Puget Energy Inc.

11/05/2024 | Press release | Distributed by Public on 11/05/2024 14:46

Quarterly Report for Quarter Ending 09/30/24 (Form 10-Q)

psd-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ________ to ________
Commission File Number Exact name of registrant as specified in its charter, state of incorporation,
address of principal executive offices, telephone number 		I.R.S.
Employer
Identification
Number
1-16305
PUGET ENERGY, INC.
A Washington Corporation
355 110th Ave NE
Bellevue, Washington 98004
(425) 454-6363
91-1969407
1-4393
PUGET SOUND ENERGY, INC.
A Washington Corporation
355 110th Ave NE
Bellevue, Washington 98004
(425) 454-6363
91-0374630
Securities Registered pursuant to Section 12(b) of the Securities Exchange Act of 1934
Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A
Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Puget Energy, Inc.
Yes
/X/ No / / Puget Sound Energy, Inc.
Yes
/X/ No / /
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Puget Energy, Inc.
Yes
/X/ No / / Puget Sound Energy, Inc.
Yes
/X/ No / /
Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer," a smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Puget Energy, Inc. Large accelerated filer / / Accelerated filer / /
Non-accelerated Filer
/X/ Smaller reporting company / / Emerging growth company / /
Puget Sound Energy, Inc. Large accelerated filer / / Accelerated filer / /
Non-accelerated Filer
/X/ Smaller reporting company / / Emerging growth company / /
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. / /
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Puget Energy, Inc. Yes / / No /X/ Puget Sound Energy, Inc. Yes / / No /X/
All of the outstanding shares of voting stock of Puget Energy, Inc. are held by Puget Equico LLC, an indirect wholly-owned subsidiary of Puget Holdings LLC. All of the outstanding shares of voting stock of Puget Sound Energy, Inc. are held by Puget Energy, Inc.
Table of Contents
Page
Definitions
3
Filing Format
3
Forward-Looking Statements
4
Part I.
Financial Information
5
Item 1.
Financial Statements
5
Puget Energy, Inc.
Consolidated Statements of Income - Three and Nine Months Ended September 30, 2024 and 2023
5
Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2024 and 2023
6
Consolidated Balance Sheets - September 30, 2024 and December 31, 2023
7
Consolidated Statements of Common Shareholder's Equity - September 30, 2024 and December 31, 2023
8
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2024 and 2023
9
Puget Sound Energy, Inc.
Consolidated Statements of Income - Three and Nine Months Ended September 30, 2024 and 2023
12
Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2024 and 2023
11
Consolidated Balance Sheets - September 30, 2024 and December 31, 2023
12
Consolidated Statements of Common Shareholder's Equity - September 30, 2024 and December 31, 2023
13
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2024 and 2023
14
Notes
Combined Notes to Consolidated Financial Statements
15
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
36
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
60
Item 4.
Controls and Procedures
60
Part II.
Other Information
61
Item 1.
Legal Proceedings
61
Item 1A.
Risk Factors
61
Item 5.
Other Information
61
Item 6.
Exhibits
61
Exhibit Index
62
Signatures
63
2
DEFINITIONS
ASU Accounting Standards Update
ARO
Asset Retirement Obligation
ASC Accounting Standards Codification
CCA
Climate Commitment Act
CEIP
Clean Energy Implementation Plan
CETA
Clean Energy Transformation Act
EBITDA Earnings Before Interest, Tax, Depreciation and Amortization
FASB Financial Accounting Standards Board
GAAP U.S. Generally Accepted Accounting Principles
GHG Greenhouse gas
GRC General Rate Case
IBEW International Brotherhood of Electrical Workers
ISDA International Swaps and Derivatives Association
LIBOR London Interbank Offered Rate
LNG Liquefied Natural Gas
MMBtu One Million British Thermal Units
MWh Megawatt Hour (one MWh equals one thousand kWh)
MYRP
Multi-year Rate Plan
NAESB North American Energy Standards Board
NPNS Normal Purchase Normal Sale
PCA Power Cost Adjustment
PCORC Power Cost Only Rate Case
PGA Purchased Gas Adjustment
PTCs Production Tax Credits
PSE Puget Sound Energy, Inc.
Puget Energy Puget Energy, Inc.
Puget Holdings Puget Holdings LLC
Puget LNG Puget LNG, LLC
SERP Supplemental Executive Retirement Plan
UA The United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada
Washington Commission Washington Utilities and Transportation Commission
WDOE
Washington Department of Ecology
WSPP WSPP, Inc.
FILING FORMAT
This combined Quarterly Report on Form 10-Q is separately filed by Puget Energy, Inc. (Puget Energy) and Puget Sound Energy, Inc. (PSE). Information in this filing relating to PSE is filed by PSE on its own behalf. PSE makes no representation as to information relating to Puget Energy (except as it may relate to PSE) or any other affiliate or subsidiary of Puget Energy. Any references in this report to "the Company" are to Puget Energy and PSE collectively.
3
FORWARD-LOOKING STATEMENTS
Puget Energy and PSE include the following cautionary statements in this Form 10-Q to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by or on behalf of Puget Energy or PSE. This report includes forward-looking statements, which are statements of expectations, beliefs, plans, objectives and assumptions of future events or performance. Words or phrases such as "anticipates," "believes," "continues," "could," "estimates," "expects," "future," "intends," "may," "might," "plans," "potential," "predicts," "projects," "should," "will likely result," "will continue" or similar expressions are intended to identify certain of these forward-looking statements and may be included in discussion of, among other things, our anticipated operating or financial performance, business plans and prospects, planned capital expenditures and other future expectations. In particular, these include statements relating to future actions, business plans and prospects, future performance expenses, the outcome of contingencies, such as legal proceedings, government regulation and financial results.
Forward-looking statements reflect current expectations and involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed. There can be no assurance that Puget Energy's and PSE's expectations, beliefs or projections will be achieved or accomplished.
In addition to other factors and matters discussed elsewhere in this report, some important risks that could cause actual results or outcomes for Puget Energy and PSE to differ materially from past results and those discussed in the forward-looking statements include:
●
Governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC) and the Washington Commission, that may affect our ability to recover costs and earn a reasonable return, including but not limited to disallowance or delays in the recovery of capital investments and operating costs and discretion over allowed return on investment;
●
Changes in, adoption of and compliance with laws and regulations, including decisions and policies concerning the environment, climate change, greenhouse gas or other emissions or by-products of electric generation (including coal ash or other substances) or natural gas distribution and sales, natural resources, and fish and wildlife (including the Endangered Species Act) as well as the risk of litigation arising from such matters, whether involving public or private claimants or regulatory investigative or enforcement measures;
●
Changes in tax law, related regulations or differing interpretation, or enforcement of applicable law by the Internal Revenue Service (IRS) or other taxing jurisdiction; and PSE's ability to recover costs in a timely manner arising from such changes;
●
Inability to realize deferred tax assets and use PTCs due to insufficient future taxable income;
●
Accidents or natural disasters, such as hurricanes, windstorms, earthquakes, floods, landslides, fires and wildfires (either affecting or caused by PSE's facilities or infrastructure), extreme weather conditions and other acts of God, terrorism, asset-based or cyber-based attacks, pandemic or similar significant events, which can interrupt service and lead to lost revenue, cause temporary supply disruptions and/or price spikes in the cost of fuel and raw materials, impose extraordinary costs, and subject the Company to liability;
●
Commodity price risks associated with procuring natural gas and power in wholesale markets from creditworthy counterparties;
●
Wholesale market disruption, which may result in a deterioration of market liquidity, increase the risk of counterparty default, affect the regulatory and legislative process in unpredictable ways, negatively affect wholesale energy prices and/or impede PSE's ability to manage its energy portfolio risks and procure energy supply, affect the availability and access to capital and credit markets and/or impact delivery of energy to PSE from its suppliers;
●
Financial difficulties of other energy companies and related events, which may affect the regulatory and legislative process in unpredictable ways, adversely affect the availability of and access to capital and credit markets and/or impact delivery of energy to PSE from its suppliers;
●
The effect of wholesale market structures (including, but not limited to, regional market designs or transmission organizations) or other related federal initiatives;
●
PSE electric or natural gas distribution system failure, blackouts or large curtailments of transmission systems (whether PSE's or others'), or failure of the interstate natural gas pipeline delivering to PSE's system, all of which can affect PSE's ability to deliver power or natural gas to its customers and generating facilities;
●
Electric plant generation and transmission system outages, which can have an adverse impact on PSE's expenses with respect to repair costs, added costs to replace energy or higher costs associated with dispatching a more expensive generation resource;
●
The ability to restart generation following a regional transmission disruption;
●
The ability of a natural gas or electric plant to operate as intended;
●
PSE's resource adequacy needs to meet the Washington CETA and the Washington CCA requirements, through a combination of owned or contracted resources, may significantly increase purchased power and gas costs if pricing pressures and supply constraints on resource acquisitions increase;
●
Changes in climate, weather conditions, or sustained extreme weather events in PSE's operational territory, which could have effects on customer usage and PSE's revenue and expenses;
●
Regional or national weather conditions (including conditions and events associated with climate change), wildfires, droughts, earthquakes, and other natural disasters, which could impact PSE's ability to procure adequate supplies of natural gas, fuel or purchased power to serve its customers and the cost of procuring such supplies;
●
Variable hydrological conditions, which can impact streamflow and PSE's ability to generate electricity from hydroelectric facilities;
●
Variable wind conditions, which can impact PSE's ability to generate electricity from wind facilities;
●
The ability to renew contracts for electric and natural gas supply and the price of renewal;
●
Industrial, commercial and residential growth and demographic patterns in the service territories of PSE;
●
General economic conditions in PSE's operational territory, such as inflation, which may impact customer consumption or affect PSE's accounts receivable;
●
The loss of significant customers, changes in the business of significant customers or the condemnation of PSE's facilities as a result of municipalization or other government action or negotiated settlement, which may result in changes in demand for PSE's services;
●
The failure of information systems or the failure to secure information system data, which may impact the operations and cost of PSE's customer service, generation, distribution and transmission;
●
Opposition and social activism that may hinder PSE's ability to perform work or construct infrastructure;
●
Capital market conditions, including changes in the availability of capital and interest rate fluctuations;
●
General economic and political conditions, such as the effects of geopolitical tensions related to the ongoing Russia-Ukraine and Middle East conflicts, recessions, fuel prices, international currency fluctuations, corruption, political instability, acts of war, and local and national elections;
●
Employee workforce factors including strikes; work stoppages; retirements; absences due to pandemics, accidents, natural disasters or other significant, unforeseeable events; availability of qualified employees or the loss of a key executive;
●
PSE's service territory operates within a region of high demand for skilled workers resulting in significant competition and inflated wages, which puts pressure on PSE's ability to attract, retain and compensate employees;
●
The ability to obtain insurance coverage, the availability of insurance for certain specific losses, including those arising from catastrophic events such as wildfires and the cost of such insurance;
●
Changes in Puget Energy's or PSE's credit ratings, which may have an adverse impact on the availability and cost of capital for Puget Energy or PSE generally;
●
Deteriorating values of the equity, fixed income and other markets which could significantly impact the value of investments of PSE's retirement plan, post-retirement medical benefit plan trusts and the funding of obligations thereunder; and
●
Recent laws enacted, amended or proposed in Washington and other municipalities in PSE's service territory, may impact PSE's operations by, among others: changing system planning; changing existing statutory targets; instituting electrification requirements; or establishing Washington Commission requirements.
Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. For further information, see Part I, Item 1A, "Risk Factors" in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2023.
4
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Operating revenue:
Electric $ 736,113 $ 770,406 $ 2,434,458 $ 2,461,205
Natural gas 182,737 160,233 1,017,096 947,631
Other 8,694 10,381 24,375 36,999
Total operating revenue 927,544 941,020 3,475,929 3,445,835
Operating expenses:
Energy costs:
Purchased electricity 250,822 250,384 892,436 817,739
Electric generation fuel 78,305 127,729 241,293 342,130
Residential exchange (17,477) (14,547) (61,630) (54,259)
Purchased natural gas 68,243 56,992 472,776 407,391
Unrealized (gain) loss on derivative instruments, net 108,979 (21,695) 131,712 201,230
Utility operations and maintenance 183,915 179,630 579,697 549,118
Non-utility expense and other 10,919 8,342 33,359 38,246
Depreciation & amortization 197,975 189,298 585,317 565,506
Conservation amortization 28,837 23,044 96,326 87,522
Taxes other than income taxes 75,869 72,616 291,226 298,456
Total operating expenses 986,387 871,793 3,262,512 3,253,079
Operating income (loss) (58,843) 69,227 213,417 192,756
Other income (expense):
Other income 31,350 17,257 73,284 48,249
Other expense (4,839) (3,314) (14,984) (9,218)
Interest charges:
AFUDC 9,321 6,260 27,389 17,742
Interest expense (111,642) (96,635) (320,926) (280,068)
Income (loss) before income taxes (134,653) (7,205) (21,820) (30,539)
Income tax (benefit) expense (13,545) (1,908) (1,545) 11,699
Net income (loss) $ (121,108) $ (5,297) $ (20,275) $ (42,238)
The accompanying notes are an integral part of the financial statements.
5
PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net income (loss) $ (121,108) $ (5,297) $ (20,275) $ (42,238)
Other comprehensive income (loss):
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $(459), $(137), $1,088 and $(2,196), respectively
(1,727) (517) (4,679) (8,260)
Other comprehensive income (loss) (1,727) (517) (4,679) (8,260)
Comprehensive income (loss) $ (122,835) $ (5,814) $ (24,954) $ (50,498)
The accompanying notes are an integral part of the financial statements.
6
PUGET ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
September 30,
2024 		December 31, 2023
Utility plant (at original cost, including construction work in progress of $1,717,323 and $1,156,265 respectively):
Electric plant $ 12,165,985 $ 11,304,995
Natural gas plant 5,110,359 4,928,725
Common plant 1,068,991 1,003,519
Less: Accumulated depreciation and amortization (5,000,061) (4,643,833)
Net utility plant 13,345,274 12,593,406
Other property and investments:
Goodwill 1,656,513 1,656,513
Other property and investments 308,805 312,353
Total other property and investments 1,965,318 1,968,866
Current assets:
Cash and cash equivalents 413,147 148,548
Restricted cash 66,016 66,027
Accounts receivable, net of allowance for doubtful accounts of $33,998 and $38,211, respectively
422,100 546,701
Unbilled revenue 174,522 243,342
Materials and supplies, at average cost 189,734 173,445
Fuel and natural gas inventory, at average cost 88,078 87,510
Unrealized gain on derivative instruments 31,373 74,225
GHG emission allowances
58,391 937
Prepaid expense and other 59,696 75,342
Power contract acquisition adjustment gain 6,287 16,358
Total current assets 1,509,344 1,432,435
Other long-term and regulatory assets:
Power cost adjustment mechanism 81,084 48,427
Regulatory assets related to power contracts 5,013 6,266
Other regulatory assets 993,032 1,163,551
Unrealized gain on derivative instruments 14,121 35,324
Power contract acquisition adjustment gain 27,596 30,566
Operating lease right-of-use asset 184,769 194,321
Other 281,278 259,291
Total other long-term and regulatory assets 1,586,893 1,737,746
Total assets $ 18,406,829 $ 17,732,453
The accompanying notes are an integral part of the financial statements.
PUGET ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
CAPITALIZATION AND LIABILITIES
September 30,
2024 		December 31, 2023
Capitalization:
Common shareholder's equity:
Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding
$ - $ -
Additional paid-in capital 3,816,332 3,523,532
Retained earnings 1,246,235 1,419,311
Accumulated other comprehensive income (loss), net of tax 12,860 17,539
Total common shareholder's equity 5,075,427 4,960,382
Long-term debt:
First mortgage bonds and senior notes 5,862,000 5,062,000
Pollution control bonds 161,860 161,860
Long-term debt 1,600,000 2,000,000
Debt discount issuance costs and other (186,165) (187,218)
Total long-term debt 7,437,695 7,036,642
Total capitalization 12,513,122 11,997,024
Current liabilities:
Accounts payable 407,135 455,942
Short-term debt 371,100 598,100
Current maturities of long-term debt 400,000 -
Accrued expenses:
Taxes 100,428 102,627
Salaries and wages 61,695 68,726
Interest 99,006 63,829
Unrealized loss on derivative instruments 147,866 185,788
Power contract acquisition adjustment loss 1,152 1,487
Operating lease liabilities 22,517 21,629
Compliance obligation
58,391 937
Other 85,301 67,653
Total current liabilities 1,754,591 1,566,718
Other long-term and regulatory liabilities:
Deferred income taxes 959,653 950,229
Unrealized loss on derivative instruments 113,063 38,049
Purchased gas adjustment liability 60,483 132,082
Regulatory liabilities 1,113,318 1,022,457
Regulatory liability for deferred income taxes 733,969 760,961
Regulatory liabilities related to power contracts 33,883 46,924
Power contract acquisition adjustment loss 3,861 4,779
Operating lease liabilities 170,311 180,754
Finance lease liabilities 97,848 99,512
Compliance obligation 70,431 168,879
Other deferred credits 782,296 764,085
Total long-term and regulatory liabilities 4,139,116 4,168,711
Commitments and contingencies (Note 8)
Total capitalization and liabilities $ 18,406,829 $ 17,732,453
The accompanying notes are an integral part of the financial statements.
