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Merger Target Puget Energy Sees Red

Expecting a final state of Washington regulatory merger approval to take its utility operations private before year-end, Bellevue, WA-based Puget Energy reported a financial bump last Wednesday, announcing a third quarter net loss of $8.2 million, or minus 6 cents/diluted share, compared to net income of $11.4 million, or 10 cents/share, for the same period last year. Due to its pending $7.4 billion merger with a consortium of private investors, Puget senior executives did not hold a conference call with financial analysts.

Puget CEO Stephen Reynolds cited the "seasonal nature of the utility operations" as the principal reason for the red ink, contending that in the third quarter Puget Sound Energy's (PSE) utility sales and revenues are typically at their lowest levels while the utility's construction and maintenance costs are at their highest levels. "Our financial results were consistent with our expectations."

Puget Energy's third quarter results included the company's expectation that the merger transaction is expected to close this year, given that all federal regulatory and shareholder approvals are in hand, and it is only awaiting action from the Washington Utilities and Transportation Commission (WUTC), with which it filed a settlement on the merger during the summer. A joint application by PSE and the holding company formed by the consortium of potential new owners was filed with the WUTC Dec. 17, 2007.

A combination of higher market prices for natural gas and what it called "unfavorable hydroelectric conditions" contributed to the negative third quarter results, said Reynolds, although he cited favorable regional economic activity. Higher operating/maintenance costs were experienced, along with increased depreciation expense that accompanied new utility capital investments and the impact of some federal tax expenses, he said.

"Economic activity in our region continues to be better than other parts of the country, but even western Washington is beginning to see the impact of a weakening economy and declining new home construction, which we anticipate will continue into 2009," Reynolds said.

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