f8k020608.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): February 6, 2008

 
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 6, 2008, the Company issued the following press release.

Puget Energy reports year-end and fourth-quarter 2007 results

·  
Puget Energy earnings of $1.56 per share for calendar-year 2007 compared to $1.88 in 2006
·  
Puget Sound Energy earnings of $1.62 per share for calendar-year 2007 compared to  $1.52 in 2006
·  
Puget Energy fourth-quarter 2007 earnings of 46 cents per share compared to 49 cents in 2006
·  
Puget Sound Energy fourth-quarter 2007 earnings of 51 cents per share compared to 49 cents in 2006

BELLEVUE, Wash. — Puget Energy (NYSE: PSD), the parent of Puget Sound Energy (PSE), Washington state’s oldest and largest utility, today reported calendar-year 2007 net income of $184.5  million, or $1.56 per diluted share, compared to $219.2 million in 2006, or $1.88 per diluted share.  The 2006 results included earnings of 44 cents per diluted share from the discontinued operations of former subsidiary InfrastruX Group (InfrastruX), which was sold in May 2006.  Puget Energy also reported fourth-quarter 2007 earnings of $55.4 million, or 46 cents per diluted share, compared to $57.2 million, or 49 cents per diluted share, in 2006.
Puget Energy’s calendar-year 2007 net income reflects PSE’s earnings of $191.1 million, or $1.62 per share, offset by expenses totaling $6.4 million, or 6 cents per share, primarily related to the merger announced on Oct. 26, 2007 (described in further detail below).
“Our 2007 utility results demonstrate that our strategy of continuing to focus on the growth in our core business and make investments for the future is sound,” said Stephen P. Reynolds, chairman, president and chief executive officer. “Puget Sound Energy’s earnings in 2007 benefited from increased sales volumes and favorable hydroelectric conditions, while we focused on bringing online a second wind-power project with a solar component and a 277-megawatt combined-cycle natural gas-fired power-generating facility. We also made significant additions and upgrades to the electric and gas distribution systems to improve service and reliability to our growing customer base in our robust region.
“Our focus in 2008 is on completion of the proposed merger with a consortium of long-term infrastructure investors to provide value to our shareholders and stable, reliable service for our customers.”
For calendar-year 2006, Puget Energy’s earnings reflected $176.7 million, or $1.52 per share, from PSE; $51.9 million, or 44 cents per share, from the sale of InfrastruX as well as the financial results of that business prior to its divestiture in May 2006; and $15 million, or 8 cents per share, related to the funding of the Puget Sound Energy Foundation.

Table 1: Puget Energy Reported Calendar-Year Earnings
  
Net Income (Loss) in millions of dollars
  
2007
    
2006
  
Continuing Operations - PSE
   $ 191.1     $ 176.7  
Continuing Operations - Charitable Foundation Funding
     --       (9.8 )
Continuing Operations - Merger Expenses and Other
     (6.4 )     0.4  
Continuing Operations
     184.7       167.3  
Discontinued Operations (InfrastruX)
     (0.2 )     51.9  
Puget Energy
   $ 184.5     $ 219.2  
                 
Earnings per Diluted Share
                
Continuing Operations - PSE
   $ 1.62     $ 1.52  
Continuing Operations - Charitable Foundation Funding
     --       (0.08 )
Continuing Operations - Merger Expenses and Other
     (0.06 )     --  
Continuing Operations
     1.56       1.44  
Discontinued Operations (InfrastruX)
     --       0.44  
Puget Energy
   $ 1.56     $ 1.88  
                 
Diluted common shares outstanding (millions)
     118.3       116.5  

Earnings from PSE in 2007 increased by $14.4 million, or 10 cents per share, over 2006 levels as a result of higher energy margins driven by increased sales volumes and favorable hydroelectric conditions.  These benefits were partially offset by higher operations, maintenance, depreciation and interest expenses, including costs related to the addition of new generating resources and energy-delivery infrastructure investments.
 
        Table 2 below summarizes the primary items that impacted calendar-year 2007 results for Puget Energy:

Table 2: Puget Energy 2007 vs. 2006 EPS Reconciliation
 
  
Per diluted share
  
Puget Energy’s 2006 earnings from continuing operations
   $ 1.44  
Charitable foundation funding in 2006
     0.08  
Puget Energy’s 2006 earnings from PSE
     1.52  
Increase in electric margin
     0.31  
Increase in natural gas margin
     0.20  
Increase in utility operations and maintenance expense
     (0.27 )
Increase in interest expense
     (0.21 )
Increase in depreciation and amortization expense, excluding the Goldendale deferral
     (0.15 )
Credit to depreciation and amortization expense related to the
Goldendale deferral
     0.06  
Decrease in federal income tax expense
     0.18  
All other variances, net
     (0.02 )
Puget Energy’s 2007 earnings from PSE
   $ 1.62  
2007 merger-related and other expenses of Puget Energy
     (0.06 )
Puget Energy’s 2007 earnings
   $ 1.56  

Calendar-Year 2007 Highlights:
 Key components of calendar-year 2007 financial performance are highlighted below, with all amounts pre-tax unless otherwise noted and all share amounts presented on a fully diluted basis.

