f8k080607.htm
 
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): August 6, 2007

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


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

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


 Item 2.02 Results of Operations and Financial Condition

On August 6, 2007, the Company issued the following press release.

Puget Energy reports second quarter 2007 financial results

·  
Puget Sound Energy second quarter 2007 income of 33 cents per diluted share
·  
Calendar year 2007 guidance of $1.50 to $1.65 per diluted share re-affirmed

BELLEVUE, Wash (Aug. 6, 2007) — Puget Energy (NYSE: PSD) today reported net income of $38.6 million, or 33 cents per diluted share, for the second quarter 2007 compared to $53.5 million, or 46 cents per diluted share, in the second quarter 2006.  The discontinued operations of InfrastruX Group (InfrastruX), a utility construction-services subsidiary, that was sold on May 7, 2006 and the establishment of a charitable foundation that was funded with $15 million of the InfrastruX sales proceeds were reflected in Puget Energy’s second quarter 2006 net income.
Net income from Puget Energy’s regulated electric and gas utility subsidiary, Puget Sound Energy (PSE), was $38.4 million, or 33 cents per share, in the second quarter 2007, compared to $30.1 million, or 26 cents per share, in the second quarter 2006.
“Our latest results reflect favorable second-quarter hydroelectric power supplies and increased production from company-owned renewable and thermal generating facilities,” said Stephen P. Reynolds, chairman, president and chief executive officer for Puget Energy.  “Our strategic investments in our Wild Horse and Hopkins Ridge wind facilities as well as our natural gas-fired Goldendale Generating Station, are helping us to meet continued strong customer-growth in the region.
“We continue to execute on our integrated resource plan.  Last week the Washington Utilities and Transportation Commission (WUTC) approved the multiparty settlement we filed in July on our Power Cost Only Rate Case (PCORC) to recover expected power costs and our $120 million investment in Goldendale.  In July, we also signed a 20-year power-purchase agreement with PPM Energy that will provide us with 50 MWs of new wind-power supply from the Klondike III Wind Project, scheduled to be completed this fall in north-central Oregon.”
The increase in PSE’s 2007 second quarter earnings over the prior year’s level was primarily the result of growth in retail-sales volume, increased production from low-cost hydroelectric power and other company-owned generating facilities, and higher retail rates.  Such benefits were partially offset by higher operations, maintenance, depreciation and interest expense, including costs related to the addition of new generating resources and energy delivery infrastructure investments.  Expenses related to the addition of new generating facilities were mitigated by the deferral of certain ownership and operating costs for the 277-megawatt (MW) Goldendale Generating Station (Goldendale), which was placed in service in February 2007.

Puget Sound Energy (PSE) Second Quarter 2007 summary:
Table 1 below summarizes the primary items that impacted second quarter 2007 results from PSE:

Table 1: Second quarter 2007 vs. second quarter 2006
EPS reconciliation for PSE
  
Cents per
diluted share
  
PSE’s second quarter 2006 earnings
   $
0.26
  
Increase in electric margin
    
0.18
  
Increase in gas margin
    
0.04
  
Credit to depreciation and amortization related to Goldendale
    
0.03
  
Increase in depreciation and amortization expense, excluding the
  Goldendale deferral
     (0.04 )
Increase in utility operations and maintenance expenses
     (0.09 )
Increase in interest expense
     (0.04 )
Other variances, net
     (0.01 )
PSE’s second quarter 2007 earnings
   $
0.33
  

Puget Sound Energy (PSE) Second Quarter 2007 Highlights:
Key components of PSE’s second quarter 2007 financial performance are highlighted below.  All amounts are pre-tax unless otherwise noted.
·  
As of June 30, 2007, PSE provided service to 1,047,800 electric customers and 721,100 natural gas customers, representing 2.3 percent and 2.6 percent increases, respectively, in the last 12 months.

·  
Retail electric and natural gas sales volumes increased by 1.8 percent and 3.1 percent, respectively, resulting primarily from customer growth.  Temperatures and heating-degree days were near historic averages for the Pacific Northwest in the second quarters of both 2007 and 2006.

