Focused on the Basics

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Focused on the Basics
37th EEI Financial Conference October 20-23, 2002
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Company Representatives

• Steve ReynoldsPresident and Chief Executive
  Officer
• Steve McKeonSenior Vice President Finance and
  Legal,Chief Financial Officer
• Don GainesVice President Finance Treasurer
• Durga WaiteDirector Investor Relations

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Agenda

• Investment Thesis
• Corporate Strategy
• Business Segments
• Puget Sound Energy
• InfrastruX
• Financial Summary
• Conclusion

• Investment Thesis

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Investment ThesisAttractive Combination of Yield
Growth

• Predictable earnings from core regulated utility
  business
• 90 of earnings from regulated operations
• Low operating costs
• Favorable rate case settlement
• Improving financial position
• Potential P/E multiple expansion
• Total return potential of 10 to 11
• Sustainable dividend policy
• Utility customer growth above industry average
• Upside from nonregulated subsidiary InfrastruX

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Agenda

• Investment Thesis
• Corporate Strategy
• Business Segments
• Puget Sound Energy
• InfrastruX
• Financial Summary
• Conclusion

• Corporate Strategy

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Overview of Puget Energy
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Corporate Strategy

• Focus on regulated utility business
• Gas electric cost-recovery mechanisms
• No merchant energy trading or marketing
  activities
• Low-risk unregulated business
• Electric gas construction maintenance
  services
• Improving balance sheet flexibility strength

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Technologically Advanced

• Largest automated meter-reading installation in
  the country
• State-of-the-art customer information and
  billing system
• Personal Energy Management
• Over 280,000 on time-of-use rates
• Web-based customer usage data updated daily
• Enables customers to manage their energy costs

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Energy Supply

• The Pacific Northwest region is short energy in
  low stream-flow years
• PSE will become short as contracts begin to
  expire in 2004
• Recent cancellations of merchant power plants in
  the region

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Regional Generation Update

• 36 projects totaling about 19,000 MW were being
  permitted in the Northwest
• 7 plants may be on line by end of 2003
• 3 on the west side of Cascades
• 4 on the east side of Cascades
• 2 could connect directly to PSE

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Merchant Generation
Total 3,277

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Potential Impact to PSE

• Unreliable merchant power market
• Reversion to utilities as energy provider
• Resources may be available at distressed prices
• Potential minimal rate impact
• Recovery of rate-based generation grows PSE
  earnings

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Agenda

• Investment Thesis
• Corporate Strategy
• Business Segments
• Puget Sound Energy
• InfrastruX
• Financial Summary
• Conclusion

• Business Segments
• Puget Sound Energy

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Rapidly Growing Region
Washington State

• 6,000-square-mile service area covers over half
  states population
• Includes Seattle, Tacoma, Bellevue and fast
  growing suburbs
• From 1990 to 2000, Washingtons population grew
  more than 21
• Washington ranks 20th in energy consumption per
  person

Puget Energy
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Vibrant Service Territory
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Above-average Customer Growth
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Electric Utility No Concentration of Industrial
Customers
YTD Sept 2002
at Sept 30 2002
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Gas Utility Highly Diversified Customer Base
at Sept 30 2002
YTD Sept 2002
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Low-cost Operations
2001 Energy-Delivery Cost per Customer
33 U.S. combination gas/electric utilities
reported
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Constructive Regulatory Climate

• Favorable Electric and Gas Rate Settlements
• Power Cost Adjustment mechanism for sharing
  power supply costs
• Purchased Gas Adjustment mechanism for passing
  through gas procurement costs
• Hypothetical 40 equity ratio in rates
• 11 return on equity
• Expedited New Resource only rate mechanism

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Agenda

• Investment Thesis
• Corporate Strategy
• Business Segments
• Puget Sound Energy
• InfrastruX
• Financial Summary
• Conclusion

• Business Segments
• InfrastruX

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InfrastruX Business Overview
Provides gas and electric construction and
maintenance services to the utility
industry Since its formation in 2000, InfrastruX
has acquired ten companies
Geographic Footprint
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InfrastruX Market Opportunity

• Significant Long-term Growth Drivers, Including
• Potential benefit from utility outsourcing
• Aging insufficient electric gas
  infrastructure
• Highly fragmented industry
• Trend toward utility cost-reduction initiatives
• Benefits accrued to those with scale

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InfrastruX Progress-to-Date

• Completed 10 acquisitions
• Avoided telecommunications business
• Grown to 2,400 dedicated employees nationwide
• Strong ongoing relationships with a diverse group
  of major utilities including

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Agenda

• Investment Thesis
• Corporate Strategy
• Business Segments
• Puget Sound Energy
• InfrastruX
• Financial Summary
• Conclusion

• Financial Summary

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Positive Earnings OutlookPuget Energy earnings
per share
PSE Spells EPS
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Sustainable Dividend

• Dividend reduced March 20, 2002
• Board established dividend at 60 of expected
  utility earnings
• Payout ratio would be 60.6 using mid-point of
  2003 PSE earnings guidance
• Current dividend sustainablesolely from utility
  results

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Favorable Liquidity Position
Current liquidity position

• 121 million of short-term debt outstanding at
  Sept. 30, 2002
• 375 million credit facility expires February
  2003
• Will be replaced with
• receivables securitization
• 364-day bank facility

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Agenda

• Investment Thesis
• Corporate Strategy
• Business Segments
• Puget Sound Energy
• InfrastruX
• Financial Summary
• Conclusion

• Conclusion

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Investment ThesisAttractive Combination of Yield
Growth

• Predictable earnings from core regulated utility
  business
• 90 of earnings from regulated operations
• Low operating costs
• Favorable rate case settlement
• Improving financial position
• Potential P/E multiple expansion
• Total return potential of 10 to 11
• Sustainable dividend policy
• Utility customer growth above industry average
• Upside from nonregulated subsidiary InfrastruX

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Question Answers
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Forward Looking Statements

• Certain statements contained in this presentation
  are forward looking statements within the
  meaning of the federal securities laws.
• Although Puget Energy and Puget Sound Energy
  believe that the expectations reflected in such
  statements are reasonable, there can be no
  assurance that the expected results will be
  achieved.
• For additional information concerning certain
  assumptions, risks, and uncertainties involved in
  the forward looking statements contained herein,
  please refer to Puget Energys reports on file
  with the SEC.