·  
As of Dec. 31, 2007, PSE provided service to 1,056,400 electric customers and 729,500 natural gas customers, representing a 1.6 percent and 2.3 percent increase, respectively, over year-end 2006 levels.

·  
Average temperatures and degree days in the Pacific Northwest were slightly colder than historic averages in both the first and fourth quarters of 2007, when PSE’s energy sales volumes are the highest. Temperatures in the fourth quarter of 2006 were near normal, but slightly warmer than normal for the year as a whole.

·  
PSE’s 2007 retail sales volumes for electricity and natural gas increased by 2.5 percent and 3.8 percent, respectively, over 2006 levels, reflecting customer growth and slightly colder average temperatures in the Pacific Northwest during 2007.
 
·  
PSE’s 2007 electric margin increased by $56.7 million, or 31 cents per share, driven in part by higher retail sales volumes and increased hydroelectric generation which lowered power costs.  The recovery in rates of ownership costs and operating expenses related to new generation facilities, effective Jan. 13 and Sept. 1, 2007, also contributed to the growth in both electric revenues and margin.  Such increases were offset by higher levels of production tax credits for federal income tax provided to PSE’s customers.  These additional tax credits were the result of energy produced from the Wild Horse wind-powered electric generating facility, placed in service in December 2006.  Although these tax credits reduce both PSE’s electric revenue and margin, PSE’s federal income tax expense is also reduced.

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

·  
PSE’s 2007 natural gas margin increased by $36.7 million, or 20 cents per share, as a result of higher sales volumes and the impact of a general rate increase effective Jan. 13, 2007.

PSE’s 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.

·  
PSE’s 2007 utility operations and maintenance expense increased by $49.1 million, or 27 cents per share, over 2006 levels. The increase was due to the addition of new electric generating facilities placed in service, higher labor, material, and customer-service costs, as well as infrastructure reliability work performed on the utility’s transmission and distribution systems.

·  
PSE’s 2007 results reflect the benefit of deferral of certain ownership and operating costs totaling $10.8 million, or 6 cents per share, related to the Goldendale electric generating facility purchased in February 2007.  An asset was established (following regulatory approval) 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 ceased, effective Sept. 1, 2007, when PSE began to recover Goldendale ownership and operating costs in its electric customer rates.  Recovery of Goldendale deferred amounts, including carrying charges, were included in the company’s general rate case (GRC) proceeding, filed in December 2007.

·  
PSE’s 2007 depreciation and amortization expense increased by $16.9 million, net of the $10.8 million benefit from the Goldendale deferral.  Excluding the Goldendale deferral, depreciation and amortization expense increased $27.7 million in 2007, or 15 cents per share, as a result of new utility plant placed in service over the past 12 months, including $16.2 million for new electric generating facilities.

·  
Interest expense, net of the interest component of Allowance for Funds Used During Construction (AFUDC), increased by $37.5 million, or 21 cents per share, in 2007 as compared to 2006.  PSE’s average debt outstanding during 2007 was $3.2 billion, compared to an average of $2.7 billion in 2006.  The higher average balance reflects additional borrowing related to new electric generating facilities, utility transmission and distribution infrastructure investments, and $90.5 million in deferred system-restoration expenses incurred as a result of the unprecedented December 2006 windstorm.
 
·  
The effective federal income tax rate was lower in 2007 compared to 2006 primarily due to an increase in wind-powered electric generation production tax credits of $13.2 million.

·  
The average number of fully diluted common shares outstanding at year-end 2007 increased to 118.3 million compared with 116.5 million at year-end 2006.  The increase was primarily the result of a sale of 12.5 million shares of newly issued Puget Energy common stock on Dec. 3, 2007, to a consortium of long-term infrastructure investors related to the merger announced on Oct. 26, 2007.  The net proceeds of $293.3 million from this transaction were invested in PSE for capital expenditures, debt redemption and working capital.

Fourth-Quarter 2007 Summary:
Earnings from PSE in the fourth quarter of 2007 increased by $4.8 million over 2006 levels, benefiting from higher electric and natural gas sales and margins as a result of colder average temperatures in the Pacific Northwest in 2007 compared to the same period a year ago. These results were offset by higher operations, maintenance and depreciation expenses.