7
PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
(Dollars in Thousands)
(Unaudited)
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss)
Shares Amount Retained Earnings Total Equity
Balance at December 31, 2022 200 $ - $ 3,523,532 $ 1,465,331 $ (24,774) $ 4,964,089
Net income (loss) - - - (31) - (31)
Common stock dividend paid - - - (28,133) - (28,133)
Other comprehensive income (loss) - - - - (658) (658)
Balance at March 31, 2023 200 $ - $ 3,523,532 $ 1,437,167 $ (25,432) $ 4,935,267
Net income (loss) - - - (36,910) - (36,910)
Common stock dividend paid - - - (14,292) - (14,292)
Other comprehensive income (loss) - - - - (7,085) (7,085)
Balance at June 30, 2023 200 $ - $ 3,523,532 $ 1,385,965 $ (32,517) $ 4,876,980
Net income (loss) - - - (5,297) - (5,297)
Common stock dividend paid - - - (11,295) - (11,295)
Other comprehensive income (loss) - - - - (517) (517)
Balance at September 30, 2023 200 $ - $ 3,523,532 $ 1,369,373 $ (33,034) $ 4,859,871
Balance at December 31, 2023
200 $ - $ 3,523,532 $ 1,419,311 $ 17,539 $ 4,960,382
Net income (loss) - - - 129,909 - 129,909
Common stock dividend paid - - - (84,050) - (84,050)
Other comprehensive income (loss) - - - - (2,399) (2,399)
Balance at March 31, 2024 200 $ - $ 3,523,532 $ 1,465,170 $ 15,140 $ 5,003,842
Net income (loss) - - - (29,076) - (29,076)
Common stock dividend paid - - - (56,891) - (56,891)
Capital contribution
- - 292,800 - - 292,800
Other comprehensive income (loss) - - - - (553) (553)
Balance at June 30, 2024 200 $ - $ 3,816,332 $ 1,379,203 $ 14,587 $ 5,210,122
Net income (loss) - - - (121,108) - (121,108)
Common stock dividend paid - - - (11,860) - (11,860)
Other comprehensive income (loss) - - - - (1,727) (1,727)
Balance at September 30, 2024 200 $ - $ 3,816,332 $ 1,246,235 $ 12,860 $ 5,075,427
The accompanying notes are an integral part of the consolidated financial statements.
8
PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
2024 2023
Operating activities:
Net Income (loss) $ (20,275) $ (42,238)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 585,317 565,506
Conservation amortization 96,326 87,522
Deferred income taxes and tax credits, net (18,656) (83,024)
Net unrealized (gain) loss on derivative instruments 131,712 201,230
AFUDC - equity (41,159) (28,516)
Other non-cash (12,603) (11,312)
Funding of pension liability (18,000) (18,000)
Regulatory assets and liabilities (9,322) 134,755
Purchased gas adjustment (71,600) 174,840
GHG emission allowances (83,910) (112,037)
Other long term assets and liabilities (24,164) (26,413)
Change in certain current assets and liabilities:
Accounts receivable and unbilled revenue 193,421 369,279
Materials and supplies (16,289) (20,219)
Fuel and natural gas inventory (568) (3,654)
Prepayments and other 41,225 8,180
Accounts payable (77,349) (289,853)
Taxes payable (2,199) 25,998
Other 27,993 18,035
Net cash provided by (used in) operating activities 679,900 950,079
Investing activities:
Construction expenditures - excluding equity AFUDC (1,143,829) (875,359)
Other 1,874 14,020
Net cash provided by (used in) investing activities (1,141,955) (861,339)
Financing activities:
Change in short-term debt, net (227,000) (231,400)
Dividends paid (152,801) (53,720)
Investment from Parent 292,800 -
Proceeds from long-term debt and bonds issued 793,892 396,488
Other 19,752 16,445
Net cash provided by (used in) financing activities 726,643 127,813
Net increase (decrease) in cash, cash equivalents, and restricted cash 264,588 216,553
Cash, cash equivalents, and restricted cash at beginning of period 214,575 168,785
Cash, cash equivalents, and restricted cash at end of period $ 479,163 $ 385,338
Supplemental cash flow information:
Cash payments for interest (net of capitalized interest) $ 246,252 $ 227,186
Cash payments (refunds) for income taxes 37,065 50,707
Non-cash financing and investing activities:
Accounts payable for capital expenditures eliminated from cash flows $ 126,512 $ 71,198
Change in ARO estimate eliminated from cash flows
18,957 -
The accompanying notes are an integral part of the financial statements.
9
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Operating revenue:
Electric $ 736,113 $ 770,406 $ 2,434,458 $ 2,461,205
Natural gas 184,090 161,266 1,019,434 948,664
Other 40 933 222 16,271
Total operating revenue 920,243 932,605 3,454,114 3,426,140
Operating expenses:
Energy costs:
Purchased electricity 250,822 250,384 892,436 817,739
Electric generation fuel 78,305 127,729 241,293 342,130
Residential exchange (17,477) (14,547) (61,630) (54,259)
Purchased natural gas 68,243 56,992 472,776 407,391
Unrealized (gain) loss on derivative instruments, net 108,979 (21,695) 131,712 201,230
Utility operations and maintenance 183,915 179,630 579,697 549,118
Non-utility expense and other 5,719 3,342 15,912 18,076
Depreciation & amortization 196,298 187,622 580,304 560,480
Conservation amortization 28,837 23,044 96,326 87,522
Taxes other than income taxes 76,895 73,638 293,600 297,534
Total operating expenses 980,536 866,139 3,242,426 3,226,961
Operating income (loss) (60,293) 66,466 211,688 199,179
Other income (expense):
Other income 30,651 17,131 71,073 46,300
Other expense (4,839) (3,314) (14,984) (9,218)
Interest charges:
AFUDC 9,321 6,260 27,389 17,742
Interest expense (84,148) (72,445) (237,529) (209,356)
Income (loss) before income taxes (109,308) 14,098 57,637 44,647
Income tax (benefit) expense (18,408) 695 3,922 2,244
Net income (loss) $ (90,900) $ 13,403 $ 53,715 $ 42,403
The accompanying notes are an integral part of the financial statements.
10
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Net income (loss) $ (90,900) $ 13,403 $ 53,715 $ 42,403
Other comprehensive income(loss):
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $(313), $(10), $1,512 and $(1,803), respectively.
(1,174) (38) (3,080) (6,787)
Amortization of treasury interest rate swaps to earnings, net of tax of $25, $25, $76 and $77, respectively.
97 97 290 289
Other comprehensive income (loss) (1,077) 59 (2,790) (6,498)
Comprehensive income (loss) $ (91,977) $ 13,462 $ 50,925 $ 35,905
The accompanying notes are an integral part of the financial statements.
11
PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
September 30,
2024 		December 31, 2023
Utility plant (at original cost, including construction work in progress of $1,717,323 and $1,156,265, respectively):
Electric plant $ 13,888,041 $ 13,043,559
Natural gas plant 5,659,534 5,480,496
Common plant 1,089,737 1,024,319
Less: Accumulated depreciation and amortization (7,292,038) (6,954,968)
Net utility plant 13,345,274 12,593,406
Other property and investments:
Other property and investments 70,673 69,808
Total other property and investments 70,673 69,808
Current assets:
Cash and cash equivalents 409,839 144,825
Restricted cash 66,016 66,027
Accounts receivable, net of allowance for doubtful accounts of $33,998 and $38,211, respectively
421,465 546,463
Unbilled revenue 174,522 243,342
Materials and supplies, at average cost 189,734 173,445
Fuel and natural gas inventory, at average cost 86,757 85,726
Unrealized gain on derivative instruments 31,373 74,225
GHG emission allowances
58,391 937
Prepaid expense and other 59,633 75,323
Total current assets 1,497,730 1,410,313
Other long-term and regulatory assets:
Power cost adjustment mechanism 81,084 48,427
Other regulatory assets 993,032 1,163,551
Unrealized gain on derivative instruments 14,121 35,324
Operating lease right-of-use asset 184,769 194,321
Other 279,126 256,617
Total other long-term and regulatory assets 1,552,132 1,698,240
Total assets $ 16,465,809 $ 15,771,767
The accompanying notes are an integral part of the financial statements.
PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
CAPITALIZATION AND LIABILITIES
September 30,
2024 		December 31, 2023
Capitalization:
Common shareholder's equity:
Common stock $0.01 par value, 150,000,000 shares authorized, 85,903,791 shares outstanding
$ 859 $ 859
Additional paid-in capital 3,927,905 3,635,105
Retained earnings 1,457,594 1,473,218
Accumulated other comprehensive income (loss), net of tax (61,184) (58,394)
Total common shareholder's equity 5,325,174 5,050,788
Long-term debt:
First mortgage bonds and senior notes 5,862,000 5,062,000
Pollution control bonds 161,860 161,860
Debt discount, issuance costs and other (46,484) (39,813)
Total long-term debt 5,977,376 5,184,047
Total capitalization 11,302,550 10,234,835
Current liabilities:
Accounts payable 407,136 457,965
Short-term debt - 336,600
Accrued expenses:
Taxes 101,014 102,775
Salaries and wages 61,695 68,726
Interest 79,362 53,834
Unrealized loss on derivative instruments 147,866 185,788
Operating lease liabilities 22,517 21,629
Compliance obligation
58,391 937
Other 85,301 67,653
Total current liabilities 963,282 1,295,907
Other long-term and regulatory liabilities:
Deferred income taxes 1,062,990 1,078,847
Unrealized loss on derivative instruments 113,063 38,049
Purchased gas adjustment liability 60,483 132,082
Regulatory liabilities 1,112,054 1,021,193
Regulatory liabilities for deferred income tax 734,617 761,621
Operating lease liabilities 170,311 180,754
Finance lease liabilities 97,848 99,512
Compliance obligation 70,431 168,879
Other deferred credits 778,180 760,088
Total long-term and regulatory liabilities 4,199,977 4,241,025
Commitments and contingencies (Note 8)
Total capitalization and liabilities $ 16,465,809 $ 15,771,767
The accompanying notes are an integral part of the financial statements.
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PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
(Dollars in Thousands)
(Unaudited)
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss)
Shares Amount Retained Earnings Total Equity
Balance at December 31, 2022 85,903,791 $ 859 $ 3,535,105 $ 1,438,163 $ (103,044) $ 4,871,083
Net income (loss) - - - 27,535 - 27,535
Common stock dividend paid - - - (28,002) - (28,002)
Other comprehensive income (loss) - - - - 133 133
Balance at March 31, 2023 85,903,791 $ 859 $ 3,535,105 $ 1,437,696 $ (102,911) $ 4,870,749
Net income (loss) - - - 1,465 - 1,465
Common stock dividend paid - - - (22,000) - (22,000)
Other comprehensive income (loss) - - - - (6,690) (6,690)
Balance at June 30, 2023 85,903,791 $ 859 $ 3,535,105 $ 1,417,161 $ (109,601) $ 4,843,524
Net income (loss) - - - 13,403 - 13,403
Common stock dividend paid - - - (635) - (635)
Capital contribution
- - 100,000 - - 100,000
Other comprehensive income (loss) - - - - 59 59
Balance at September 30, 2023 85,903,791 $ 859 $ 3,635,105 $ 1,429,929 $ (109,542) $ 4,956,351
Balance at December 31, 2023 85,903,791 $ 859 $ 3,635,105 $ 1,473,218 $ (58,394) $ 5,050,788
Net income (loss) - - - 147,899 - 147,899
Common stock dividend paid - - - (54,999) - (54,999)
Other comprehensive income (loss) - - - - (1,774) (1,774)
Balance at March 31, 2024 85,903,791 $ 859 $ 3,635,105 $ 1,566,118 $ (60,168) $ 5,141,914
Net income (loss) - - - (3,284) - (3,284)
Common stock dividend paid - - - (14,340) - (14,340)
Capital contribution
- - 292,800 - - 292,800
Other comprehensive income (loss) - - - - 61 61
Balance at June 30, 2024 85,903,791 $ 859 $ 3,927,905 $ 1,548,494 $ (60,107) $ 5,417,151
Net income (loss) - - - (90,900) - (90,900)
Other comprehensive income (loss) - - - - (1,077) (1,077)
Balance at September 30, 2024
85,903,791 $ 859 $ 3,927,905 $ 1,457,594 $ (61,184) $ 5,325,174
The accompanying notes are an integral part of the consolidated financial statements.
13
PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
2024 2023
Operating activities:
Net Income (loss) $ 53,715 $ 42,403
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 580,304 560,480
Conservation amortization 96,326 87,522
Deferred income taxes and tax credits, net (44,451) (127,228)
Net unrealized (gain) loss on derivative instruments 131,712 201,230
AFUDC - equity (41,159) (28,516)
Other non-cash (20,482) (19,190)
Funding of pension liability (18,000) (18,000)
Regulatory assets and liabilities (9,322) 134,755
Purchased gas adjustment (71,600) 174,840
GHG emission allowances (83,910) (112,037)
Other long term assets and liabilities (22,137) (24,545)
Change in certain current assets and liabilities:
Accounts receivable and unbilled revenue 193,818 368,054
Materials and supplies (16,289) (20,219)
Fuel and natural gas inventory (1,031) (4,372)
Prepayments and other 41,269 8,256
Accounts payable (79,371) (288,415)
Taxes payable (1,761) 27,100
Other 18,344 9,518
Net cash provided by (used in) operating activities 705,975 971,636
Investing activities:
Construction expenditures - excluding equity AFUDC (1,143,346) (875,139)
Other 1,874 14,020
Net cash provided by (used in) investing activities (1,141,472) (861,119)
Financing activities:
Change in short-term debt, net (336,600) (357,000)
Dividends paid (69,339) (50,637)
Investment from Parent 292,800 100,000
Proceeds from long-term debt and bonds issued 793,892 396,488
Other 19,747 16,457
Net cash provided by (used in) financing activities 700,500 105,308
Net increase (decrease) in cash, cash equivalents, and restricted cash 265,003 215,825
Cash, cash equivalents, and restricted cash at beginning of period 210,852 165,885
Cash, cash equivalents, and restricted cash at end of period $ 475,855 $ 381,710
Supplemental cash flow information:
Cash payments for interest (net of capitalized interest) $ 180,382 $ 172,869
Cash payments (refunds) for income taxes 67,888 84,357
Non-cash financing and investing activities:
Accounts payable for capital expenditures eliminated from cash flows $ 126,512 $ 71,198
Change in ARO estimate eliminated from cash flows
18,957 -
The accompanying notes are an integral part of the financial statements.
14
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1)Summary of Significant Accounting Policies
Basis of Presentation
Puget Energy is an energy services holding company that owns PSE, which is a public utility incorporated in the state of Washington that furnishes electric and natural gas services in a territory covering approximately 6,000 square miles, primarily in the Puget Sound region. Puget Energy also has a wholly-owned non-regulated subsidiary, Puget LNG, which has the sole purpose of owning and operating the non-regulated activity of the Tacoma LNG facility. PSE and Puget LNG are considered related parties with similar ownership by Puget Energy. Therefore, capital and operating costs that are incurred by PSE and allocated to Puget LNG are related party transactions by nature.
In 2009, Puget Holdings, owned by a consortium of long-term infrastructure investors, completed its merger with Puget Energy (the merger). As a result of the merger, all of Puget Energy's common stock is indirectly owned by Puget Holdings. The acquisition of Puget Energy was accounted for in accordance with FASB ASC 805, "Business Combinations" (ASC 805), as of the date of the merger. ASC 805 requires the acquirer to recognize and measure identifiable assets acquired and liabilities assumed at fair value as of the merger date.
