Eric M. MarkellSr. Vice President Energy ResourcesPuget Sound Energy

Eric M. MarkellSr. Vice President Energy ResourcesPuget Sound Energy

Planning to Transacting:The Road to Getting Renewables Done

National Association of Regulatory Utility CommissionersAugust 1, 2006

Important Notice: Puget Sound Energy, Inc. has prepared the enclosed materials for illustrative purposes only and solely for the use of the attendees at today’s seminar. Certain statements contained in these materials, particularly those relating to resource acquisition, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the opinions and estimates of management at the time the statements are made and thus are subject to certain risks and uncertainties. The information set forth in these materials is based on numerous assumptions, which may or may not be described in the materials. No assurance can be given as to the accuracy, applicability or completeness of such assumptions or of the plans, recommendations or conclusions set forth in these materials in any particular context. These materials should not be construed as either projections or predictions or as business, legal, tax, financial or accounting advice and should not be relied upon for any such purpose. Further, and except as required by law, PSE undertakes no obligation to update any forward-looking statement contained in these materials.

Disclaimer

Presentation OutlinePresentation Outline

Intro to PSE & Its Resource NeedsIntro to PSE & Its Resource Needs Value Renewables Bring to PortfolioValue Renewables Bring to Portfolio Challenges to Acquiring RenewablesChallenges to Acquiring Renewables How Government/Regulators Can HelpHow Government/Regulators Can Help

PSE OverviewPSE Overview

PSE 2005 Revenue from Utility Customers

$1,499

$953

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000$000 Gas

Electric

$2,451

PSE 2005 Customers

1,011

683

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Avg

Cu

sto

mers

(000)

Gas

Electric

1,695

PSE’s Resource NeedPSE’s Resource Need

Energy Load-Resource Balance

Colstrip

Gas

Hydro

New Chelan Contract

Contracts

NUGs

Hopkins Ridge

Wild Horse

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Avera

ge M

eg

aw

att

s 305

1434 AMW

(1239 with EE)

December average load before reduction from new Energy Efficiency programs.

December average load net of new Energy Efficiency programs.

Estimated Cost to Fill NeedEstimated Cost to Fill Need

3.7 Billion Dollars by 20153.7 Billion Dollars by 2015

Value Renewables Bring to PortfolioValue Renewables Bring to Portfolio

Diversity--Diversity-- Mitigate fuel price riskMitigate fuel price risk Mitigate hydro riskMitigate hydro risk Reduce risk to the Reduce risk to the

environmentenvironment Mitigate future Mitigate future

environmental environmental regulation riskregulation risk

Annual Average Resource Mix 2008

Net Market / Need

4%Contracts

3%

Gas-NUGs20%

Gas-Owned11%

Coal26%

Hydro31%

Wind5%

Challenges to Acquiring Renewable ResourcesChallenges to Acquiring Renewable Resources Global Competition for Technology/TalentGlobal Competition for Technology/Talent Costs Up - A LotCosts Up - A Lot Census of doable deals appears thinCensus of doable deals appears thin Ample capital but few quality development Ample capital but few quality development

teamsteams Good development teams are not scalableGood development teams are not scalable Small projects unattractive to capital/talentSmall projects unattractive to capital/talent TransmissionTransmission IntermittencyIntermittency PermittingPermitting

Levelized Costs Are Up - A LotLevelized Costs Are Up - A Lot

$2006 $2004

Natural Natural GasGas

40

55

70

85

100

115

130

145

160

(44-62)

(60-85)

(45-65)

(42-74)

(64-67)

(76-106)

(70-129)

(71-125)

(59-100)

(61-101)

WindWind CoalCoal HydroHydro PPAs PPAs

20-y

ear

leve

lized

co

st -

$/M

Wh

20-y

ear

leve

lized

co

st -

$/M

Wh

Notes:Notes:

1) This chart compares the 20-year levelized costs each individual resource bid;1) This chart compares the 20-year levelized costs each individual resource bid;

2) 2004 levelized costs do not include transmission from Mid-C to PSE’s system;2) 2004 levelized costs do not include transmission from Mid-C to PSE’s system;

3) PPA costs represent fixed price offers and include imputed debt; 3) PPA costs represent fixed price offers and include imputed debt;

4) Impacts to the Company’s credit costs are not reflected in analysis.4) Impacts to the Company’s credit costs are not reflected in analysis.

TransmissionTransmission

How Regulators Can HelpHow Regulators Can Help

Encourage Integrated Resource Planning and Encourage Integrated Resource Planning and Acquisition.Acquisition.

Encourage active utility engagement with Encourage active utility engagement with developers and the development process.developers and the development process.

Encourage and reward renewable and Encourage and reward renewable and environmental initiatives.environmental initiatives.

Understand the deal making value chain.Understand the deal making value chain. Provide strong capital structure, fair returns, and Provide strong capital structure, fair returns, and

realistic opportunities to earn such return.realistic opportunities to earn such return.

ConclusionConclusion

Renewable targets in WECC are aggressive.Renewable targets in WECC are aggressive.

Alignment of all interests will be essential if Alignment of all interests will be essential if success is to be had.success is to be had.

It’s going to be a bumpy ride!It’s going to be a bumpy ride!