As a third quarter rarity in the energy industry showing increased profits and a stable stock price, Bellevue, WA-based Puget Energy executives said last week they see 2003 as a chance to shake off two industry albatrosses — depressed wholesale power prices and a “dark cloud” of uncertainty hovering over western energy companies from the pending federal investigations of alleged trading and price manipulation in the wholesale market.

Puget Energy’s president/CEO Stephen Reynolds said Puget was able “to distinguish itself” in a quarter that was a “difficult one for industry in general, and the energy industry in particular.” Like most of the industry, however, the Puget utility is still highly leveraged, ending the third quarter with 32.7% equity, and looking at a regulatory-imposed target of being at 34% equity by the end of next year, but some of the rating agencies have indicated to Puget execs that they would like to see some of the ratios increase even more.

Puget Energy reported third quarter earnings of 7 cents/share, compared to 5 cents/share for the same period last year. Its nonutility business under what it calls the “InfrastruX Group” contributed 4 cents of the quarterly earnings with the utility, Puget Sound Energy, lagging because of the depressed wholesale prices, which averaged $19/MWh in the third quarter, compared to future contract prices for July-August-September 2003 of $37 to $41/MWh, according to Puget senior executives who conducted a conference call with the financial community Thursday.

In contrast to the industry generally, Puget executives said the company and its utility have “no liquidity concerns,” noting that it has $121 million in short-term debt for the utility, and a $375 million line of credit with 13 foreign and domestic banks in place since its 1997 merger of natural gas and electric utilities. The credit lines expire in February next year, and Puget is currently lining up replacement financing in two facilities — an accounts-receivable securitization and a 364-day bank facility, and its executives are confident the process to obtain this new financing “is going smoothly.”

The ongoing FERC investigations of the western power market has some of the rating agencies skeptical about all of the western energy companies, Puget’s executives indicated. “They aren’t concerned with anything to date, but they are concerned that there could be future things that would impact western utilities,” said Don Gaines, Puget’s CFO. “They are unsure of what those might be, so they (rating agencies) have told us they will leave the (negative) outlook in place until FERC concludes this whole investigation.”

Puget executives pointed out that FERC Chairman Patrick Wood has indicated that by February next year he expects to “come to resolution on these western market investigations, and that (the federal regulators) are under some pressure because in the minds of the rating agencies there is a cloud over a large number companies in the West.” Puget expects FERC to clarify “who their real targets are, and where they have concerns and where they don’t have any.”

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