The consolidated financial statements of Puget Energy reflect the accounts of Puget Energy and its subsidiaries. PSE's consolidated financial statements include the accounts of PSE and its subsidiary. Puget Energy and PSE are collectively referred to herein as "the Company". The consolidated financial statements are presented after elimination of all significant intercompany items and transactions. PSE's consolidated financial statements continue to be accounted for on a historical basis and do not include any ASC 805, "Business Combinations" (ASC 805) purchase accounting adjustments. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Allowance for Credit Losses
The Company measures expected credit losses on trade receivables on a collective basis by receivable type, which include electric retail receivables, natural gas retail receivables, and electric wholesale receivables. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
The following table presents the activity in the allowance for credit losses for accounts receivable for the nine months ended September 30, 2024 and 2023:
Puget Energy and
Puget Sound Energy 		Nine Months
Ended September 30,
(Dollars in Thousands) 2024 2023
Allowance for credit losses:
Beginning balance $ 38,211 $ 41,962
Provision for credit loss expense
26,570 23,550
Receivables charged-off (30,783) (29,005)
Total ending allowance balance1
$ 33,998 $ 36,507
_____________
1 $23.6 million and $12.2 million of provision related to balances of deferred costs specific to COVID-19 as of September 30, 2024 and 2023, respectively.
Tacoma LNG Facility
In February 2022, the Tacoma LNG facility at the Port of Tacoma completed commissioning and commenced commercial operations. In December 2019, the Puget Sound Clean Air Agency (PSCAA) issued the air quality permit for the facility, and the Pollution Hearings Control Board of Washington State upheld the approval following extended litigation. The Tacoma LNG facility provides peak-shaving services to PSE's natural gas customers, and provides LNG as fuel to transportation customers, particularly in the marine market at a lower cost due to the facility's scale. The State of Washington Division II Court of Appeals upheld the permit issuance and in February 2024 denied the Puyallup Tribe of Indians' motion to reconsider. On March 22, 2024, a coalition of environmental organizations led by Advocates for a Cleaner Tacoma, petitioned the Washington Supreme Court to review portions of the Court of Appeals' decision and on March 25, 2024, the Puyallup Tribe of
15
Indians also petitioned the Washington Supreme Court for review. On July 10, 2024, the court denied both parties' petition to review.
Pursuant to an order by the Washington Commission, PSE will be allocated approximately 43.0% of common capital and operating costs, consistent with the regulated portion of the Tacoma LNG facility. The remaining 57.0% of common capital and operating costs of the Tacoma LNG facility will be allocated to Puget LNG. Per this allocation of costs, $236.1 million and $240.5 million of non-utility plant operating cost is reported in the Puget Energy "Other property and investments" line item as of September 30, 2024 and December 31, 2023, respectively. Additionally, $17.4 million and $20.3 million of operating costs are reported in the Puget Energy "Non-utility expense and other" financial statement line item for the nine months ended September 30, 2024, and September 30, 2023, respectively. Further, $230.5 million and $235.6 million of natural gas plant related to PSE's portion of the Tacoma LNG facility is reported in the PSE "Utility plant - Natural gas plant" financial statement line item as of September 30, 2024 and December 31, 2023, respectively, as PSE is a regulated entity.
Variable Interest Entities
In April 2017, PSE entered into a power purchase agreement (PPA) with Skookumchuck Wind Energy Project, LLC (Skookumchuck) pursuant to which Skookumchuck would develop a wind generation facility and sell bundled energy and associated attributes, namely renewable energy certificates (RECs), to PSE over a term of 20 years. Skookumchuck commenced commercial operation in November 2020. In May 2020, PSE entered into a PPA with Golden Hills Wind Farm, LLC (Golden Hills) pursuant to which Golden Hills would develop a wind generation facility and sell bundled energy and associated attributes, namely RECs, to PSE over a term of 20 years. On April 29, 2022, Golden Hills commenced commercial operations. In February 2021, PSE entered into a PPA with Clearwater Wind Project, LLC (Clearwater) in which Clearwater would develop a wind generation facility and sell energy and associated attributes to PSE over a term of 25 years. On November 8, 2022, Clearwater commenced commercial operations. For each of the aforementioned PPAs, PSE has no equity investment in the generation facilities, but is the only customer of each facility. PSE has concluded that Skookumchuck, Golden Hills, and Clearwater represent variable interest entities (VIE) and that PSE is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of the facilities. Additionally, PSE does not have the obligation to absorb losses or receive benefits. As a result, PSE does not consolidate the VIEs.
Purchased energy of $65.7 million and $64.2 million were recognized in purchased electricity on the Company's consolidated statements of income for the nine months ended September 30, 2024 and September 30, 2023, respectively. Additionally, $11.7 million and $14.6 million were included in accounts payable on the Company's balance sheet as of September 30, 2024 and December 31, 2023, respectively.
For further information on the Company's accounting policies, see Part II, Item 8, Note 1, "Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
(2) New Accounting Pronouncements
Recently Adopted Accounting Guidance
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting". ASU 2020-04 provides temporary optional expedients and exceptions to the current guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848". ASU 2022-06 postpones the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. As of September 30, 2024, the Company is not aware of any current agreements that reference LIBOR and thus, has not utilized any practical expedients. The Company continues to monitor whether any new agreements are entered into which reference LIBOR and if the expedients would be utilized through the allowed period of December 31, 2024.
Accounting Pronouncements Issued but Not Yet Adopted
Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". ASU 2023-07 is intended to improve the disclosures for reportable segments and provide more detailed information about a reportable segment's expenses. This will require disclosure of significant segment expense categories, amounts for each reportable segment, disclosure of the title and position of the Chief Operating Decision Maker and how they use the measure of the segments profit or loss to assess performance and allocate resources. ASU 2023-07 will be effective for the Company in fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December
16
15, 2024. As the amendment contemplates changes in disclosures only, it is not expected to have a material impact on the Company's results of operations, cash flows, or consolidated balance sheets; however, the Company continues to assess the impacts of the amendment.
Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". ASU 2023-09 will require disclosure of specific categories in a tabular rate reconciliation using both percentages and currency amounts, and provide additional information for reconciling items that meet a quantitative threshold. Further requirements include a qualitative description of the tax jurisdictions, an explanation of the reconciling items disclosed and disclosure regarding income taxes paid. ASU 2023-09 will eliminate the requirement to disclose the nature and estimate of range in unrecognized tax benefits and disclosures of the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized. ASU 2023-09 will be effective for the Company in annual periods beginning after December 15, 2024. As the amendment contemplates changes in disclosures only, it is not expected to have a material impact on the Company's results of operations, cash flows, or consolidated balance sheets; however, the Company continues to assess the impacts of the amendment.
Climate Related Disclosures
In March 2024, the Securities and Exchange Commission (SEC) issued Final Rule S7-10-22, "The Enhancement and Standardization of Climate-Related Disclosures for Investors". Final Rule S7-10-22 will require disclosure for material climate-related risks; activities to adapt or mitigate climate-related risks; information regarding the roles of management and the board of directors in managing climate-related risks and information on climate-related targets or goals that are material to the business. Additionally, the final rules require disclosure of Scope 1 and/or Scope 2 GHG emissions on a phased-in basis by certain larger registrants with material emissions. PSE is a non-accelerated filer and Final Rule S7-10-22 does not require non-accelerated filers to disclose GHG emissions. The final rule was set to become effective May 28, 2024, however the SEC decided to stay implementation pending resolution of appeals. As currently drafted, Final Rule S7-10-22 will be effective for the Company in fiscal year 2027. The final rule impacts disclosures only, and thus is not expected to have a material impact on the Company's results of operations, cash flows, or consolidated balance sheets; however, the Company continues to assess the impacts of the final rule and the cost of compliance.
17
(3) Revenue
The following tables present disaggregated revenue from contracts with customers, and other revenue by major source for the three and nine months ended September 30, 2024 and September 30, 2023:
Puget Energy and
Puget Sound Energy
(Dollars in Thousands)
Three Months Ended September 30, 2024
Revenue from contracts with customers:
Electric
Natural Gas
Other1
Total
Retail
Residential
$ 346,658 $ 78,517 $ - $ 425,175
Commercial
281,178 49,614 - 330,792
Industrial
31,634 3,818 - 35,452
Other
5,795 - - 5,795
Wholesale
68,485 - - 68,485
Transmission and transportation
7,297 6,434 - 13,731
Miscellaneous2
11,250 41,464 8,694 61,408
Total revenue from contracts with customers
$ 752,297 $ 179,847 $ 8,694 $ 940,838
Total other revenue3
(16,184) 2,890 - (13,294)
Total operating revenue
$ 736,113 $ 182,737 $ 8,694 $ 927,544
_____________
1 Other includes $8.7 million of Puget LNG revenues recorded at Puget Energy.
2Miscellaneous natural gas revenue includes $41.2 million for the regulatory offset of CCA auction proceeds passed back to customers.
3Total other revenue includes revenues from derivatives and alternative revenue programs that are not considered revenues from contracts with customers.
Puget Energy and
Puget Sound Energy
(Dollars in Thousands) Three Months Ended September 30, 2023
Revenue from contracts with customers: Electric Natural Gas
Other1
Total
Retail
Residential $ 292,586 $ 91,393 $ - $ 383,979
Commercial 252,952 51,132 - 304,084
Industrial 29,794 4,003 - 33,797
Other 5,242 - - 5,242
Wholesale 174,039 - - 174,039
Transmission and transportation 10,403 4,540 - 14,943
Miscellaneous 7,895 (1,273) 10,381 17,003
Total revenue from contracts with customers $ 772,911 $ 149,795 $ 10,381 $ 933,087
Total other revenue2
(2,505) 10,438 - 7,933
Total operating revenue $ 770,406 $ 160,233 $ 10,381 $ 941,020
_____________
1Other includes $9.4 million of Puget LNG revenues recorded at Puget Energy.
2Total other revenue includes revenues from derivatives and alternative revenue programs that are not considered revenues from contracts with customers.
18
Puget Energy and
Puget Sound Energy
(Dollars in Thousands) Nine Months Ended September 30, 2024
Revenue from contracts with customers: Electric Natural Gas
Other1
Total
Retail
Residential $ 1,207,130 $ 522,522 $ - $ 1,729,652
Commercial 857,267 250,068 - 1,107,335
Industrial 97,750 18,685 - 116,435
Other 17,585 - - 17,585
Wholesale 223,596 - - 223,596
Transmission and transportation 26,619 22,144 - 48,763
Miscellaneous2
23,463 200,768 24,375 248,606
Total revenue from contracts with customers $ 2,453,410 $ 1,014,187 $ 24,375 $ 3,491,972
Total other revenue3
(18,952) 2,909 - (16,043)
Total operating revenue $ 2,434,458 $ 1,017,096 $ 24,375 $ 3,475,929
_____________
1Other includes $24.2 million of Puget LNG revenues recorded at Puget Energy.
2Miscellaneous natural gas revenue includes $206.0 million for the regulatory offset of CCA auction proceeds passed back to customers.
3Total other revenue includes revenues from derivatives and alternative revenue programs that are not considered revenues from contracts with customers.
Puget Energy and
Puget Sound Energy
(Dollars in Thousands) Nine Months Ended September 30, 2023
Revenue from contracts with customers: Electric Natural Gas
Other1
Total
Retail
Residential $ 1,089,794 $ 612,458 $ - $ 1,702,252
Commercial 792,644 285,194 - 1,077,838
Industrial 92,161 21,286 - 113,447
Other 15,963 - - 15,963
Wholesale 376,191 - - 376,191
Transmission and transportation 35,516 15,493 - 51,009
Miscellaneous 18,870 (1,691) 36,999 54,178
Total revenue from contracts with customers $ 2,421,139 $ 932,740 $ 36,999 $ 3,390,878
Total other revenue2
40,066 14,891 - 54,957
Total operating revenue $ 2,461,205 $ 947,631 $ 36,999 $ 3,445,835
_____________
1Other includes $20.7 million of Puget LNG revenues recorded at Puget Energy.
2Total other revenue includes revenues from derivatives and alternative revenue programs that are not considered revenues from contracts with customers.
Transaction Price Allocated to Remaining Performance Obligations
In December 2020, Puget LNG entered into a contract with one customer where Puget LNG is selling LNG over a 10-year delivery period which began April 1, 2024. The contract requires the customer to purchase a minimum annual quantity even if the customer does not take delivery. The price of the LNG includes a fixed charge, a fuel charge that includes both a market index and fixed margin component and other variable consideration. The fixed transaction price is allocated to the remaining performance obligations which is determined by the fixed charge components multiplied by the outstanding minimum annual quantity.
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Based on management's best estimate of commencement, the Company expects to recognize this revenue over the following time periods:
Puget Energy
(Dollars in Thousands) 2024 2025 2026 2027 2028 Thereafter Total
Remaining performance obligations $ 5,238 $ 19,828 $ 19,454 $ 19,454 $ 19,454 $ 102,135 $ 185,563
The Company has elected the optional exemption in ASC 606, "Revenues from Contracts with Customers", under which the Company does not disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. The primary sources of variability are (a) fluctuations in market index prices of natural gas used to determine aspects of variable pricing and (b) variation in volumes that may be delivered to the customer. Both sources of variability are expected to be resolved at or shortly before delivery of each unit of LNG or natural gas. As each unit of LNG or natural gas represents a separate performance obligation, future volumes are wholly unsatisfied.
(4) Accounting for Derivative Instruments and Hedging Activities
PSE employs various energy portfolio optimization strategies but is not in the business of assuming risk for the purpose of realizing speculative trading revenue. The nature of serving regulated electric customers with its portfolio of owned and contracted electric generation resources exposes PSE and its customers to some volumetric and commodity price risks within the sharing mechanism of the Power Cost Adjustment. Therefore, wholesale market transactions and PSE's related hedging strategies are focused on reducing costs and risks where feasible, thus reducing volatility in costs in the portfolio. In order to manage its exposure to the variability in future cash flows for forecasted energy transactions, PSE utilizes a programmatic hedging strategy, which extends out three years. PSE's hedging strategy includes a risk-responsive component for the core natural gas portfolio, which utilizes quantitative risk-based measures with defined objectives to balance both portfolio risk and hedge costs.
PSE's energy risk portfolio management function monitors and manages these risks using analytical models and tools. In order to manage risks effectively, PSE enters into forward physical electric and natural gas purchase and sale agreements, fixed-for-floating swap contracts, and commodity call/put options. Currently, the Company does not apply cash flow hedge accounting and therefore records all mark-to-market gains or losses through earnings.
The Company manages its interest rate risk through the issuance of mostly fixed-rate debt with varied maturities. The Company utilizes internal cash from operations, borrowings under its commercial paper program and its credit facilities to meet short-term funding needs. The Company may enter into swap instruments or other financial hedge instruments to manage the interest rate risk associated with these debts.
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The following table presents the volumes, fair values and classification of the Company's derivative instruments recorded on the balance sheets:
Puget Energy and
Puget Sound Energy
September 30, 2024 December 31, 2023
(Dollars in Thousands) Volumes (millions)
Assets1
Liabilities2
Volumes (millions)
Assets1
Liabilities2
Electric portfolio derivatives * $ 39,585 $ 205,209 * $ 93,028 $ 126,939
Natural gas derivatives (MMBtus)3
237 5,909 55,720 301 16,521 96,898
Total derivative contracts $ 45,494 $ 260,929 $ 109,549 $ 223,837
Current $ 31,373 $ 147,866 $ 74,225 $ 185,788
Long-term 14,121 113,063 35,324 38,049
Total derivative contracts $ 45,494 $ 260,929 $ 109,549 $ 223,837
_______________
1 Balance sheet classification: Current and Long-term Unrealized gain on derivative instruments.
2 Balance sheet classification: Current and Long-term Unrealized loss on derivative instruments.
3 All fair value adjustments on derivatives relating to the natural gas business have been deferred in accordance with ASC 980, "Regulated Operations," due to the PGA mechanism. The net derivative asset or liability and offsetting regulatory liability or asset are related to contracts used to economically hedge the cost of physical gas purchased to serve natural gas customers.
* Electric portfolio derivatives consist of electric generation fuel of 254.9 million MMBtu and purchased electricity of 13.4 million MWhs at September 30, 2024, and 315.6 million MMBtus and 2.3 million MWhs at December 31, 2023.