·  
Electric margin increased by $32.6 million in the second quarter of 2007 compared to 2006.  The impact of a 5.9 percent rate increase effective July 1, 2006, a 1.8 percent increase in retail-sales volumes, and increased production from low-cost hydroelectric power and company-owned generating facilities also contributed to the growth in electric margin.  Such increases to electric margin were partially offset by the impact of a 1.3 percent general tariff rate decrease effective Jan. 13, 2007.

Electric margin is electric sales to retail and transportation customers less pass-through tariff items, revenue-sensitive taxes and power costs.  Power costs include the cost of generating and purchasing electric energy sold to customers, including transmission costs to bring electric energy to PSE’s service territory.

The Power Cost Adjustment mechanism (PCA) allows PSE to recover power costs according to certain terms.  The PCA is designed to limit PSE’s exposure to variations in power costs within a calendar year.  Due to the seasonal nature of power costs and PSE’s load, under-recovery is normally anticipated in the first and fourth quarters and over-recovery in the second and third quarters.  The magnitude of power cost recovery between similar quarters from one year to another varies as a result of several factors including relative market prices for fuel and purchased power in those periods and the impact of revisions to the PCA.  Therefore, PSE’s quarterly power cost recovery should not be assumed to be indicative of expected recovery for the full calendar year.

The increase in second quarter 2007 electric margin reflects $23.5 million related to the PCA.  PSE over-recovered power costs under the PCA by $36.5 million in the second quarter 2007 compared to $13 million in the second quarter 2006.  In the first quarter 2007, PSE’s power cost under-recovery was $13.6 million.  During the first quarter 2006, power cost under-recovery did not affect earnings because PSE's maximum exposure under the PCA mechanism was limited by a $40 million cap in effect during the period.  Therefore, PSE’s net power cost over-recovery for the first six months in 2007 was $22.9 million, compared to $13 million for the same period in 2006.  During the first six months in 2007, electric margin increased by $27.4 million of which $9.9 million related to the PCA, compared to the same period in 2006.

·  
Natural gas margin increased in the second quarter of 2007 by $8.1 million.  The increase was primarily due to a 3.1 percent increase in natural gas sales volumes and the impact of a 2.8 percent general tariff rate increase that became effective Jan. 13, 2007.

Natural gas margin represents natural gas sales to retail and transportation customers, net of revenue-based taxes, less the cost of purchasing and transporting natural gas.

·  
Utility operations and maintenance expense in the second quarter 2007 increased by $15.3 million over second quarter 2006 levels.  The addition of new electric generating facilities placed in service over the past 12 months and higher energy production at other company-owned generating facilities accounted for $7.5 million of the increase.  The balance of the increase was the result of higher expenses related to operating and maintaining PSE’s energy-delivery systems, support services and increased customer-service costs.

·  
PSE’s second quarter 2007 results reflect the deferral of certain ownership and operating costs totaling $5.9 million related to Goldendale.  On April 11, 2007, the WUTC authorized PSE to defer such costs until resolution of PSE’s PCORC, filed on March 20, 2007.  A regulatory asset was established to record the deferral, and a corresponding credit is reflected in the financial statements as a reduction to depreciation and amortization expense.  Deferral of such costs will cease effective Sept. 1, 2007 and recovery of Goldendale deferred amounts, including carrying charges, will be included in PSE’s next general tariff rate proceeding.

·  
Depreciation and amortization expense in the second quarter of 2007 increased by $1.2 million, net of the benefit from the $5.9 million Goldendale deferral, over the second quarter in 2006.  Excluding the Goldendale deferral, depreciation and amortization expense increased by $7.1 million as a result of new electric generating facilities and energy delivery infrastructure placed in service over the past 12 months.  As PSE continues to invest in its energy-delivery infrastructure to support service territory growth and service reliability initiatives, the trend in increased depreciation and amortization expense is expected to continue.

·  
Second quarter 2007 interest expense, net of the debt portion of Allowance for Funds During Construction (AFUDC), increased by $7.9 million over the 2006 second-quarter level, due to a higher amount of debt outstanding.  As of June 30, 2007, outstanding debt totaled $3.2 billion compared to the June 30, 2006 level of $2.5 billion.  The newer total reflects additional borrowing related to new electric generating facilities, utility transmission and distribution infrastructure investments, and $90.4 million in system restoration expenses incurred as a result of a severe December 2006 windstorm.  Recovery of such deferred system restoration costs and related carrying charges are not reflected in current rates.  Rate recovery will be requested in PSE’s next general tariff rate proceeding, per the storm damage recovery mechanism established by the WUTC.  Carrying charges on such deferred amounts are not being accrued.