Table 3 below summarizes the primary items that impacted Puget Energy’s fourth-quarter 2007 results:

Table 3: Puget Energy Fourth Quarter 2007 vs. 2006
EPS Reconciliation
  
Per diluted share
  
Puget Energy’s fourth-quarter 2006 earnings from PSE
  
$
 0.49  
Increase in electric margin
     0.12  
Increase in natural gas margin
     0.06  
Increase in utility operations and maintenance expense
     (0.09 )
Increase in interest expense
     (0.06 )
Increase in depreciation and amortization expense
     (0.03 )
All other variances, net
     0.02  
Puget Energy’s fourth-quarter 2007 earnings from PSE
     0.51  
2007 merger-related and other expenses of Puget Energy
     (0.05 )
Puget Energy’s 2007 earnings
  
$
 0.46  

Discontinued Operations (InfrastruX):
Discontinued operations for Puget Energy in 2006 reflect the gain from the sale of InfrastruX in the second quarter of 2006, certain carrying value adjustments recorded in the first quarter of 2006, and the financial results of the business prior to its sale in May 2006.
 
Form 10-K Annual Report for 2007
Puget Energy and PSE anticipate filing a Form 10-K Annual Report for 2007 with the Securities and Exchange Commission (SEC) on Feb. 29, 2008, a copy of which will be available through the SEC’s Web site at www.sec.gov or the company’s Web site 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 Merger Agreement:
On Oct. 26, 2007, Puget Energy entered into a definitive merger agreement with a consortium of long-term infrastructure investors.  Under the terms of the agreement, the consortium will acquire all of the outstanding shares of Puget Energy for $30 per share.
The merger has been approved by the board of directors of Puget Energy and boards of the Consortium members.  The transaction is expected to close during the second half of 2008, subject to approval by Puget Energy’s shareholders and certain regulatory approvals, including those from the Washington Utilities and Transportation Commission and the Federal Energy Regulatory Commission.  The full merger agreement is available at the SEC’s Web site at www.sec.gov or at www.pugetenergy.com.

 
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.
 
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 729,000 natural gas customers. PSE, a subsidiary of Puget Energy (NYSE: PSD), meets the energy needs of its growing customer base primarily in Western Washington through incremental, cost-effective energy conservation, procurement of sustainable energy resources, and far-sighted investment in the energy-delivery infrastructure. PSE employees are dedicated to providing great customer service to deliver energy that is safe, reliable, reasonably priced, and environmentally responsible. For more information, visit www.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 Puget Sound Energy’s (PSE’s) plans relating to utility plant additions and expenses, and factors that could impact Puget Energy’s earnings for the year-end 2008.  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 12/311
    
Twelve months ended 12/311
  
   
2007
    
2006
    
2007
    
2006
  
                         
Operating revenues
                        
Electric
   $ 578,849     $ 530,096     $ 1,997,829     $ 1,777,745  
Gas
     373,724       401,463       1,208,029       1,120,118  
Non-utility operating revenue
     850       3,424       14,289       9,200  
Total operating revenues
     953,423       934,983       3,220,147       2,907,063  
Operating expenses
                                
Purchased electricity
     254,965       294,008       895,592       917,801  
Electric generation fuel
     50,094       25,162       143,406       97,320  
Residential exchange
     (15 )     (32,396 )     (52,439 )     (163,622 )
Purchased gas
     231,496       269,897       762,112       723,232  
Unrealized net (gain) on derivative instruments
     (3,717 )     (143 )     (2,687 )     71  
Utility operations & maintenance
     112,141       95,937       403,681       354,590  
Non-utility expense and other
     5,435       3,695       13,636       6,362  
Merger expenses
     8,143       --       8,143       --  
Depreciation & amortization
     74,871       68,382       279,222       262,341  
Conservation amortization
     12,347       9,683       39,955       32,320  
Taxes other than income taxes
     81,222       75,498       288,492       255,797  
Total operating expenses
     826,982       809,723       2,779,113       2,486,212  
Operating income
     126,441       125,260       441,034       420,851  
Other income (deductions):
                                
Other income
     11,230       11,166       28,942       28,592  
Other expense
     (2,963 )     (2,651 )     (7,509 )     (6,594 )
Charitable foundation funding
     ---       ---       ---       (15,000 )
Interest Charges:
                                