It is the Company's policy to record all derivative transactions on a gross basis at the contract level without offsetting assets or liabilities. The Company generally enters into transactions using the following master agreements: WSPP agreements, which standardize physical power contracts; ISDA agreements, which standardize financial natural gas and electric contracts; and NAESB agreements, which standardize physical natural gas contracts. The Company believes that such agreements reduce credit risk exposure because such agreements provide for the netting and offsetting of monthly payments as well as the right of set-off in the event of counterparty default. The set-off provision can be used as a final settlement of accounts which extinguishes the mutual debts owed between the parties in exchange for a new net amount. For further details regarding the fair value of derivative instruments, see Note 5, "Fair Value Measurements," in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
The following tables present the potential effect of netting arrangements, including rights of set-off associated with the Company's derivative assets and liabilities:
Puget Energy and
Puget Sound Energy
At September 30, 2024
Gross Amount Recognized in the Statement of Financial Position1
Gross Amounts Offset in the Statement of Financial Position Net of Amounts Presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position

(Dollars in Thousands) 		Commodity Contracts Cash Collateral Received/Posted Net Amount
Assets:
Energy derivative contracts $ 45,494 $ - $ 45,494 $ (39,821) $ - $ 5,673
Liabilities:
Energy derivative contracts $ 260,929 $ - $ 260,929 $ (39,821) $ (6,030) $ 215,078
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Puget Energy and
Puget Sound Energy 		At December 31, 2023
Gross Amount Recognized in the Statement of Financial Position1
Gross Amounts Offset in the Statement of Financial Position Net of Amounts Presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position
(Dollars in Thousands) Commodity Contracts Cash Collateral Received/Posted Net Amount
Assets:
Energy derivative contracts $ 109,549 $ - $ 109,549 $ (82,206) $ - $ 27,343
Liabilities:
Energy derivative contracts $ 223,837 $ - $ 223,837 $ (82,206) $ (84) $ 141,547
_______________
1 All derivative contract deals are executed under ISDA, NAESB, and WSPP master agreements with right of set-off.
The following table presents the effect and classification of the realized and unrealized gains (losses) of the Company's derivatives recorded on the statements of income:
Puget Energy and
Puget Sound Energy 		Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in Thousands) Classification 2024 2023 2024 2023
Gas for power derivatives:
Unrealized Unrealized gain (loss) on derivative instruments, net $ (6,807) $ 38,966 $ (3,550) $ (75,373)
Realized Electric generation fuel (32,988) (23,442) (63,888) 51,253
Power derivatives:
Unrealized Unrealized gain (loss) on derivative instruments, net (102,172) (17,271) (128,162) (125,857)
Realized Purchased electricity (14,977) 25,076 (61,307) 72,208
Total gain (loss) recognized in income on derivatives $ (156,944) $ 23,329 $ (256,907) $ (77,769)
The Company is exposed to credit risk primarily through buying and selling electricity and natural gas to serve its customers. Credit risk is the potential loss resulting from a counterparty's non-performance under an agreement. The Company manages credit risk with policies and procedures for, among other things, counterparty credit analysis, exposure measurement, and exposure monitoring and mitigation.
The Company monitors counterparties for significant swings in credit default swap rates, credit rating changes by external rating agencies, ownership changes or financial distress. Where deemed appropriate, the Company may request collateral or other security from its counterparties to mitigate potential credit default losses. Criteria employed in this decision include, among other things, the perceived creditworthiness of the counterparty and the expected credit exposure.
It is possible that volatility in energy commodity prices could cause the Company to have material credit risk exposure with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, the Company could suffer a material financial loss. However, as of September 30, 2024, approximately 99.8% of the Company's energy portfolio exposure, excluding NPNS transactions, is with counterparties that are rated investment grade by rating agencies and 0.2% are either rated below investment grade or not rated by rating agencies. The Company assesses credit risk internally for counterparties that are not rated by the major rating agencies.
The Company computes credit reserves at a master agreement level by counterparty. The Company considers external credit ratings and market factors in the determination of reserves, such as credit default swaps and bond spreads. The Company recognizes that external ratings may not always reflect how a market participant perceives a counterparty's risk of default. The Company uses both default factors published by Standard & Poor's and factors derived through analysis of market risk, which reflect the application of an industry standard recovery rate. The Company selects a default factor by counterparty at an aggregate master agreement level based on a weighted average default tenor for that counterparty's deals. The default tenor is determined by weighting the fair value and contract tenors for all deals for each counterparty to derive an average value. The default factor used is dependent upon whether the counterparty is in a net asset or a net liability position after applying the master agreement levels.
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The Company applies the counterparty's default factor to compute credit reserves for counterparties that are in a net asset position. The Company calculates a non-performance risk on its derivative liabilities by using its estimated incremental borrowing rate over the risk-free rate. Credit reserves are netted against the unrealized gain (loss) positions. The majority of the Company's derivative contracts are with financial institutions and other utilities operating within the Western Electricity Coordinating Council. PSE also transacts power futures contracts on the Intercontinental Exchange (ICE), and natural gas contracts on the ICE natural gas exchange (NGX) platform. Execution of contracts on ICE requires the daily posting of margin calls as collateral through a futures and clearing agent. As of September 30, 2024, PSE had cash posted as collateral of $9.7 million related to contracts executed on the ICE platform. As a condition of transacting on the ICE NGX platform as well as participating in the Washington state carbon allowance auctions, PSE maintains a standby letter of credit agreement with TD Bank. As of September 30, 2024, PSE had no cash posted with ICE NGX, and $4.1 million was issued under the standby letter of credit agreement in support of natural gas and carbon allowance purchases. PSE did not trigger any collateral requirements with any of its counterparties nor were any of PSE's counterparties required to post collateral resulting from credit rating downgrades during the nine months ended September 30, 2024.
The following table presents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position and the amount of additional collateral the Company could be required to post:
Puget Energy and
Puget Sound Energy
(Dollars in Thousands) At September 30, 2024 At December 31, 2023
Fair Value1
Posted Contingent
Fair Value1
Posted Contingent
Contingent Feature Liability Collateral Collateral Liability Collateral Collateral
Credit rating2
$ 112,218 $ - $ 112,218 $ 13,384 $ - $ 13,384
Requested credit for adequate assurance 31,565 - - 53,427 - -
Forward value of contract3
6,412 9,742 N/A 84 12,429 N/A
Total $ 150,195 $ 9,742 $ 112,218 $ 66,895 $ 12,429 $ 13,384
_______________
1 Represents the derivative fair value of contracts with contingent features for counterparties in net derivative liability positions. Excludes NPNS, accounts payable and accounts receivable.
2 Failure by PSE to maintain an investment grade credit rating from each of the major credit rating agencies provides counterparties a contractual right to demand collateral.
3 Collateral requirements may vary based on changes in the forward value of underlying transactions relative to contractually defined collateral thresholds.
(5) Fair Value Measurements
ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy categorizes the inputs into three levels with the highest priority given to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority given to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Level 1 primarily consists of financial instruments such as exchange-traded derivatives and listed equities. Equity securities that are also classified as cash equivalents are considered Level 1 if there are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. Instruments in this category include non-exchange-traded derivatives such as over-the-counter forwards and options.
Level 3 - Pricing inputs include significant inputs that have little or no observability as of the reporting date. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value.
Financial assets and liabilities measured at fair value are classified in their entirety in the appropriate fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the
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significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy. The Company primarily determines fair value measurements classified as Level 2 or Level 3 using a combination of the income and market valuation approaches. The process of determining the fair values is the responsibility of the derivative accounting department, which reports to the Controller and Principal Accounting Officer. Inputs used to estimate the fair value of forwards, swaps and options include market-price curves, contract terms and prices, credit-risk adjustments, and discount factors. Additionally, for options, the Black-Scholes option valuation model and implied market volatility curves are used. Inputs used to estimate fair value in industry-standard models are categorized as Level 2 inputs as substantially all assumptions and inputs are observable in active markets throughout the full term of the instruments. On a daily basis, the Company obtains quoted forward prices for the electric and natural gas markets from an independent external pricing service.
The Company considers its electric and natural gas contracts as Level 2 derivative instruments as such contracts are commonly traded as over-the-counter forwards with indirectly observable price quotes. However, certain energy derivative instruments with maturity dates falling outside the range of observable price quotes or that are transacted at illiquid delivery locations are classified as Level 3 in the fair value hierarchy. Management's assessment is based on the trading activity in real-time and forward electric and natural gas markets. Each quarter, the Company confirms the validity of pricing-service quoted prices used to value Level 2 commodity contracts with the actual prices of commodity contracts entered into during the most recent quarter. The Company's environmental compliance obligation is categorized in Level 2 of the fair value hierarchy and is measured at fair value using a market approach based on quoted prices from an independent pricing service.
Assets and Liabilities with Estimated Fair Value
The carrying values of cash and cash equivalents, restricted cash, and short-term debt as reported on the balance sheet are reasonable estimates of their fair value due to the short-term nature of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value of other investments of $45.1 million and $44.6 million at September 30, 2024 and December 31, 2023 respectively, are included in "Other property and investments" on the balance sheet. These values are also reasonable estimates of their fair value and classified as Level 2 in the fair value hierarchy as they are valued based on market rates for similar transactions.
The fair value of the long-term notes was estimated using the discounted cash flow method with the U.S. Treasury yields and the Company's credit spreads as inputs, interpolating to the maturity date of each issue. The carrying values and estimated fair values were as follows:
Puget Energy September 30, 2024 December 31, 2023
(Dollars in Thousands) Level Carrying
Value 		Fair
Value 		Carrying
Value 		Fair
Value
Liabilities:
Long-term debt (fixed-rate), net of discount1
2 $ 7,437,695 $ 7,396,449 $ 7,036,642 $ 6,855,503
Total liabilities $ 7,437,695 $ 7,396,449 $ 7,036,642 $ 6,855,503
Puget Sound Energy September 30, 2024 December 31, 2023
(Dollars in Thousands) Level Carrying
Value 		Fair
Value 		Carrying
Value 		Fair
Value
Liabilities:
Long-term debt (fixed-rate), net of discount2
2 $ 5,977,376 $ 5,869,739 $ 5,184,047 $ 5,007,483
Total liabilities $ 5,977,376 $ 5,869,739 $ 5,184,047 $ 5,007,483
_______________
1 The carrying value includes debt issuances costs of $21.8 million and $21.0 million for September 30, 2024 and December 31, 2023, respectively, which are not included in fair value.
2 The carrying value includes debt issuances costs of $22.5 million and $21.2 million for September 30, 2024 and December 31, 2023, respectively, which are not included in fair value.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company's financial assets and liabilities by level, within the fair value hierarchy, that were accounted for at fair value on a recurring basis:
Puget Energy and
Puget Sound Energy 		Fair Value
At September 30, 2024 		Fair Value
At December 31, 2023
(Dollars in Thousands) Level 2 Level 3 Total Level 2 Level 3 Total
Assets:
Electric derivative instruments $ 17,906 $ 21,679 $ 39,585 $ 42,254 $ 50,774 $ 93,028
Natural gas derivative instruments 3,304 2,605 5,909 11,647 4,874 16,521
Total assets $ 21,210 $ 24,284 $ 45,494 $ 53,901 $ 55,648 $ 109,549
Liabilities:
Electric derivative instruments $ 95,060 $ 110,149 $ 205,209 $ 103,427 $ 23,512 $ 126,939
Natural gas derivative instruments 55,055 665 55,720 95,875 1,023 96,898
Compliance obligations 70,431 - 70,431 168,879 - 168,879
Total liabilities $ 220,546 $ 110,814 $ 331,360 $ 368,181 $ 24,535 $ 392,716
The following tables presents the Company's reconciliation of the changes in the fair value of Level 3 derivatives in the fair value hierarchy:
Puget Energy and
Puget Sound Energy 		Three Months Ended September 30,
(Dollars in Thousands) 2024 2023
Level 3 Roll-Forward Net Asset/(Liability) Electric Natural Gas Total Electric Natural Gas Total
Balance at beginning of period $ 3,041 $ 2,022 $ 5,063 $ 57,907 $ 104 $ 58,011
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings1
(97,624) - (97,624) (12,551) - (12,551)
Included in regulatory assets / liabilities - 1,217 1,217 - 3,808 3,808
Settlements 6,113 (1,299) 4,814 (9,752) (351) (10,103)
Transferred into Level 3 - - - - - -
Transferred out of Level 3 - - - - - -
Balance at end of period $ (88,470) $ 1,940 $ (86,530) $ 35,604 $ 3,561 $ 39,165
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Puget Energy and
Puget Sound Energy 		Nine Months Ended September 30,
(Dollars in Thousands) 2024 2023
Level 3 Roll-Forward Net Asset/(Liability) Electric Natural Gas Total Electric Natural Gas Total
Balance at beginning of period $ 27,262 $ 3,851 $ 31,113 $ 116,078 $ (127) $ 115,951
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings2
(148,522) - (148,522) (47,613) - (47,613)
Included in regulatory assets / liabilities - 1,741 1,741 - 3,852 3,852
Settlements 32,790 (3,652) 29,138 (33,078) (334) (33,412)
Transferred into Level 3 - - - - - -
Transferred out of Level 3 - - - 217 170 387
Balance at end of period $ (88,470) $ 1,940 $ (86,530) $ 35,604 $ 3,561 $ 39,165
_______________
1 Income Statement locations: Unrealized gain (loss) on derivative instruments, net. Amounts include unrealized gains (losses) on derivatives still held in position as of the reporting date for electric derivatives of $(90.9) million and $(16.1) million for the three months ended September 30, 2024 and 2023, respectively.
2 Income Statement locations: Unrealized gain (loss) on derivative instruments, net. Amounts include unrealized gains (losses) on derivatives still held in position as of the reporting date for electric derivatives of $(112.4) million and $(25.9) million for the nine months ended September 30, 2024 and 2023, respectively.
Realized gains and losses on energy derivatives for Level 3 recurring items are included in energy costs in the Company's consolidated statements of income under purchased electricity, electric generation fuel or purchased natural gas when settled. Unrealized gains and losses on energy derivatives for Level 3 recurring items are included in net unrealized (gain) loss on derivative instruments in the Company's consolidated statements of income.
The Company does not use internally developed models to make adjustments to significant unobservable pricing inputs. The only significant unobservable input into the fair value measurement of the Company's Level 3 assets and liabilities is the forward price for electric and natural gas contracts. The weighted average price is calculated as the total market value divided by the total volume of the Company's Level 3 electric and natural gas commodity contracts, respectively, as of the reporting date.
The following table presents the forward price ranges for the Company's Level 3 commodity contracts as of September 30, 2024:
Puget Energy and
Puget Sound Energy 		Fair Value Range
(Dollars in Thousands)
Assets1
Liabilities1
Valuation Technique Unobservable Input Low High Weighted Average
Electric
$ 21,679 $ 110,149 Discounted cash flow Power prices (per MWh) $ 20.10 $ 149.85 $ 73.29
Natural gas
$ 2,605 $ 665 Discounted cash flow Natural gas prices (per MMBtu) $ 2.10 $ 5.86 $ 4.50
_______________
1 The valuation techniques, unobservable inputs and ranges are the same for asset and liability positions.
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The following table presents the forward price ranges for the Company's Level 3 commodity contracts as of December 31, 2023:
Puget Energy and
Puget Sound Energy 		Fair Value Range
(Dollars in Thousands)
Assets1
Liabilities1
Valuation Technique Unobservable Input Low High Weighted Average
Electric
$ 50,774 $ 23,512 Discounted cash flow Power prices (per MWh) $ 69.51 $ 188.63 $ 99.55
Natural gas
$ 4,874 $ 1,023 Discounted cash flow Natural gas prices (per MMBtu) $ 2.20 $ 6.28 $ 3.55
_______________
1 The valuation techniques, unobservable inputs and ranges are the same for asset and liability positions.
The significant unobservable inputs listed above would have a direct impact on the fair values of the above instruments if they were adjusted. Consequently, significant increases or decreases in the forward prices of electricity or natural gas in isolation would result in a significantly higher or lower fair value for Level 3 assets and liabilities. Generally, interrelationships exist between market prices of natural gas and power. As such, an increase in natural gas pricing would potentially have a similar impact on forward power markets. As of September 30, 2024 and December 31, 2023, a hypothetical 10% increase or decrease in market prices of natural gas and electricity would change the fair value of the Company's derivative portfolio, classified as Level 3 within the fair value hierarchy, by $60.1 million and $16.9 million, respectively.
Long-Lived Assets Measured at Fair Value on a Nonrecurring Basis
Puget Energy records the fair value of its intangible assets in accordance with ASC 360, "Property, Plant, and Equipment," (ASC 360). The fair value assigned to the power contracts was determined using an income approach comparing the contract rate to the market rate for power over the remaining period of the contracts incorporating non-performance risk. Management also incorporated certain assumptions related to quantities and market presentation that it believes market participants would make in the valuation. The fair value of the power contracts is amortized as the contracts settle.
ASC 360 requires long-lived assets to be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. One such triggering event is a significant decrease in the forward market prices of power.
As of September 30, 2024, Puget Energy completed valuation and impairment testing of its power purchase contracts classified as intangible assets and determined that no impairment was needed. These intangible assets exist as a result of the merger in 2009, at which time the consolidated assets and liabilities were revalued in accordance with ASC 805, "Business Combinations."