    Table 2 below summarizes Puget Energy’s reported earnings of $38.6 million, or 33 cents per share, for the second quarter in 2007 compared to $53.5 million, or 46 cents per share, in the same period of 2006.  Puget Energy’s second quarter 2006 reported earnings reflect the discontinued operations of InfrastruX, a utility construction-services subsidiary that was sold on May 7, 2006 and the establishment of a charitable foundation that was funded with $15 million of the InfrastruX sales proceeds during the second quarter of 2006.

Table 2: Puget Energy reported earnings for the second quarter
   
Second Quarter
  
Net Income (Loss) in millions of dollars
  
2007
    
2006
  
Continuing Operations - PSE
   $
38.4
     $
30.1
  
Continuing Operations - Charitable Foundation Funding
    
-
       (9.8 )
Continuing Operations - Other
    
0.2
      
0.2
  
Continuing Operations
    
38.6
      
20.5
  
Discontinued Operations (InfrastruX)
    
-
      
33.0
  
Puget Energy
   $
38.6
     $
53.5
  
                 
Earnings per Fully Diluted Share
                
Continuing Operations - PSE
   $
0.33
     $
0.26
  
Continuing Operations - Charitable Foundation Funding
    
-
       (0.08 )
Continuing Operations
    
0.33
      
0.18
  
Discontinued Operations (InfrastruX)
    
-
      
0.28
  
Puget Energy
   $
0.33
     $
0.46
  
                 
Fully diluted common shares outstanding (millions)
    
117.2
      
116.4
  


Puget Energy 2007 Outlook:
Puget Energy anticipates 2007 earnings from continuing operations to be within the previously disclosed range of $1.50 to $1.65 per diluted share.

Conference Call:
Puget Energy will provide additional information regarding its second quarter 2007 results during a conference call for analysts scheduled at 10 a.m. ET (7 a.m. PT) on Tuesday, Aug. 7, 2007.  The call will be broadcast live through a webcast at 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 Aug. 7, 2007 through midnight (ET) on Aug. 21, 2007 by dialing 1-888-286-8010 and entering the conference identification number at 29664378.

Form 10-Q Quarterly Report for the Second Quarter of 2007:
Puget Energy will file its Form 10-Q for the second quarter of 2007 with the Securities and Exchange Commission (SEC) on Aug. 6, 2007, a copy of which will be available through the SEC’s website at www.sec.gov or at PugetEnergy.com.  Investors are encouraged to read the financial statements and disclosures that will be contained in the Form 10-Q filing.

About Puget Energy
Puget Energy (NYSE:PSD) is the parent company of Puget Sound Energy (PSE), a regulated utility providing electric and natural gas service primarily to the growing Puget Sound region of Western Washington. For more information visit PugetEnergy.com.

About Puget Sound Energy
Washington state’s oldest and largest energy utility, with a 6,000-square-mile service area stretching across 11 counties, Puget Sound Energy (PSE) serves more than 1 million electric customers and 721,000 natural gas customers, primarily in Western Washington. PSE meets the energy needs of its growing customer base through incremental, cost-effective energy efficiency, low-cost procurement of sustainable energy resources, and far-sighted investment in the energy-delivery infrastructure.  For more information visit PSE.com.

CAUTIONARY STATEMENT:  Certain statements contained in this news release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, among which include PSE’s plans relating to possible future regulatory filings and to utility plant additions and expenses, and factors that could impact Puget Energy’s earnings guidance for the year-end 2007.  Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements.  Factors that could affect actual results include, among others, governmental policies and regulatory actions, including those of the Washington Utilities and Transportation Commission, and weather conditions.  More information about these and other factors that potentially could affect the company’s financial results is included in Puget Energy's and PSE's most recent annual report on Form 10-K, quarterly report on Form 10-Q and in their other public filings filed with the Securities and Exchange Commission. Except as required by law, Puget Energy and PSE undertake no obligation to update any forward-looking statements.

