Asset retirement obligation cumulative effect
    
---
   
---
   
---
   
---
 
Diluted earnings per common share2
  
$
0.60
  
$
(0.16
)
$
1.51
  
$
0.55
  
                           
 
 
1    Partial-year results may not accurately predict full-year performance, as earnings are significantly affected by weather.
2    Diluted earnings per common share include the dilutive effect of securities related to employee compensation plans.
 
 
 
 
 
 
 

                    
PUGET SOUND ENERGY -- UTILITY OPERATING DATA
                          
   
Three months  ended 12/31
    
Twelve months ended 12/31
  
     
2005
    
2004
    
2005
    
2004
  
Energy sales revenues ($ in thousands; unaudited)
                          
Electricity
                          
Residential
  
$
193,667
  
$
169,811
  
$
690,184
  
$
628,869
  
Commercial
    
167,935
   
152,095
   
629,008
   
580,973
 
Industrial
   
25,020
   
23,461
   
93,922
   
88,779
 
Other retail sales, including change in unbilled
   
30,897
   
23,509
   
23,313
   
12,310
 
Subtotal, retail sales
    
417,519
   
368,876
   
1,436,427
   
1,310,931
 
Transportation, including change in unbilled
    
2,285
   
3,365
   
9,027
   
10,707
 
Sales to other utilities & marketers
    
31,209
   
17,719
   
105,027
   
56,512
 
Other1
    
21,310
   
14,818
   
62,388
   
44,884
 
Total electricity sales
    
472,323
   
404,778
   
1,612,869
   
1,423,034
 
Gas
                          
Residential
    
231,702
   
183,588
   
592,361
   
478,969
 
Commercial
    
102,454
   
81,679
   
281,332
   
225,834
 
Industrial
   
16,070
   
13,364
   
48,318
   
38,800
 
Subtotal, retail sales
    
350,226
   
278,631
   
922,011
   
743,603
 
Transportation
    
3,334
   
3,289
   
13,277
   
12,968
 
Other
    
4,218
   
2,783
   
17,227
   
12,735
 
Total gas sales
    
357,778
   
284,703
   
952,515
   
769,306
 
Total energy sales revenues
  
$
830,101
  
$
689,481
  
$
2,565,384
  
$
2,192,340
  
Energy sales volumes (Unaudited)
                          
Electricity (in mWh)
                          
Residential
   
2,806,076
   
2,660,232
   
10,321,984
   
10,028,150
 
Commercial
   
2,215,240
   
2,133,829
   
8,647,478
   
8,448,569
 
Industrial
   
343,024
   
344,201
   
1,357,973
   
1,353,657
 
Other, including change in unbilled
    
374,406
   
323,624
   
145,403
   
53,816
 
Subtotal, retail sales
    
5,738,746
   
5,461,886
   
20,472,838
   
19,884,192
 
Transportation, including change in unbilled
    
513,938
   
515,346
   
2,030,457
   
1,988,966
 
Sales to other utilities & marketers
    
388,480
   
386,824
   
1,887,007
   
1,317,394
 
Total mWh
   
6,641,164
   
6,364,056
   
24,390,302
   
23,190,552
 
Gas (in 000's of therms)
                          
Residential
   
187,233
   
173,908
   
510,026
   
489,036
 
Commercial
   
92,743
   
87,557
   
275,755
   
270,305
 
Industrial
   
15,083
   
15,076
   
49,979
   
49,217
 
Transportation
   
52,634
   
52,807
   
198,504
   
201,642
 
Total gas volumes
    
347,693
   
329,348
   
1,034,264
   
1,010,200
 
Margins2 ($ in thousands; unaudited)
                          
Electric
  
$
187,888
  
$
188,105
  
$
691,494
  
$
640,102
  
Gas
    
92,353
   
79,343
   
264,370
   
242,378
 
Weather (Unaudited)
                          
Actual heating degree days
    
1,678
   
1,642
   
4,489
   
4,421
 
Normal heating degree days3
    
1,729
   
1,729
   
4,797
   
4,797
 
Customers served at December 314 (Unaudited)
                          
Electricity
                         
Residential
   
901,384
   
885,220
             
Commercial
    
110,534
   
110,231
             
Industrial
   
3,682
   
3,942
             
Other
    
2,482
   
2,293
             
Transportation
   
18
   
17
             
Total electricity customers
    
1,018,100
   
1,001,703
             
Gas
                          
Residential
   
639,771
   
619,514
             
Commercial
   
50,999
   
50,179
             
Industrial
   
2,640
   
2,708
             
Transportation
   
124
   
129
             
Total gas customers
    
693,534
   
672,530
             
 
     
 
 
 1 Includes sales of non-core gas supplies.
 2 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.
 3 Seattle-Tacoma Airport statistics reported by NOAA which are based on a 30-year average, 1971-2000.  Heating degree days measure how far the daily average temperature falls below 65 degrees.  Heating degree days in 2004 are adjusted for leap year by adding the February 28th heating degree day amount.
 4 Customers represents average served at month end.
 
 


SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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.
 
 
 
 
 
By: /s/ Bertrand A. Valdman
 
 
 
Dated: February 7, 2006
Bertrand A. Valdman
Senior Vice President Finance and
Chief Financial Officer