(6) Retirement Benefits
PSE has a defined benefit pension plan (Qualified Pension Benefits) covering a substantial majority of PSE employees. For employees hired prior to 2014, pension benefits earned are a function of age, salary, years of service and, in the case of employees in the cash balance formula plan, the applicable annual interest crediting rates. Effective January 1, 2014, all new UA represented employees hired or rehired receive annual pay credits of 4.0% of eligible pay each year in the cash balance formula of the defined pension plan. Effective January 1, 2014 for non-represented employees, and December 12, 2014 for employees represented by the IBEW, newly hired or rehired employees receive annual employer contributions of 4.0% of eligible pay each year into the cash balance formula of the defined benefit pension or 401k plan account. PSE also has a non-qualified SERP for certain key senior management employees that closed to new participants in 2019. Effective 2019, PSE has an officer restoration benefit for new officers who join PSE or are promoted, such that company contributions under PSE's applicable tax-qualified plan, which otherwise would have been credited if not for IRS limitations, are credited at 4.0% of earnings to an account with the Deferred Compensation Plan.
In addition to providing pension benefits, PSE provides legacy group health care and life insurance benefits (Other Benefits) for certain retired employees. The group health care benefit is provided via a Retiree Health Reimbursement Account (HRA) Plan effective January 1, 2020. The life insurance benefits are provided principally through an insurance company.
Puget Energy's retirement plans were remeasured as a result of the merger in 2009, which represents the difference between Puget Energy and PSE's retirement plans. The components of service cost are included within utility operations and
27
maintenance for PSE and within non-utility expense and other for Puget Energy while all non-service cost components are included in other income.
For further information, see Note 13, "Retirement Benefits" in the Combined Notes to Consolidated Financial Statements included in Item 8 of the Company's Form 10-K for the period ended December 31, 2023.
The following tables summarize the Company's net periodic benefit cost for the three and nine months ended September 30, 2024 and 2023:
Puget Energy Qualified
Pension Benefits 		SERP
Pension Benefits 		Other
Benefits
Three Months Ended September 30,
(Dollars in Thousands) 2024 2023 2024 2023 2024 2023
Components of net periodic benefit cost:
Service cost $ 4,654 $ 4,632 $ - $ - $ 47 $ 44
Interest cost 7,788 8,094 342 370 97 99
Expected return on plan assets (13,724) (12,660) - - (61) (64)
Amortization of prior service cost - - - - 8 7
Amortization of net loss (gain) (671) (612) (10) - (24) (57)
Net periodic benefit cost $ (1,953) $ (546) $ 332 $ 370 $ 67 $ 29
Puget Energy Qualified
Pension Benefits 		SERP
Pension Benefits 		Other
Benefits
Nine Months Ended September 30,
(Dollars in Thousands) 2024 2023 2024 2023 2024 2023
Components of net periodic benefit cost:
Service cost $ 13,962 $ 13,898 $ - $ 141 $ 148 $ 138
Interest cost 23,364 24,281 1,027 1,219 305 330
Expected return on plan assets (41,172) (37,980) - - (216) (223)
Amortization of prior service cost - - - 146 25 21
Amortization of net loss (gain) (2,013) (1,836) (31) - (105) (158)
Net periodic benefit cost $ (5,859) $ (1,637) $ 996 $ 1,506 $ 157 $ 108
Puget Sound Energy Qualified
Pension Benefits 		SERP
Pension Benefits 		Other
Benefits
Three Months Ended September 30,
(Dollars in Thousands) 2024 2023 2024 2023 2024 2023
Components of net periodic benefit cost:
Service cost $ 4,654 $ 4,632 $ - $ - $ 47 $ 44
Interest cost 7,788 8,094 342 370 97 99
Expected return on plan assets (13,724) (12,660) - - (61) (64)
Amortization of prior service cost - - - - 8 7
Amortization of net loss (gain) - - (5) - (22) (64)
Net periodic benefit cost $ (1,282) $ 66 $ 337 $ 370 $ 69 $ 22
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Puget Sound Energy Qualified
Pension Benefits 		SERP
Pension Benefits 		Other
Benefits
Nine Months Ended September 30,
(Dollars in Thousands) 2024 2023 2024 2023 2024 2023
Components of net periodic benefit cost:
Service cost $ 13,962 $ 13,898 $ - $ 141 $ 148 $ 138
Interest cost 23,364 24,281 1,027 1,219 305 330
Expected return on plan assets (41,172) (37,981) - - (216) (223)
Amortization of prior service cost - - - 146 25 21
Amortization of net loss (gain) - - (16) 44 (105) (173)
Net periodic benefit cost $ (3,846) $ 198 $ 1,011 $ 1,550 $ 157 $ 93
The following table summarizes the Company's change in benefit obligation for the periods ended September 30, 2024 and December 31, 2023:
Puget Energy and
Puget Sound Energy 		Qualified
Pension Benefits 		SERP
Pension Benefits 		Other
Benefits
Nine Months Ended Year Ended Nine Months Ended Year Ended Nine Months Ended Year Ended
(Dollars in Thousands) September 30,
2024 		December 31,
2023 		September 30,
2024 		December 31,
2023 		September 30,
2024 		December 31,
2023
Change in benefit obligation:
Benefit obligation at beginning of period $ 609,103 $ 589,278 $ 26,824 $ 32,046 $ 8,597 $ 9,015
Amendments - - - - - 78
Service cost 13,962 18,530 - 143 148 184
Interest cost 23,364 32,375 1,027 1,589 305 439
Curtailment loss / (gain)
- - - (2,772) - -
Actuarial loss (gain) 1,450 8,469 - (661) 161 (52)
Benefits paid (34,607) (38,258) (1,498) (3,521) (868) (1,067)
Administrative expense - (1,291) - - - -
Benefit obligation at end of period $ 613,272 $ 609,103 $ 26,353 $ 26,824 $ 8,343 $ 8,597
The aggregate expected contributions by the Company to fund the qualified pension plan, SERP and the other postretirement plans for the year ending December 31, 2024, are expected to be at least $18.0 million, $2.0 million and $0.2 million, respectively. The Company contributed $18.0 million to fund the qualified pension plan during the nine months ended September 30, 2024 and the nine months ended September 30, 2023. In addition, the Company contributed $1.5 million and $3.0 million to fund the SERP during each of the nine months ended September 30, 2024 and the nine months ended September 30, 2023, respectively. The Company contributed an immaterial amount to fund the other postretirement plans.
(7) Regulation and Rates
General Rate Case
PSE filed a GRC which includes a two year MYRP with the Washington Commission on February 15, 2024, requesting an overall increase in electric and natural gas rates of 6.7% and 19.0% respectively in rate year one (expected to approximate
29
calendar year 2025) and 8.5% and 2.1%, respectively in rate year two (expected to approximate calendar year 2026). PSE requested a return on equity of 9.95% for the first rate year beginning in 2025 and 10.5% for the second rate year beginning in 2026. PSE requested an overall rate of return of 7.65% in rate year one and 7.99% in rate year two. The filing requests recovery of forecasted plant additions through 2024 as required by Revised Code of Washington (RCW) 80.28.425 as well as forecasted plant additions through 2026, the final year of the MYRP. The procedural calendar for the adjudication of the case is set, with evidentiary hearing occurring on November 4th and 5th of 2024. The Company estimates the approved rates from this proceeding will become effective by statute approximately 11 months after filings. On August 6, 2024, intervenor response testimony was filed with the Washington Commission, to which PSE filed rebuttal testimony on September 18, 2024.
On December 22, 2022, the Washington Commission issued an order on PSE's 2022 GRC, which was filed on January 31, 2022 that approved a weighted cost of capital of 7.16%, or 6.62% after-tax, a capital structure of 49.0% in common equity in 2023 and 2024, and a return on equity of 9.4%. On January 6, 2023, the Washington Commission approved PSE's natural gas rates in its compliance filing with an overall net revenue change of $70.8 million or 6.4% in 2023 and $19.5 million or 1.7% in 2024, with an effective date of January 7, 2023. On January 10, 2023, the Washington Commission approved PSE's electric rates in its compliance filing with an overall net revenue change of $247.0 million or 10.8% in 2023 and $33.1 million or 1.3% in 2024 with an effective date of January 11, 2023. Per the 2022 GRC Final Order in Docket No. UE-220066, power cost only rate case (PCORC) rates were set to zero as of January 11, 2023 and PSE agreed not to file a PCORC during 2023 and 2024, the period covered by the two-year rate plan agreed to in the GRC settlement. Per the 2022 GRC Final Order in Docket No. UG-220067, PSE was authorized to seek recovery of the costs related to the Tacoma LNG Facility concurrent with its 2023 PGA filing.
On April 24, 2024, the Washington Commission issued Final Order 07 under Docket No. UG-230393. The order determined that PSE acted prudently in developing and constructing the Tacoma LNG Facility after the initial decision to build in September 2016. Further, there were two main outcomes that resulted from the order. First, the Washington Commission did not authorize recovery of the portion of the Company's deferred return on its investment in the Tacoma LNG Facility that was recorded between February 1, 2022, the date the facility was placed into service, and January 11, 2023, the date PSE's 2022 GRC rates went into effect. Second, the Washington Commission directed PSE to increase the allocation of distribution pipeline investment to Puget LNG. The Washington Commission determined that the allocation should be tied to the relative flow of natural gas across these facilities, resulting in a higher allocation to Puget LNG than was originally filed. On May 3, 2024, PSE made the compliance filing required by Final Order 07. On May 24, 2024, Public Counsel and the Puyallup Tribe of Indians each filed a petition for judicial review of the Washington Commission's Final Order 07. The petitions were filed in Thurston County Superior Court and are expected to be consolidated. Both petitions allege that the Washington Commission (i) failed to properly apply the updated public interest standard, (ii) failed to disallow all costs related to PSE's redesign of the pipeline and development of waste gas disposal methods, and (iii) failed to conduct an independent determination of reasonable attorney fees.
For further information, see Note 4, "Regulation and Rates" in the Combined Notes to Consolidated Financial Statements included in Item 8 of the Company's Form 10-K for the period ended December 31, 2023.
Climate Commitment Act Deferral
On December 29, 2022, PSE filed accounting petitions with the Washington Commission requesting authorization to defer costs and revenues associated with the Company's compliance with the CCA codified in law within RCW 70A.65. On February 28, 2023, in Order 01 in Docket No. UE-220974 and UG-220975, the Washington Commission granted PSE approval to defer the cost of emission allowances to comply with the CCA and the proceeds from no-cost allowances consigned to auction beginning January 1, 2023.
On August 3, 2023, the Washington Commission approved PSE's request for CCA rates in Docket No. UG-230470, subject to refund, effective October 1, 2023, to recover the estimated ongoing allowance costs and proportionate pass back of credits to customers from estimated auction proceeds during the period of August 2023 through December 2023. On October 26, 2023, the Washington Commission approved PSE's request for CCA rates in Docket No. UG-230756, subject to refund, effective November 1, 2023, to recover the estimated ongoing allowance costs and proportionate pass back of credit to customers from estimated auction proceeds during the period of January 2023 through September 2023.
On November 22, 2023, PSE filed proposed revisions to its natural gas rates to incorporate allowance costs and auction proceeds in Docket UG-230968. In the filing PSE sought to update rates pertaining to amounts deferred from January 2023 through September 2023 and to add new language to the tariff that would enable PSE to fund decarbonization projects using a portion of the projected no cost allowances revenues. The request, as revised by PSE on December 19, 2023, represented a revenue increase of $29.1 million. The Washington Commission suspended the tariff sheets but allowed the rates to go into
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effect on an interim basis, subject to refund, on January 1, 2024. The Washington Commission had a hearing for the issue of risk sharing of CCA compliance costs on October 9, 2024 and has not yet issued an order.
As of September 30, 2024, PSE has not sought cost recovery for its allowance costs for electric operations. The ongoing recovery of allowance costs and pass back of proceeds from the sale of consigned no-cost allowances for PSE's natural gas operations is consistent with the approved accounting petitions in Dockets No. UG-220975 and UG-230471. As of September 30, 2024, PSE recorded a regulatory liability of $89.9 million, which represents the amounts to date collected in customer natural gas rates for CCA obligation costs, net of the expense incurred for the purchase of allowances for electric and natural gas operations. Additionally, PSE will continue to consign for auction at least the minimum amount of no-cost emission allowances allocated for natural gas operations in compliance with the CCA, the proceeds of which will continue to be used for the benefit of natural gas customers, as determined by the Washington Commission. PSE does not record a regulatory liability to defer the proceeds until consigned allowances are sold at auction. As of September 30, 2024, PSE recorded a regulatory asset of $26.9 million, which represents the proceeds from the sale of consigned natural gas GHG emission allowances passed back through customer rates, net of proceeds received from the sale of consigned allowances sold at auction.
Revenue Decoupling Adjustment Mechanism
PSE performed an analysis to determine if electric and natural gas decoupling revenue deferrals would be collected from customers within 24 months of the annual period, per ASC 980. If not, for GAAP purposes only, PSE would need to record a reserve against the decoupling revenue and corresponding regulatory asset balance. Once the reserve is probable of collection within 24 months from the end of the annual period, the reserve can be recognized as decoupling revenue.
Based on the analysis as of September 30, 2024, $0.1 million and zero reserve adjustment was recorded to electric and natural gas decoupling revenue as of September 30, 2024, respectively. No reserve adjustment was recorded for electric or natural gas decoupling revenue as of September 30, 2023.
Power Cost Adjustment Mechanism
PSE currently has a PCA mechanism that provides for the deferral of power costs that vary from the "power cost baseline" level of power costs. The "power cost baseline" levels are set, in part, based on normalized assumptions about weather and hydroelectric conditions. Excess power costs or savings are apportioned between PSE and its customers pursuant to the graduated scale set forth in the PCA mechanism and will trigger a surcharge or refund when the cumulative deferral trigger is reached.
The following graduated scale is used in the PCA mechanism:
Company's Share Customers' Share
Annual Power Cost Variability Over Under Over Under
Over or under collected up to $17 million
100 % 100 % - % - %
Over or under collected between $17 million - $40 million
35 50 65 50
Over or under collected beyond $40 million
10 10 90 90
For the nine months ended September 30, 2024, in its PCA mechanism, PSE under recovered its allowable costs by $111.1 million of which $75.5 million was apportioned to customers and $2.3 million of interest was accrued on the deferred customer balance. This compares to an over recovery of allowable costs of $66.2 million for the nine months ended September 30, 2023, of which $38.5 million was apportioned to customers and $3.6 million of interest was accrued on the total deferred customer balance.
Power Cost Adjustment Clause
PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2022. During 2022, actual power costs were higher than baseline power costs, thereby, creating an under-recovery of $110.1 million. Under the terms of the PCA's sharing mechanism for under-recovered power costs, PSE absorbed $39.0 million of the under-recovered amount, and customers were responsible for the remaining $71.1 million, or $76.4 million including interest and adjusted for revenue sensitive items. On April 28, 2023, PSE filed the 2022 PCA report in Docket No. UE-230313 that proposed a recovery of the deferred balance, which included a revenue requirement increase of 0.9% in overall bill for all customers, with rates proposed to go into effect from December 1, 2023 through December 31, 2024.
On September 29, 2023, PSE filed its variable power cost rates update as part of the 2022 GRC Order requirement in Docket No. UE-220066. The filing was approved in part on December 22, 2023, with updated rates effective January 1, 2024.
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PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2023. During 2023, actual power costs were lower than baseline power costs, thereby creating an over-recovery of $51.1 million. Under the terms of the PCA's sharing mechanism for over-recovered costs, PSE's share of the over-recovery was $26.2 million and customers were due the remaining $24.9 million, or $22.2 million including interest and adjusted for revenue sensitive items.
On April 30, 2024, PSE filed the 2023 PCA compliance report, in Docket No. 240288, that proposed to pass back 2023 deferred balances from October 1, 2024 to December 31, 2025, resulting in credits to customers of $22.2 million. Additionally, PSE requested to recover the forecasted 2024 deferred balance of $98.2 million from October 1, 2024 to December 31, 2025. On September 26, 2024, the Washington Commission approved the filing as proposed with rates going into effect October 1, 2024 and January 1, 2025.
Purchased Gas Adjustment Mechanism
In October 2022, the Washington Commission approved PSE's request for PGA rates in Docket No. UG-220715, effective November 1, 2022. As part of that filing, PSE requested an annual revenue increase of $155.3 million, where PGA rates, under Schedule 101, increase annual revenue by $142.1 million, and the tracker rates under Schedule 106 increase annual revenue by $13.2 million.