###
 


PUGET ENERGY -- SUMMARY INCOME STATEMENT
                  
(In thousands, except per-share amounts)
                  
           
Unaudited
    
Unaudited  
           
Three months ended 6/301
    
Six months ended 6/301
           
2007
  
2006
    
2007
  
2006
                           
Operating revenues
                  
 
Electric
  
 $      435,261
  
 $      380,980
    
 $       962,880
  
 $       848,403
 
Gas
      
225,175
  
192,457
    
692,184
  
599,044
 
Non-utility operating revenue
  
702
  
954
    
9,979
  
5,092
   
Total operating revenues
  
661,138
  
574,391
    
1,665,043
  
1,452,539
Operating expenses
                  
 
Purchased electricity
  
172,757
  
187,945
    
454,849
  
440,070
 
Electric generation fuel
  
23,726
  
14,292
    
49,784
  
35,876
 
Residential exchange
  
(17,562)
  
(38,670)
    
(52,040)
  
(95,303)
 
Purchased gas
  
139,055
  
118,362
    
449,702
  
385,041
 
Unrealized net (gain) on derivative instruments
  
1,536
  
(150)
    
(4,246)
  
825
 
Utility operations & maintenance
  
98,935
  
83,598
    
197,106
  
170,966
 
Non-utility expense and other
  
2,768
  
915
    
4,898
  
1,709
 
Depreciation & amortization
  
65,832
  
64,545
    
135,441
  
128,429
 
Conservation amortization
  
8,749
  
7,462
    
19,078
  
15,510
 
Taxes other than income taxes
  
63,294
  
54,199
    
150,363
  
133,938
   
Total operating expenses
  
559,090
  
492,498
    
1,404,935
  
1,217,061
Operating income
  
102,048
  
81,893
    
260,108
  
235,478
Other income (deductions):
                  
 
Charitable foundation funding
  
---
  
(15,000)
    
---
  
(15,000)
 
Other income
  
6,223
  
6,786
    
10,987
  
10,127
 
Other expense
  
(2,829)
  
(781)
    
(3,861)
  
(2,258)
Interest Charges:
                  
   
AFUDC
  
2,943
  
3,027
    
5,361
  
5,049
   
Interest expense
  
(52,192)
  
(44,562)
    
(103,453)
  
(88,274)
Income from continuing operations before income taxes 3
  
56,193
  
31,363
    
169,142
  
145,122
   
Income taxes
  
17,593
  
10,788
    
51,480
  
50,974
Net income from continuing operations
  
38,600
  
20,575
    
117,662
  
94,148
Income from discontinued operations, net of tax
  
12
  
32,954
    
12
  
51,901
Net income before cumulative effect of
  
38,612
  
53,529
    
117,674
  
146,049
  accounting change
                  
Cumulative effect of accounting change
  
---
  
---
    
---
  
89
Net Income
  
 $         38,612
  
 $         53,529
    
 $       117,674
  
 $       146,138
Common shares outstanding
  
116,659
  
115,907
    
116,567
  
115,817
Diluted shares outstanding
  
117,158
  
116,405
    
117,115
  
116,266
Basic earnings per common share before cumulative effect
                
 
  of accounting change from continuing operations
  
 $             0.33
  
 $             0.18
    
 $              1.01
  
 $              0.81
Basic earnings from discontinued operations
  
---
  
0.28
    
---
  
0.45
Cumulative effect from accounting change
  
---
  
---
    
---
  
---
Basic earnings per common share
  
 $             0.33
  
 $             0.46
    
 $              1.01
  
 $              1.26
                           
Diluted earnings per common share before cumulative effect
                
 
of accounting change from continuing operations 3
  
 $             0.33
  
 $             0.18
    
 $              1.00
  
 $              0.81
Diluted earnings from discontinued operations
  
---
  
0.28
    
---
  
0.45
Cumulative effect from accounting change
  
---
  
---
    
---
  
---
Diluted earnings per common share2
  
 $             0.33
  
 $             0.46
    
 $              1.00
  
 $              1.26
                           
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.
3
  
Net Income from Continuing Operations was $30,325, or $.26 per diluted earnings per common share, in the second quarter of 2006 excluding the impact of Puget Energy charitable foundation funding of $15 million ($9.75 million net of taxes).