AFUDC
     3,699       5,636       12,614       15,874  
Interest expense
     (59,690 )     (49,816 )     (217,823 )     (184,012 )
Income from continuing operations before income taxes
     78,717       89,595       257,258       259,711  
Income taxes
     23,320       32,439       72,582       92,487  
Net income from continuing operations
     55,397       57,156       184,676       167,224  
Income from discontinued operations, net of tax
     --       --       (212 )     51,903  
Net income before cumulative effect of accounting change
     55,397       57,156       184,464       219,127  
Cumulative effect of accounting change
     --       --       --       89  
Net Income
   $ 55,397     $ 57,156     $ 184,464     $ 219,216  
Common shares outstanding
     120,040       116,268       117,673       115,999  
Diluted shares outstanding
     120,720       116,808       118,344       116,457  
Basic earnings per common share before cumulative effect
                                
  of accounting change from continuing operations
   $ 0.46     $ 0.49     $ 1.57     $ 1.44  
Basic earnings from discontinued operations
     --       --       --       0.45  
Cumulative effect from accounting change
     --       --       --       --  
Basic earnings per common share
   $ 0.46     $ 0.49     $ 1.57     $ 1.89  
                                 
Diluted earnings per common share before cumulative effect
                                
of accounting change from continuing operations
   $ 0.46     $ 0.49     $ 1.56     $ 1.44  
Diluted earnings from discontinued operations
     --       --       --       0.44  
Cumulative effect from accounting change
     --       --       --       --  
Diluted earnings per common share2
   $ 0.46     $ 0.49     $ 1.56     $ 1.88  
 
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
  
   
2007
    
2006
    
2007
    
2006
  
Energy sales revenues ($ in thousands; unaudited)
                        
     Electricity                        
    Residential
   $ 275,416     $ 228,961     $ 951,101     $ 788,237  
    Commercial
     198,248       185,833       748,824       702,754  
    Industrial
     27,443       26,614       105,227       103,043  
    Other retail sales, including change in unbilled
     45,698       44,338       31,693       35,399  
      Subtotal, retail sales
     546,805       485,746       1,836,845       1,629,433  
    Transportation, including change in unbilled
     1,731       2,709       9,356       11,488  
    Sales to other utilities & marketers
     18,200       28,141       109,736       85,004  
    Other1     12,113       13,500       41,892       51,820  
      Total electricity sales
     578,849       530,096       1,997,829       1,777,745  
Gas                                
    Residential
     245,685       261,609       756,188       697,632  
    Commercial
     105,760       114,662       363,006       335,661  
    Industrial
     14,664       17,663       57,716       57,062  
      Subtotal, retail sales
     366,109       393,934       1,176,910       1,090,355  
    Transportation
     3,525       3,461       13,706       13,269  
    Other     4,090       4,068       17,413       16,494  
      Total gas sales
     373,724       401,463       1,208,029       1,120,118  
   Total energy sales revenues
   $ 952,573     $ 931,559     $ 3,205,858     $ 2,897,863  
Energy sales volumes (unaudited)
                                
   Electricity (in mWh)
                                
    Residential
     2,886,124       2,783,172       10,869,347       10,593,340  
    Commercial
     2,334,187       2,224,648       9,226,215       8,939,155  
    Industrial
     338,722       331,998       1,364,264       1,368,672  
    Other, including change in unbilled
     472,846       470,314       174,520       197,878  
       Subtotal, retail sales
     6,031,879       5,810,132       21,634,346       21,099,045  
   Transportation, including change in unbilled
     505,370       488,357       2,131,970       2,091,981  
    Sales to other utilities & marketers
     325,509       518,444       2,253,055       2,067,849  
      Total mWh
     6,862,758       6,816,933       26,019,371       25,258,875  
  Gas (in 000's of therms)
                                
    Residential
     202,019       193,794       556,837       533,370  
    Commercial
     98,614       94,325       302,993       291,065  
    Industrial
     14,869       14,976       50,920       51,889  
    Transportation
     55,583       54,272       213,542       206,367  
      Total gas volumes
     371,085       357,367       1,124,292       1,082,691  
Margins2 ($ in thousands; unaudited)
                                
    Electric   $ 212,759     $ 189,749     $ 794,202     $ 737,518  
    Gas
     107,352       96,350       323,649       286,984  
Weather (unaudited)
                                
  Actual heating degree days
     1,826       1,756       4,823       4,476  
  Normal heating degree days3
     1,729       1,729       4,797       4,797  
Customers served at December 31 4 (unaudited)
                                
  Electricity
                                
    Residential
     933,214       918,165                  
    Commercial
     116,350       114,598                  
    Industrial     3,752       3,781                  
    Other
     3,094       2,810                  
    Transportation
     18       18                  
       Total electricity customers
     1,056,428       1,039,372                  
Gas                                
    Residential
     673,636       658,119                  
    Commercial
     53,120       52,069                  
    Industrial
     2,617       2,662                  
    Transportation
     126       124                  
      Total gas customers
     729,499       712,974                  
 
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/ Eric M. Markell
  
Dated:  February 6, 2008
Eric M. Markell
Executive Vice President and
Chief Financial Officer