In November 2022, the FERC approved a settlement of a counterparty, FERC Docket No. RP17-346. Under the terms, PSE was allocated $24.2 million related to PSE natural gas services, which was recorded on December 31, 2022 and included below. The 2022 GRC order required PSE to amortize the refund in 2023 as a credit against natural gas costs and therefore pass back the refund to customers through the PGA mechanism.
On October 26, 2023, the Washington Commission approved PSE's request for PGA rates in Docket No. UG-230769, effective November 1, 2023. As part of that filing, PSE requested an annual revenue decrease of $309.4 million, where PGA rates, under Schedule 101, decrease annual revenue by $93.9 million, and the tracker rates, under Schedule 106, decrease annual revenue by $215.5 million. The annual 2023 PGA rate decreases include the aforementioned counterparty settlement pass back of $28.1 million under Supplemental Schedule 106B.
On October 24, 2024, the Washington Commission approved PSE's request for PGA rates in Docket No. UG-240708, effective November 1, 2024. As part of that filing, PSE requested an annual overall revenue increase of $124.4 million, where PGA rates, under Schedule 101, decrease annual revenue by $2.6 million and the tracker rates, under Schedule 106, increase annual revenue by $127.0 million. The revenue increase in Schedule 106 is primarily due to the cessation of the counterparty refund of $28.1 million, mentioned above, that was amortized as a credit in 2023 and $142.8 million in commodity deferrals that were passed back to customers.
The following table presents the PGA mechanism balances and activity for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023:
Puget Energy and
Puget Sound Energy
(Dollars in Thousands) At September 30, At December 31,
2024 2023
PGA (liability)/receivable beginning balance $ (132,082) $ (3,536)
Actual natural gas costs 287,111 404,897
Allowed PGA recovery (210,102) (521,882)
Interest (5,410) (7,639)
Refund/interest from counterparty settlement - (3,922)
PGA (liability)/receivable ending balance $ (60,483) $ (132,082)
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Storm Loss Deferral Mechanism
The Washington Commission has defined deferrable weather-related events and provided that costs in excess of the annual cost threshold may be deferred for qualifying damage costs that meet the modified Institute of Electrical and Electronics Engineers outage criteria for system average interruption duration index. For the nine months ended September 30, 2024, PSE incurred $13.3 million in weather-related electric transmission and distribution system restoration costs, of which the Company deferred $2.8 million as regulatory assets related to storms that occurred in 2024. This compares to $6.1 million incurred in weather-related electric transmission and distribution system restoration costs for the nine months ended September 30, 2023, of which the Company deferred zero and $2.1 million as regulatory assets related to storms that occurred in 2023 and 2022, respectively. Under the 2017 GRC Order, the storm loss deferral mechanism approved the following: (i) the cumulative annual cost threshold for deferral of storms under the mechanism at $10.0 million; and (ii) qualifying events where the total qualifying cost is less than $0.5 million will not qualify for deferral and these costs will also not count toward the $10.0 million annual cost threshold.
(8) Commitments and Contingencies
Legal Matters
Washington Climate Commitment Act
In 2021, the Washington Legislature adopted the CCA, which establishes a GHG emissions cap-and-invest program that requires covered entities, including electric and natural gas utilities, to purchase allowances to cover their GHG emissions with a cap on available allowances beginning on January 1, 2023 that declines annually through 2050. The WDOE published final regulations to implement the program on September 29, 2022, which became effective on October 30, 2022. The WDOE also indicated that there will be subsequent rulemakings building off initial rulemaking as program implementation proceeds and Washington carbon goal progress is evaluated.
Compliance with the CCA requires covered entities to obtain allowances equal to their emissions and submit to the WDOE annually according to a staggered four-year compliance schedule. For the first three years of each compliance period, covered entities must submit allowances to cover at least 30% of their annual compliance obligation, as determined by the WDOE, no later than November 1st of the following year. For the fourth year of each compliance period, covered entities must submit sufficient allowances to cover 100% of their full four-year compliance obligation, as determined by the WDOE.
The WDOE provided an initial allocation of no-cost allowances to electric utilities, including PSE, on April 24, 2023. However, qualifying electric utilities were allowed to submit revised emissions forecasts approved by the Washington Commission to WDOE. PSE filed its revised forecast of 2023 emission in Docket No. UE 220797, which was approved by the Washington Commission on July 27, 2023, and approved by the WDOE on September 27, 2023. Accordingly, the Company's compliance obligation as of September 30, 2024 reflects the revised allowance allocation in addition to allowances received based on PSE's forecast of 2023 and 2024 emissions.
On September 30, 2024, the WDOE provided notice to PSE that its 2023 annual compliance obligation was confirmed based on its 2023 reported covered emissions as previously reported to the WDOE. On October 16, 2024, the WDOE held a meeting with electric utilities, including PSE, regarding CCA compliance issues related to calendar year 2023, at which time WDOE stated that based on current information it will not make further adjustments (or "true up") accounting for allocation methods, forecasts or cost burden associated with calendar year 2023 for any electric utilities, including PSE, except for administrative costs, at the current time. The WDOE also indicated that there will be future meetings with electric utilities on how the adjustment (or "true-up") mechanism will work going forward and that the WDOE would provide electric utilities advance notice if any such adjustments were being considered. Based on the determinations made by the WDOE in the aforementioned notices, PSE recorded a compliance obligation of $15.0 million for allowances for electric operations as of September 30, 2024. Given the potential for future rulemakings and the WDOE's ability to adjust no-cost allowances during the compliance period, there is estimation uncertainty surrounding the Company's ability to estimate its compliance obligation both on an annual basis and a four-year compliance period, prior to a final WDOE determination.
As existing uncertainties are resolved in future periods, any change in compliance costs as a result of such estimated additional liabilities would be deferred under ASC 980 as a regulatory asset consistent with Docket No. UE-220974, as these amounts will be recoverable from customers in future utility rates. As a result, there is no current impact to the Company's consolidated statements of income.
Colstrip
PSE has a 50% ownership interest in Colstrip Units 1 and 2 and a 25% interest in each of Colstrip Units 3 and 4, which are coal-fired generating units located in Colstrip, Montana. PSE has accelerated the depreciation of Colstrip Units 3 and 4 to December 31, 2025 as part of the 2019 GRC. The 2017 GRC repurposed PTCs and hydro-related treasury grants to recover
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unrecovered plant costs and to fund and recover decommissioning and remediation costs for Colstrip Units 1 through 4. Additional costs beyond those covered by PTCs and hydro-related treasury grants are being recovered through a separate Colstrip tariff as part of the 2022 GRC. In 2022, PSE and Talen Energy signed an agreement to transfer PSE's ownership interest in Colstrip Units 3 and 4 to Talen Energy on December 31, 2025. However, Talen emerged from a Chapter 11 bankruptcy in May 2023 without approval of the 2022 transfer agreement, which the parties agree makes the transfer agreement unenforceable. Given that the transfer contemplated by that agreement will not proceed, PSE entered into an agreement with NorthWestern Energy on July 30, 2024 to transfer PSE's ownership interest in Colstrip Units 3 and 4 to NorthWestern Energy on December 31, 2025. Management evaluated Colstrip Units 3 and 4 and determined that the applicable held for sale and abandonment accounting criteria were not met as of December 31, 2023 and September 30, 2024. Colstrip Units 3 and 4 are classified as electric utility plant on the Company's balance sheet as of September 30, 2024 and December 31, 2023.
Other Commitments and Contingencies
In addition to the contractual obligations and consolidated commercial commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, during the nine months ended September 30, 2024, the Company entered into new Electric Portfolio and Electric Wholesale Market Transaction contracts with estimated payment obligations totaling $2.7 billion through 2053.
For further information, see Part II, Item 8, Note 16, "Commitments and Contingencies" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
(9) Leases
As of September 30, 2024, there have been no material changes regarding the Company's leases. For further information, see Part II, Item 8, Note 9, "Leases" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Leases Not Yet Commenced
On September 20, 2023, PSE entered into a tolling agreement to purchase the energy and capacity associated with a 132.5 MW facility. The tolling agreement represents a lease to PSE, and is expected to commence in October 2025. PSE expects the future minimum lease payments to be $91.0 million over the five year period beginning in October 2025.
On December 12, 2023, PSE entered into a lease for an operations training facility located in Puyallup, Washington. The lease is expected to commence in 2025 and PSE expects the future minimum lease payments to be $116.0 million over the 20 years term. Construction of the facility will be managed and contracted by the lessor, however, PSE will have involvement in the design of the facility.
On May 8, 2024, PSE entered into a battery storage tolling agreement that will be accounted for as a lease upon commencement. The lease is expected to commence in August 2027 and has a term of 20 years. The expected total contract consideration will approximate $744.0 million over the lease term.
On May 23, 2024, PSE entered into a battery storage tolling agreement that will be accounted for as a lease upon commencement. The lease is expected to commence in September 2027 and has a term of 25 years. The expected total contract consideration will approximate $856.2 million over the lease term.
(10) Other
Long-Term Debt
On June 11, 2024, PSE issued $400.0 million of senior secured notes at an interest rate of 5.330%. The notes mature on June 15, 2034 and pay interest semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2024. Proceeds from the issuance of the notes were invested in short-term money market funds, used to pay down outstanding commercial paper and for general corporate purposes.
On June 11, 2024, PSE issued $400.0 million of green senior secured notes at an interest rate of 5.685%. The notes mature on June 15, 2054 and pay interest semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2024. Net proceeds from the issuance of the notes were invested in short-term money market funds and are intended to be used for allocation to eligible projects, as defined in PSE's sustainable financing framework, which was published in May 2023. Eligible Projects are expenditures incurred and investments made related to development and acquisition of some or all of the following types of projects: (i) renewable energy, (ii) energy efficiency, (iii) clean transportation, (iv) biodiversity conservation, (v) climate change adaptation, (vi) water and wastewater management, (vii) pollution prevention and control, and (viii) green innovation.
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Liquidity Facilities and Other Financing Arrangements
As of September 30, 2024, $371.1 million was drawn and outstanding under Puget Energy's facility, which was classified as short-term debt on Puget Energy's consolidated balance sheet.
As of September 30, 2024, there was no amount outstanding under the commercial paper program at PSE and no amount was drawn under PSE's credit facility. Outside of the credit facility, PSE maintains a standby letter of credit with TD Bank allowing for standby letter of credit postings of up to $150.0 million as a condition of transacting on the ICE NGX platform as well as participating in the Washington state carbon allowance auctions. As of September 30, 2024, $4.1 million was issued under a standby letter of credit with TD Bank in support of natural gas purchases on the NGX in Canada. Additionally, PSE had a $1.9 million letter of credit in support of a long-term transmission contract. In support of purchase power contracts, PSE posted cash collateral of $15.2 million and maintained two standby letters of credit in the amounts of $24.0 million and $13.5 million.
On June 17, 2024, Puget Energy received $292.8 million as an equity contribution from Puget Equico LLC, Puget Energy's parent company. Puget Energy then contributed $292.8 million to PSE as an equity contribution. The proceeds from the equity contribution were used for general corporate purposes.
For further information on the Company's long-term and short-term debt, credit facilities and other financing arrangements, see Part II, Item 8, Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Beaver Creek Wind Project
Beaver Creek is a utility-scale wind project located in Stillwater County, Montana, with an expected nameplate capacity of 248 MW that is expected to commence commercial operations in 2025. On September 15, 2023, PSE executed a membership interest purchase agreement with Caithness Beaver Creek, LLC for a 100% ownership interest in Caithness Montana Wind, LLC, which closed on December 1, 2023. Total consideration is expected to be $44.6 million of which $23.8 million has been paid as of September 30, 2024 and the remaining balance is expected to be paid in the third quarter of 2025. On December 1, 2023, PSE entered into a turbine supply agreement with GE Renewables North America, LLC to purchase 88 wind turbines. Total consideration is expected to be $266.9 million of which $229.5 million has been paid as of September 30, 2024 and the remaining balance is expected to paid throughout 2024 and the first quarter of 2025 as turbines are delivered and the project is completed. On January 26, 2024, PSE entered into a balance of plant agreement to complete the design and construction of the project. Total consideration is expected to be approximately $145.4 million. As of September 30, 2024, $461.5 million and $19.2 million was recorded to construction work in progress and ARO, respectively, in conjunction with the Beaver Creek wind project.
Appaloosa Solar Project
Appaloosa Solar Project is a utility-scale solar project located in Garfield County, Washington, with an expected nameplate capacity of 142 MW that is expected to commence commercial operations in 2026. On December 22, 2023, PSE executed and closed a membership interest purchase agreement with HQC Solar Holdings 1, LLC for a 100% ownership interest in Appaloosa Solar Project LLC. Total consideration is expected to be $20.3 million, which was accrued for payment as of September 30, 2024. On August 30, 2024, PSE entered into an Engineering, Procurement, and Construction agreement to complete the design and construction of the project. Total consideration is expected to be approximately $266.8 million. As of September 30, 2024, $20.3 million was recorded to construction work in progress in conjunction with the Appaloosa solar project.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to promote understanding of the results of operations and financial condition, is provided as a supplement to, and should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report on Form 10-Q. This section generally discusses the results of operations and changes in financial condition for the period ended September 30, 2024 compared to 2023. For discussion related to the results of operations and changes in financial condition for the period ended September 30, 2023 compared to 2022 refer to Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations in our period ended September 30, 2023, Form 10-Q, which was filed with the United States Securities and Exchange commission (SEC). The discussion contains forward-looking statements that involve risks and uncertainties, such as Puget Energy, Inc. (Puget Energy) and Puget Sound Energy, Inc. (PSE) objectives, expectations and intentions. Words or phrases such as "anticipates," "believes," "continues," "could," "estimates," "expects," "future," "intends," "may," "might," "plans," "potential," "predicts," "projects," "should," "will likely result," "will continue" and similar expressions are intended to identify certain of these forward-looking statements. However, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Puget Energy's and PSE's actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Forward-Looking Statements" included elsewhere in this report and in the section entitled "Risk Factors" included in Part I, Item 1A in Puget Energy's and PSE's Form 10-K for the period ended December 31, 2023. Except as required by law, neither Puget Energy nor PSE undertakes any obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in Puget Energy's and PSE's other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect Puget Energy's and PSE's business, prospects and results of operations.
Overview
Puget Energy is an energy services holding company and substantially all of its operations are conducted through its wholly-owned subsidiary PSE, a regulated electric and natural gas utility company. PSE is the largest electric and natural gas utility in the state of Washington, primarily engaged in the business of electric transmission, distribution and generation and natural gas distribution. Puget Energy's business strategy is to generate stable cash flows by offering reliable electric and natural gas service in a cost-effective manner through PSE. Puget Energy also has a wholly-owned non-regulated subsidiary, Puget LNG, LLC (Puget LNG), which has the sole purpose of owning and operating the non-regulated activity of the Tacoma liquefied natural gas (LNG) facility. All of Puget Energy's common stock is indirectly owned by Puget Holdings LLC (Puget Holdings). Puget Holdings is owned by a consortium of long-term infrastructure investors including the British Columbia Investment Management Corporation (BCIMC), the Alberta Investment Management Corporation (AIMCo), Ontario Municipal Employee Retirement System (OMERS), PGGM Vermogensbeheer B.V., Macquarie Washington Clean Energy Investment, L.P., and Ontario Teachers' Pension Plan Board. Puget Energy and PSE are collectively referred to herein as "the Company."
PSE generates revenue and cash flow primarily from the sale of electric and natural gas services to residential and commercial customers within a service territory covering approximately 6,000 square miles, principally in the Puget Sound region of the state of Washington. PSE continually balances its load requirements, generation resources, purchase power agreements, and market purchases to meet customer demand. The Company's external financing requirements principally reflect the cash needs of its construction program, its schedule of maturing debt and certain operational needs. PSE requires access to bank and capital markets to meet its financing needs.