PUGET SOUND ENERGY -- UTILITY OPERATING DATA
                  
               
Three months ended 6/30
    
Six months ended 6/30
               
2007
  
2006
    
2007
  
2006
Energy sales revenues ($ in thousands; unaudited)
                  
 
Electricity
                    
   
Residential
  
 $        199,419
  
 $        167,174
    
 $        491,446
  
 $      409,108
   
Commercial
  
173,493
  
159,489
    
372,986
  
342,252
   
Industrial
  
25,133
  
24,189
    
52,258
  
50,466
   
Other retail sales, including change in unbilled
  
(7,979)
  
(5,639)
    
(31,561)
  
(21,404)
     
Subtotal, retail sales
  
390,066
  
345,213
    
885,129
  
780,422
   
Transportation, including change in unbilled
  
2,437
  
2,664
    
4,778
  
5,375
   
Sales to other utilities & marketers
  
27,078
  
16,751
    
46,279
  
32,554
   
Other1
    
15,680
  
16,352
    
26,694
  
30,052
     
Total electricity sales
  
435,261
  
380,980
    
962,880
  
848,403
 
Gas
                        
   
Residential
  
134,940
  
110,016
    
435,806
  
375,108
   
Commercial
  
72,402
  
62,416
    
207,935
  
179,224
   
Industrial
  
10,222
  
12,589
    
32,486
  
29,403
     
Subtotal, retail sales
  
217,564
  
185,021
    
676,227
  
583,735
   
Transportation
  
3,194
  
3,100
    
6,781
  
6,714
   
Other
      
4,417
  
4,336
    
9,176
  
8,595
     
Total gas sales
  
225,175
  
192,457
    
692,184
  
599,044
 
Total energy sales revenues
  
 $        660,436
  
 $        573,437
    
 $    1,655,064
  
 $   1,447,447
Energy sales volumes (unaudited)
                  
 
Electricity (in mWh)
                  
   
Residential
  
2,431,968
  
2,374,816
    
5,984,930
  
5,802,784
   
Commercial
  
2,210,127
  
2,121,333
    
4,630,616
  
4,460,808
   
Industrial
  
338,625
  
338,371
    
679,017
  
684,194
   
Other, including change in unbilled
  
(165,284)
  
(105,919)
    
(430,362)
  
(342,223)
     
Subtotal, retail sales
  
4,815,436
  
4,728,601
    
10,864,201
  
10,605,563
   
Transportation, including change in unbilled
  
529,683
  
525,991
    
1,049,430
  
1,052,411
   
Sales to other utilities & marketers
  
638,284
  
786,058
    
1,055,007
  
1,105,965
     
Total mWh
  
5,983,403
  
6,040,650
    
12,968,638
  
12,763,939
 
Gas (in 000's of therms)
                  
   
Residential
  
90,691
  
82,813
    
310,554
  
298,489
   
Commercial
  
56,934
  
54,968
    
166,555
  
160,717
   
Industrial
  
8,295
  
11,938
    
27,176
  
27,566
   
Transportation
  
50,596
  
50,629
    
109,376
  
105,459
     
Total gas volumes
  
206,516
  
200,348
    
613,661
  
592,231
Margins2 ($ in thousands; unaudited)
                  
 
Electric
      
 $        206,491
  
 $        173,941
    
 $        403,354
  
 $      375,969
 
Gas
        
             60,845
  
             52,789
    
           171,304
  
         153,096
Weather (unaudited)
                  
 
Actual heating degree days
  
836
  
779
    
2,803
  
2,546
 
Normal heating degree days3
  
888
  
888
    
2,830
  
2,830
Customers served at June 304 (unaudited)
                  
 
Electricity
                  
   
Residential
  
925,329
  
908,629
          
   
Commercial
  
115,725
  
109,048
          
   
Industrial
    
3,775
  
3,586
          
   
Other
      
2,943
  
2,549
          
   
Transportation
  
18
  
17
          
     
Total electricity customers
  
1,047,790
  
1,023,829
          
 
Gas
                        
   
Residential
  
665,958
  
648,542
          
   
Commercial
  
52,392
  
51,233
          
   
Industrial
    
2,640
  
2,629
          
   
Transportation
  
123
  
121
          
     
Total gas customers
  
721,113
  
702,525
          
                               
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.
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/ James W. Eldredge
 
 
 
Dated: August 6, 2007
James W. Eldredge
Vice President, Controller
and Chief Accounting Officer