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Rating Action:

MOODY'S CONFIRMS PUGET SOUND ENERGY, INC. RATINGS (SR. SEC. Baa2); ALSO CONFIRMS PUGET ENERGY, INC. Ba1 ISSUER RATING; RATING OUTLOOK REVISED TO STABLE FROM NEGATIVE

15 Dec 2003
MOODY'S CONFIRMS PUGET SOUND ENERGY, INC. RATINGS (SR. SEC. Baa2); ALSO CONFIRMS PUGET ENERGY, INC. Ba1 ISSUER RATING; RATING OUTLOOK REVISED TO STABLE FROM NEGATIVE

Approximately $2.6 Billion of Debt Securities Affected

New York, December 15, 2003 -- Moody's Investors Service confirmed the debt ratings of Puget Sound Energy, Inc. (PSE; senior secured at Baa2) and also confirmed the Issuer Rating of its parent, Puget Energy, Inc. at Ba1. In conjunction with the rating confirmation, Moody's changed the rating outlook for both PSE and its parent to stable from negative.

The change in rating outlook for PSE reflects Moody's view that the utility will improve its financial profile over the next several years, thanks in part to supportive regulatory decisions in 2002, as well as management initiatives to strengthen the balance sheet through recent common stock issuances, while also controlling costs, and improving liquidity.

The change in PSE's rating outlook also considers a growing expectation that the Federal Energy Regulatory Commission's investigation of PSE's role in the western power markets in 2000-2001 is not likely to result in a material change in PSE's credit quality. PSE and the FERC trial staff filed an agreement on August 28, 2003. The main thrust of the agreement, if ultimately approved by a FERC administrative law judge and the FERC Commission, would end all current accusations by FERC of PSE's participation in market manipulation during the 2000-2001 Western energy crisis. PSE would pay $17,092 in connection with two missed deliveries of power, while denying any wrongdoing in connection with the missed deliveries.

The change in Puget Energy's rating outlook takes into account the fact that PSE is Puget Energy's predominant source of earnings and cash flow. As a result, PSE has a substantial influence on the credit ratings and outlook of its parent.

Moody's continues to rate PSE's senior secured debt at Baa2, reflecting benefits to the utility resulting from favorable regulatory settlements in 2002, which included permanent increases to general electric and natural gas rates, as well as implementation of a power cost adjustment (PCA) mechanism. The PCA mechanism should play an important role in moderating the effects that drought conditions and unfavorable weather patterns can have on PSE's future earnings and cash flow. PSE's ratings also take into account management initiatives to control operating costs, strengthen the balance sheet, and improve liquidity. Evidence of these initiatives include employee incentives for achievement of certain cost savings, the parent's issuance of $115 million of common equity in late 2002 and another $100 million of common equity to funds managed by Franklin Advisers, Inc. in early November 2003. Proceeds from both common stock offerings were entirely downstreamed to the utility. The proceeds from the sale of common stock to Franklin Advisers were primarily used to replace $93.75 million of high cost preferred stock at PSE.

Included among the challenges that PSE faces going forward is the need to add supply resources to meet the growing demands for power from its electric retail customers. As part of this strategy, PSE plans to purchase 49.85% of the 249-megawatt Frederickson Power facility owned by a subsidiary of EPCOR Utilities Inc. for approximately $80 million. Moody's expects that PSE will consider a variety of other options to add more resources over the next several years. PSE is seeking advance approval from the WUTC for its acquisition of the share of the Frederickson facility based on a filing currently before the state regulators. Closing and funding of the acquisition is subject to a satisfactory outcome in the single issue rate proceeding. A satisfactory outcome with respect to that initiative would remove concerns about future cost recovery related to the resource acquisition.

Puget Energy's Ba1 issuer rating continues to primarily reflect the credit quality of PSE, which continues to be the main source of earnings and cash flow for the parent company. In addition, the rating considers the structural subordination of any claim made on the holding company to obligations at the operating subsidiaries. Puget Energy's non-regulated investments are of modest size and are conducted through the InfrastruX Group subsidiary. The primary unregulated operation is the construction services business, which mainly serves electric and gas utilities. Management has curtailed Infrastrux's acquisition activity and does not plan to make additional investments in InfrastruX.

Puget Sound Energy, Inc. ratings confirmed include:

Senior secured debt at Baa2; senior unsecured and Issuer Rating at Baa3; trust preferred securities at Ba1; preferred stock at Ba2; shelf registration for senior secured debt at (P)Baa2; shelf registration for senior unsecured at (P)Baa3; shelf registration for trust preferred securities at (P)Ba1; and short-term rating for commercial paper at Prime-2.

Puget Energy, Inc. rating confirmed: Issuer Rating at Ba1.

Puget Sound Energy is a combination electric and gas utility subsidiary of Puget Energy, Inc., a holding company. Both companies maintain headquarters in Bellevue, Washington.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Kevin G. Rose
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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