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Factors and Trends Affecting PSE's Performance
PSE's ongoing regulatory requirements and operational needs necessitate the investment of substantial capital in 2024 and will continue to do so in future years. Because PSE intends to seek recovery of such investments through the regulatory process, its financial results depend heavily upon favorable outcomes from that process. The principal business, economic and other factors that affect PSE's operations and financial performance include:
•The rates PSE is allowed to charge for its services;
•PSE's ability to recover power costs that are subject to the Company's power cost adjustment mechanism that are included in rates, which are based on volume;
•Weather conditions, including the impact of temperature on customer load; the impact of extreme weather events on budgeted maintenance costs; and meteorological conditions such as snow-pack, stream-flow and wind-speed which affect power generation, supply and price;
•The effects of climate change, including changes in the environment that may affect energy costs or consumption, increase the Company's costs, or adversely affect its operations;
•Regulatory decisions allowing PSE to recover purchased power and fuel costs, on a timely basis;
•PSE's ability to supply electricity and natural gas, either through company-owned generation, purchase power contracts or by procuring natural gas or electricity in wholesale markets;
•Deferral of excess revenues if earnings exceed PSE's authorized rate of return (ROR) by more than 0.5%;
•Availability and access to capital and the cost of capital;
•Regulatory compliance costs, including those related to new and developing federal regulations of electric system reliability, state regulations of natural gas pipelines and federal, state and local environmental laws and regulations, such as the Washington CCA;
•Wholesale commodity prices of electricity and natural gas;
•Increasing capital expenditures with additional depreciation and amortization;
•Failure to complete capital projects on schedule and within budget or the abandonment of capital projects, either of which could result in the Company's inability to recover project costs or refund previously collected revenues;
•Changes in customer growth and customer usage;
•Tax reform, the effect of lower tax rates, and regulatory treatment of excess deferred tax balances on rate base and customer rates;
•General economic conditions, such as inflation, in PSE's operational territory and its effects on customer growth and use-per-customer;
•Federal, state, and local taxes;
•Employee workforce factors, including potential strikes, work stoppages, transitions in senior management, and loss or retirement of key personnel and availability of qualified personnel;
•The effectiveness of PSE's risk management policies and procedures;
•Cybersecurity incidents and/or attacks, data security breaches, or other malicious acts that cause damage to the Company's generation and transmission facilities or information technology systems, or result in the release of confidential customer, employee, or Company information;
•Acts of war or terrorism locally or abroad, or the impact of civil unrest to infrastructure or preventing access to infrastructure and its impact on the supply chain and prices of goods and services;
•Natural disasters such as wildfires, earthquakes, hurricanes, floods, landslides, and windstorms, the rise in frequency and magnitude of extreme temperature events, and possible accidents, explosions, fires or mechanical breakdowns affecting or caused by PSE's facilities or infrastructure may increase the Company's costs, impact PSE's generation, transmission, and distribution systems, subject the Company to increased liability, and/or adversely affect its operations;
•Risks due to health crises, such as epidemics and pandemics, including supply shortages, rising costs, disruption to vendor or customer relationships, the potential for reputational harm, the impact of government, business and company closure of facilities, customer or contract defaults; concerns of safety to employees and customers, potential costs due to quarantining of employees and work-from-home policies, and the Company's and vendor staffing levels resulting from vaccination mandates; and
•Legislative, regulatory, code, and/or ordinance changes that impact operations, electric and natural gas availability, sales, transmission, delivery, and/or restrictions.
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Regulation of PSE Rates and Recovery of PSE Costs
PSE's regulatory requirements, environmental compliance and operational needs require the investment of substantial capital in 2024 and future years. As PSE intends to seek recovery of these investments through the regulatory process, its financial results depend heavily upon outcomes from that process. The rates PSE is allowed to charge for its services influence its financial condition, results of operations and liquidity. PSE is highly regulated and the rates that it charges its retail customers are approved by the Washington Commission. Prior to 2023, the Washington Commission required that rates be determined based on historic test year costs plus weather normalized assumptions. Incremental customer growth and sales typically did not provide sufficient revenue to cover general cost increases due to regulatory lag and attrition. Therefore, the Company would seek rate relief through rate cases with the Washington Commission, which would determine whether the Company's expenses and capital investments were reasonable and prudent for the provision of cost-effective, reliable and safe electric and natural gas service. If the Washington Commission determined that a capital investment was not reasonable or prudent, the costs (including return on any resulting rate base) related to such capital investment would be disallowed, partially or entirely, and not recovered in rates.
In 2021, the Washington Governor signed legislation passed by the state legislature that requires investor-owned utilities to file a forward looking MYRP for two, three, or four years as part of a GRC filed with the Washington Commission on or after January 1, 2022. For the initial rate year, the legislation requires the Washington Commission to ascertain and determine the fair value for rate-making purposes of the property in service as of the date that rates go into effect. Under the law, while utilities are required to file a MYRP (at least two years in length) the Washington Commission is not required to approve them. To the extent the Washington Commission approves a MYRP, utilities are bound to the first and second year of the MYRP but may file for a new rate plan in years three or four. If a company earns greater than a half percent above its authorized rate of return on a regulated basis, revenues above that level must be deferred for refunds to customers or another determination by the Washington Commission in a subsequent adjudicative proceeding. The Washington Commission must also set performance measurements to assess a natural gas or electric company operating under a MYRP.
Washington State law also requires PSE to pursue electric conservation that is cost-effective, reliable and feasible, and the Washington Decarbonization Act for Large Combination Utilities, introduced as house bill 1589, requires PSE to achieve two percent of electric load annually with conservation and energy efficiency resources unless the Washington Commission finds that a higher target is cost effective. The Washington Decarbonization Act for Large Combination Utilities was passed by the Washington State legislature in March 2024 and signed into law in April 2024. The law enables PSE, under the supervision of the Washington Commission, to plan for the electric and natural gas choices of our customers consistent with Washington State's climate goals. The law consolidates multiple existing system plans into an integrated plan, and will be followed by three years of rulemaking and planning prior to the submission in 2027 of PSE's first integrated system plan to the Washington Commission. The law also clarifies the application of three regulatory mechanisms for PSE: Certificate of Public Convenience and Necessity (CPCN), Construction Work in Progress (CWIP) and accelerated depreciation. The law requires PSE to file a depreciation study with the Washington Commission that is intended to depreciate all natural gas plants in service as of July 1, 2024 to no later than January 1, 2050. As PSE's pending GRC was filed prior to the passage of the law, PSE will file depreciation studies in future rate proceedings in a manner that conforms with the law. PSE filed a depreciation study with the Washington Commission as part of its GRC filing on February 15, 2024 which includes a request to shorten the depreciable lives of its natural gas assets by roughly ten years in most cases which is reflective of the current useful life of the assets. Further reductions of the depreciable lives are possible in future rate cases. For additional information on PSE's GRC filings, see Note 7, "Regulation and Rates" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
On March 29, 2024, senate bill 5950 approved Washington State's operating budget, which included $150.0 million for public and private utilities to provide one-time bill rebates for low-and moderate-income residential electric customers. PSE received a total of $45.9 million during the third quarter of 2024, and provided rebates to low-and moderate-income residential electric customers.
Electric Rates
The following table sets forth electric rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE's revenue based on the effective dates. For further information on descriptions of the rate adjustments, see Business, "Regulation and Rates" included in Item 1 or on prior filings, see Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in Item 7, respectively, of the Company's Form 10-K for the period ended December 31, 2023.
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Electric Schedule Docket Effective Date Average
Percentage
Increase (Decrease)
in Rates 		Increase (Decrease)
in Revenue
(Dollars in Millions)
Bill discount rate rider 129D 230692 October 1, 2023 0.5% $11.9
Clean energy implementation 141CEI 230591 September 1, 2023 0.9 31.4
Colstrip adjustment rider
141COL
230808 January 1, 2024 0.03 0.9
220066 January 11, 2023 2.2 50.3
Conservation service rider 120 240138 May 1, 2024 0.7 20.7
230139 May 1, 2023 (0.2) (6.3)
220137 May 1, 2022 1.0 21.6
Energy charge credit recovery 141A 230825 January 1, 2024 (0.1) (2.0)
220066 January 11, 2023 1.5 35.3
Federal incentive tracker 95A 220794
January 1, 20231
1.3 1.0
210821 January 1, 2022 0.1 (28.2)
Low income program 129 240645 October 1, 2024 (1.1) (33.3)
240194 May 1, 2024 2.7 29.2
230694 October 1, 2023 (1.0) (25.9)
220656 October 1, 2022 1.1 25.8
Power adjustment clause - Schedule 95
Supplemental2
240288 October 1, 2024 0.1 3.8
2024 variable power cost update 230805 January 1, 2024 6.1 160.9
Supplemental3
230318 December 1, 2023 1.0 27.4
2020 PCORC4
200980 October 1, 2021 3.3 70.9
Property tax tracker 140 240200 May 1, 2024 (0.7) (18.7)
230219 May 1, 2023 (0.2) (4.4)
220234 May 1, 2022 (0.3) (5.8)
Rates not subject to refund 141N 230320 January 1, 2024 (3.1) (76.2)
220066 January 11, 2023 7.9 182.5
Rates subject to refund 141R 230320 January 1, 2024 4.2 105.6
220066 January 11, 2023 4.0 91.7
Residential and exchange benefit5
194 230792 November 1, 2023 (0.4) (9.9)
Revenue Decoupling Adjustment Mechanism 142 240221 May 1, 2024 (0.3) (9.5)
230206
May 1, 20236
(1.5) (37.6)
220227
May 1, 20226,7
(1.0) (23.5)
Transportation electrification plan 141TEP 240067 March 1, 2024 0.04 1.2
230040 March 1, 2023 0.2 6.0
Voluntary long term renewable energy charge and credit 139 220066 January 1, 2024 - (0.02)
January 11, 2023 (0.2) (4.7)
________________________
1.The 2022 rate period represented the final year of the ten-year period used to pass back the Treasury Grants included in Schedule 95A (Federal Incentive Tracker). The overall rate represented a surcharge as amounts from the 2022 filing were expected to be over-distributed and the 2024 rate was set to zero.
2.The Schedule 95 Supplemental PCA mechanism rates recovers 2023 PCA imbalance credit of $22.2 million to be passed back to customers, and a provisional 2024 surcharge of $98.2 million, which creates a $76.0 million net balances amortized from October 1, 2024 through December 31, 2025.
3.The Schedule 95 Supplemental PCA mechanism rates from the prior year recovers the 2022 imbalance (effective December 1, 2023), which will end December 31, 2024.
4.Schedule 95 update through PCORC filing. Per the 2022 GRC Final Order in Docket No. UE-220066, PCORC rates were set to zero as of January 11, 2023.
5.Total credit to be passed back to eligible customers is $88.1 million for 2023.
6.For rates effective May 1, 2023 and May 1, 2022, there were no excess earnings that impacted the approved revenue change.
7.For the rates effective May 1, 2022, there was $8.0 million of excess deferred revenues for delivery and fixed power costs which could not be set in rates until May 1, 2023 due to the 3% rate cap.
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Natural Gas Rates
The following table sets forth natural gas rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE's revenue based on the effective dates. For further information on descriptions of the rate adjustments, see Business, "Regulation and Rates" included in Item 1 or on prior filings, see Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in Item 7, respectively, of the Company's Form 10-K for the period ended December 31, 2023.
Natural gas
Schedule Docket Effective Date Average
Percentage
Increase (Decrease)
in Rates 		Increase (Decrease)
in Revenue
(Dollars in Millions)
Bill discount rate rider
129D
230693 October 1, 2023 1.1% $13.1
CCA - greenhouse gas emissions cap & invest
111 230968 January 1, 2024 3.0 29.1
230756 November 1, 2023 2.1 27.2
230470
October 1, 20231
3.2 16.8
Conservation service rider 120 240139 May 1, 2024 0.7 6.8
230140 May 1, 2023 0.4 4.7
220138 May 1, 2022 0.3 3.2
Cost recovery mechanism for pipeline replacement2
149 220067 January 7, 2023 (2.0) (22.6)
220590 November 1, 2022 0.4 4.6
Distribution pipeline provisional recovery
141D
230393 May 11, 2024 (0.02) (0.2)
220067 January 1, 2024 (0.01) (0.1)
January 7, 2023 0.3 3.0
Liquefied natural gas
141LNG
230393 May 11, 2024 3.1 42.7
Low income program 129 240646 October 1, 2024 (4.5) (53.1)
240195 May 1, 2024 4.6 10.2
230695 October 1, 2023 0.2 1.9
220657 October 1, 2022 (0.04) (0.4)
Property tax tracker
140 240201 May 1, 2024 (0.5) (5.6)
230220 May 1, 2023 (0.02) (0.2)
220235 May 1, 2022 0.02 0.2
Purchased gas adjustment
101, 106
240708 November 1, 2024 10.6 124.4
230769 November 1, 2023 (24.2) (309.4)
220715 November 1, 2022 14.9 155.3
Rates not subject to refund 141N 230393 May 11, 2024 0.08 1.1
230889 January 1, 2024 (2.3) (27.6)
220067 January 7, 2023 (0.1) (1.6)
Rates subject to refund 141R 230889 January 1, 2024 4.0 47.2
230323 November 1, 2023 (0.1) (1.4)
220067 January 7, 2023 4.1 45.5
Revenue Decoupling Adjustment Mechanism 142 240222 May 1, 2024 2.7 28.0
230207 May 1, 2023 (1.3) (16.4)
220228
May 1, 20223
(0.7) (7.4)
__________________________
1.Per UG-230470, the tariff was effective October 1, 2023 until December 31, 2023 and would recover costs and pass back credits from August 1, 2023 to December 31, 2023.
2.Per the 2022 GRC Final Order in Docket No. UG-220067, Schedule 149 rates were set to zero as of January 7, 2023.
3.For rates effective May 1, 2022, there were no excess earnings that impacted the approved revenue change.
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Access to Debt Capital
PSE relies on access to bank borrowings and short-term money markets as sources of liquidity and longer-term capital markets to fund its utility construction program, to meet maturing debt obligations and other capital expenditure requirements not satisfied by cash flow from its operations or equity investment from its parent, Puget Energy. Neither Puget Energy nor PSE have any debt outstanding whose maturity would accelerate upon a credit rating downgrade. However, a ratings downgrade could adversely affect the Company's ability to refinance existing or issue new long-term debt or obtain access to new or renew existing credit facilities, could increase the cost of issuing long-term debt and maintaining credit facilities, and could impact the Company's ability to pay dividends. For example, under Puget Energy's and PSE's credit facilities, the borrowing costs increase as their respective credit ratings decline due to increases in credit spreads and commitment fees. If PSE is unable to access debt capital on reasonable terms, its ability to pursue improvements or generating capacity acquisitions, which may be relied on for future growth and to otherwise implement its strategy, could be adversely affected. PSE monitors the credit environment and expects to continue to be able to access the capital markets to meet its short-term and long-term borrowing needs.
Regulatory Compliance Costs and Expenditures
PSE's operations are subject to extensive federal, state and local laws and regulations. These laws and regulations cover electric system reliability, natural gas pipeline system safety and energy market transparency, among other areas. Environmental laws and regulations related to air and water quality, climate change and endangered species protection, waste handling and disposal (including generation by-products such as coal ash), remediation of contaminated sites and the environmental impacts of siting new facilities also impact the Company's operations. PSE must spend significant resources to fulfill requirements set by regulatory agencies, many of which have greatly expanded mandates on measures including resource planning, remediation, monitoring, pollution control equipment and emissions-related abatement and fees.
In 2021, the Washington Legislature adopted the CCA, which establishes a GHG emissions cap-and-invest program that requires covered entities to purchase allowances to cover their GHG emissions with a cap on available allowances beginning on January 1, 2023 that declines annually through 2050. The WDOE published final regulations to implement the program on September 29, 2022, effective October 30, 2022. The WDOE also indicated that it will have subsequent rulemakings building off initial rulemaking while program implementation is underway and progress with Washington carbon goals are evaluated.
While the Washington Commission has approved the recovery of natural gas CCA-related costs, which has led to increases in costs to customers, it has indicated these revenues are subject-to-refund, and there is a risk PSE may ultimately not be able to recover all costs. Electric CCA-related costs have not yet been approved for recovery at this time and it is uncertain what obligation may be borne by customers or at risk for recovery. PSE faces continued risks associated with the program, including the evolving nature of the CCA rulemaking and related interpretation of the rules, unresolved recovery methodology for CCA's impact on energy costs, company costs, customer rate impacts, and cash, liquidity and credit volatility. For additional information, see Note 7, "Regulation and Rates" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
Compliance with these or other future regulations, such as those pertaining to climate change, could require significant capital expenditures by PSE and may adversely affect PSE's financial position, results of operations, cash flows and liquidity.
Other Challenges and Strategies
Competition
PSE's electric and natural gas utility retail customers generally do not have the ability to choose their electric or natural gas supplier; therefore, PSE's business has historically been recognized as a natural and regulated monopoly. However, PSE faces competition from public utility districts and municipalities or efforts by citizens organizing to form such entities that want to establish their own government-owned utility, as a result of which PSE may lose a number of customers. PSE also faces increasing competition for sales to its retail customers through alternative methods of electric energy generation, including solar and other self-generation methods. In addition, PSE's natural gas customers may elect to use heating oil, propane or other fuels instead of using and purchasing natural gas from PSE.
Additionally, PSE faces increasing competition from other entities, primarily in the technology sector, where several large companies have entered into power purchase agreements to meet their growing energy needs, which will largely be used to fulfill commitments for additional cloud computing, artificial intelligence data centers, reduced carbon emissions and increased reliance on renewable energy sources. The increasing competitive pressure may impact the Company's ability to acquire generation and transmission resources and/or increase the cost to acquire such resources.
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Results of Operations
Puget Sound Energy
The following discussion should be read in conjunction with the unaudited consolidated financial statements and the related notes included elsewhere in this document. The following discussion provides the significant items that impacted PSE's results of operations for the three months and nine months ended September 30, 2024 and September 30, 2023.
Non-GAAP Financial Measures - Electric and Natural Gas Margins
The following discussion includes financial information prepared in accordance with GAAP, as well as two other financial measures, electric margin and natural gas margin, that are considered "non-GAAP financial measures." Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that includes adjustments that result in a presentation that is not defined by GAAP. The presentation of electric margin and natural gas margin is intended to supplement an understanding of PSE's operating performance. Electric margin and natural gas margin are used by PSE to determine whether PSE is collecting the appropriate amount of revenue from its customers in order to provide adequate recovery of operating costs, including interest and equity returns. PSE's electric margin and natural gas margin measures may not be comparable to other companies' electric margin and natural gas margin measures. Furthermore, these measures are not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.
The following table presents operating income and a reconciliation of utility electric and natural gas margins to the most directly comparable GAAP measure, operating income:
Puget Sound Energy
(Dollars in Thousands) Three Months Ended
September 30, 		Nine Months Ended
September 30,
2024 2023 2024 2023
Operating income (loss) $ (60,293) $ 66,466 $ 211,688 $ 199,179
Electric operating revenue 736,113 770,406 $ 2,434,458 $ 2,461,205
Purchased electricity (250,822) (250,384) (892,436) (817,739)
Electric generation fuel (78,305) (127,729) (241,293) (342,130)
Residential exchange 17,477 14,547 61,630 54,259
Electric margin (non-GAAP) $ 424,463 $ 406,840 $ 1,362,359 $ 1,355,595
Natural gas operating revenue 184,090 161,266 1,019,434 948,664
Purchased natural gas (68,243) (56,992) (472,776) (407,391)
Natural gas margin (non-GAAP) $ 115,847 $ 104,274 $ 546,658 $ 541,273
Other operating revenue 40 933 222 16,271
Unrealized gain (loss) on derivative instruments, net (108,979) 21,695 (131,712) (201,230)
Utility operation and maintenance (183,915) (179,630) (579,697) (549,118)
Non-utility expense and other (5,719) (3,342) (15,912) (18,076)
Depreciation and amortization (225,135) (210,666) (676,630) (648,002)
Taxes other than income taxes (76,895) (73,638) (293,600) (297,534)
Operating income (loss) $ (60,293) $ 66,466 $ 211,688 $ 199,179
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Electric Margin
Electric margin represents electric sales to retail and transportation customers less the cost of generating and purchasing electric energy sold to customers, including transmission costs, to bring electric energy to PSE's service territory.
The following chart displays the details of PSE's electric margin changes for the three months ended September 30, 2024 and 2023:
______________
* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
Three Months Ended September 30, 2024 Compared to 2023
Electric Operating Revenue
Electric operating revenuesdecreased $34.3 million from the prior year primarily due to a decrease in sales to other utilities of $107.2 million, a decrease in decoupling revenue of $12.0 million and a decrease in transportation and other revenue of $3.1 million. This decrease was partially offset by an increase in electric retail sales of $84.7 million and an increase in other decoupling revenue of $3.4 million. These items are discussed in detail below.
•Electric retail salesincreased $84.7 million due to an increase of $60.5 million in rates compared to the prior year and by $24.2 million from an increase in retail electricity usage of 3.5%. The increase in rates is primarily due to the tariffs filed pursuant to the Company's 2024 variable power cost update effective January 1, 2024 and rate increases from the 2022 GRC. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report and Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the period ended December 31, 2023 for electric rate changes. The increase in retail usage was primarily due to an increase in residential and commercial usage of 7.3% and 0.6%, respectively. The increase in customer usage was driven by an 18.3% increase in heating degree days, which was partially offset by an 8.0% decrease in cooling degree days in the three months ended September 30, 2024 as compared to 2023.
•Sales to other utilitiesdecreased $107.2 million primarily due to a 40.0% decrease in the average price of electric wholesale sales and a 36.0% decrease in wholesale sales volume. Lower wholesale power prices were a result of
43
lower natural gas prices and compounded by moderate loads during the period. The decrease in wholesale sales volume was driven by a reduction in combustion turbine (CT) and coal generation of 22.5% and 14.6%, respectively, as it was less economic to dispatch in the three months ended September 2024 compared to 2023.
•Decoupling revenuedecreased $12.0 million which was attributable to $9.6 million and $2.4 million decreases in delivery deferral revenues and fixed production cost (FPC) deferral revenues, respectively. This was driven primarily by increased usage in the three months ended September 30, 2024 compared to 2023.
•Other decoupling revenueincreased $3.4 million primarily due to changes in amortization rates. In the three months ended September 30, 2024 more overcollected balances were amortized as compared to 2023.
•Transportation and other revenue decreased $3.1 million primarily due to a $4.4 million decrease in net wholesale non-core natural gas sales. The decrease in wholesale non-core natural gas sales was primarily driven by an increase of $5.7 million in financial hedging costs in 2024 compared to 2023.
Electric Power Costs
Electric power costsdecreased $51.9 million primarily due to a decrease of electric generation fuel costs of $49.4 million and an increase in residential exchange credits of $2.9 million. These items are discussed in detail below:
•Electric generation fueldecreased $49.4 million primarily due to a $48.0 million decrease in natural gas fuel costs resulting from lower natural gas prices and decreased gas-fired CT generation of 29.3% as well as lower Colstrip fuel expense of $1.4 million driven by reduced coal generation of 14.6% during the three months ended September 30, 2024 compared to 2023.
•Residential exchangecredits increased by $2.9 million due to a 0.4% change in the amount of credits to be passed back to customers effective November 1, 2023 and an increase in residential usage of 7.3% as discussed above in electric retail sales; see "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report.
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The following chart displays the details of PSE's electric margin changes for the nine months ended September 30, 2024 and 2023:
______________
* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
Nine Months Ended September 30, 2024 Compared to 2023
Electric Operating Revenue
Electric operating revenuesdecreased $26.7 million from the prior year primarily due to a decrease in sales to other utilities of $159.9 million, a decrease in transportation and other revenue of $68.9 million and a decrease in decoupling revenue of $3.9 million. This decrease was partially offset by an increase in electric retail sales of $189.1 million and an increase in other decoupling revenue of $16.9 million. These items are discussed in detail below.
•Electric retail salesincreased $189.1 million due to an increase of $180.5 million in rates compared to the prior year and $8.6 million from an increase in retail electricity usage of 0.4%. The increase in rates is primarily due to the tariffs filed pursuant to the Company's 2024 variable power cost update effective January 1, 2024 and rate increases from the 2022 GRC. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report and Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the period ended December 31, 2023 for electric rate changes. The increase in retail usage was primarily due to an increase in residential usage of 1.1% in the nine months ended September 30, 2024 as compared to 2023.
•Sales to other utilitiesdecreased $159.9 million primarily due to a 38.7% decrease in the average price of electric wholesale sales and a 5.9% decrease in wholesale sales volume. Lower wholesale power prices were a result of lower natural gas prices and compounded by moderate loads during the period. The decrease in wholesale sales volume was driven by a reduction in total CT and coal generation of 3.8% and 22.0%, respectively, as it was less economic to dispatch in the nine months ended September 2024 compared to 2023.
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•Decoupling revenuedecreased $3.9 million which was attributable to an $8.1 million decrease and a $4.2 million increase in delivery deferral revenues and FPC deferral revenues, respectively. This was driven primarily by increased usage offset by lower FPC rates in the nine months ended September 30, 2024 compared to 2023.
•Other decoupling revenueincreased $16.9 million primarily due to changes in amortization rates. In the nine months ended September 30, 2024 more overcollected balances were amortized as compared to 2023.
•Transportation and other revenue decreased $68.9 million primarily due to a $65.3 million decrease in net wholesale non-core natural gas sales. The decrease in wholesale non-core natural gas sales was primarily driven by an increase of $44.4 million in financial hedging costs in 2024 compared to 2023 as natural gas hedges moved to a loss in 2024 as compared to a gain in 2023. Additionally, net wholesale non-core natural gas sales decreased $20.9 million which was primarily driven by a 13.7% decrease in the volume of natural gas sold.
Electric Power Costs
Electric power costsdecreased $33.5 million primarily due to a decrease of electric generation fuel costs of $100.8 million and an increase in residential exchange credits of $7.4 million; partially offset by an increase of $74.7 million of purchased electricity costs. These items are discussed in detail below:
•Purchased electricityexpense increased $74.7 million primarily due to increased wholesale purchase prices, which were 8.3% higher in the nine months ended September 30, 2024 compared to 2023. Higher average wholesale purchase prices were driven by open market purchases as well as PPA contracts added after September 30, 2023. Additionally, wholesale electricity purchase volumes increased marginally by 0.8% in the nine months ended September 30, 2024 compared to 2023.
•Electric generation fueldecreased $100.8 million primarily due to a $93.3 million decrease in natural gas fuel costs resulting from lower natural gas prices and decreased gas-fired CT generation of 7.1%. Further, Colstrip fuel expense decreased $7.5 million driven by a planned major maintenance outage that reduced coal generation by 22.0% in the nine months ended September 30, 2024 as compared to 2023.
•Residential exchangecredits increased by $7.4 million due to a 0.4% change in the amount of credits to be passed back to customers effective November 1, 2023 and an increase in residential usage of 1.1% as discussed above in electric retail sales; see "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report.
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Natural Gas Margin
Natural gas margin is natural gas sales to retail and transportation customers less the cost of natural gas purchased, including transportation costs to bring natural gas to PSE's service territory. The PGA mechanism passes through increases or decreases in the natural gas supply portion of the natural gas service rates to customers based upon changes in the price of natural gas purchased from producers and wholesale marketers or changes in natural gas pipeline transportation costs. PSE's margin or net income is not affected by changes under the PGA mechanism because over- and under-recoveries of natural gas costs included in baseline PGA rates are deferred and either refunded to or collected from customers in future periods.
The following chart displays the details of PSE's natural gas margin changes for the three months ended September 30, 2024 and 2023:
______________
* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
Three Months Ended September 30, 2024 Compared to 2023
Natural Gas Operating Revenue
Natural gas operating revenueincreased $22.8 million primarily due to an increase in transportation and other revenue of $39.9 million, which was partially offset by decreases in retail sales of $14.4 million and other decoupling revenue of $2.5 million. These items are discussed in detail below.
•Natural gas retail sales revenuedecreased $14.4 million primarily due to a decrease in rates of $16.1 million that was partially offset by a marginal increase in natural gas load of 0.5%, or $1.7 million. The decrease in rates is due to a decrease in the Company's most recent PGA rates effective November 2023, which is partially offset by an increase in rates driven by Schedule 111 that includes a charge for CCA allowance costs and a pass back of CCA auction proceeds. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report for natural gas rate changes.
•Other decoupling revenuedecreased $2.5 million primarily due to changes in amortization rates. In the three months ended September 30, 2024, more undercollected balances were amortized as compared to 2023.
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•Transportation and other revenueincreased $39.9 million primarily due to $41.2 million related to the regulatory offset of CCA auction proceeds passed back to customers, which were passed through to customers as credits on billed revenue included within natural gas retail revenues above and an increase in transportation revenue of $2.2 million. The increases were partially offset by a decrease of $4.7 million due to the Company's deferred return on its investment in the Tacoma LNG Facility that was recorded in the three months ended September 30, 2023 and included in rates under Schedule 141LNG in the three months ended September 30, 2024. See Part I, Item 1, Note 7 "Regulation and Rates" included in this report for further details.
Natural Gas Energy Costs
•Purchased natural gasexpense increased $11.3 million primarily due to an increase of $38.2 million in amortization of deferred CCA emission allowance costs, which were passed through to customers as billed revenue included within natural gas retail revenues above and an increase in natural gas usage of 0.5% as stated in the natural gas retail sales section above. The increase was partially offset by a decrease in the PGA rates in November 2023. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report for natural gas rate changes and details on the PGA.
The following chart displays the details of PSE's natural gas margin changes for the nine months ended September 30, 2024 and 2023:
______________
* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
Nine Months Ended September 30, 2024 Compared to 2023
Natural Gas Operating Revenue
Natural gas operating revenueincreased $70.8 million primarily due to increases in transportation and other revenue of $186.9 million, decoupling revenue of $8.5 million and increase in other decoupling revenue of $2.6 million; partially offset by a decrease in retail sales of $127.2 million. These items are discussed in detail below.
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•Natural gas retail sales revenuedecreased $127.2 million primarily due to a decrease in rates of $104.9 million and a decrease in natural gas load of 3.0%, or $22.3 million. The decrease in rates is due to a decrease in the Company's most recent PGA rates effective November 2023, which is partially offset by an increase in rates driven by Schedule 111 that includes a charge for CCA allowance costs and a pass back of CCA auction proceeds. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report for natural gas rate changes. The decrease in load is primarily driven by decreased usage of 3.1%, 2.0% and 13.6% in residential, commercial and industrial customers, respectively due to the nine months ended September 30, 2024 being warmer than the same period in 2023.
•Decoupling revenueincreased $8.5 million primarily attributable to lower usage in the nine months ended September 30, 2024 as compared to 2023.
•Other decoupling revenueincreased $2.6 million primarily due to decreases in amortization rates related to prior period undercollections.
•Transportation and other revenueincreased $186.9 million primarily due to $206.0 million related to the regulatory offset of CCA auction proceeds passed back to customers, which were passed through to customers as credits on billed revenue included within natural gas retail revenues above and an increase in transportation revenue of $8.0 million. The increases were partially offset by (i) a decrease of $23.3 million due to the disallowance of the Company's deferred return on its investment in the Tacoma LNG Facility that was recorded between February 1, 2022, and January 11, 2023 as well as deferred return from the nine months ended September 30, 2023 included in rates under Schedule 141LNG; and (ii) deferral related to the bill discount rider of $8.6 million. See Part I, Item 1, Note 7 "Regulation and Rates" included in this report for further details on the Washington Commissions order on Tacoma LNG.
Natural Gas Energy Costs
•Purchased natural gasexpense increased $65.4 million primarily due to an increase of $258.1 million in amortization of deferred CCA emission allowance costs, which were passed through to customers as billed revenue included within natural gas retail revenues above. The increase was partially offset by a decrease in the PGA rates in November 2023 and a decrease in natural gas usage of 3.0% as stated in the natural gas retail sales section above. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report for natural gas rate changes and details on the PGA.
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Other Operating Expenses and Other Income (Deductions)
The following chart displays the details of PSE's operating expenses and other income (deductions) for the three months ended September 30, 2024 and 2023:
Three Months Ended September 30, 2024 Compared to 2023
•Net unrealized (gain) loss on derivative instruments decreased $130.7 million to a net loss of $109.0 million for the three months ended September 30, 2024. The primary driver was the decrease in the weighted average forward prices for electric and natural gas of 2.7% and 13.9%, respectively, which resulted in an increased loss of $171.5 million. The increase in loss was partially offset by a $40.9 million gain due to net settlement of electric and natural gas trades that were previously recorded as a loss. For further details, see Note 4, "Accounting for Derivative Instruments and Hedging Activities" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
•Utility operations and maintenanceexpense increased $4.3 million primarily due to increases in the following: (i) $16.4 million due to an increase in Schedule 129 - low income program in electric and natural gas rates, see "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report; and (ii) $4.9 million related to maintenance on other power generation and electric equipment. These increases were partially offset by decreases of (i) $9.4 million related to Clean Energy Implementation Plan (CEIP), transportation electrification, Colstrip and LNG tracker items and (ii) $7.1 million related to decreased maintenance of overhead lines in the three months ended September 30, 2024 compared to 2023.
•Depreciation and amortization expenseincreased $14.5 million due to: (i) $5.8 million increase in conservation amortization due to increases in conservation rates effective May 1, 2024, see "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report, (ii) $2.6 million increase in electric distribution depreciation primarily driven by net additions of electric distribution underground conductors and device assets, (iii) $1.5 million increase in electric transmission depreciation primarily driven by net additions of electric transmission poles and fixtures, and (iv) $1.5 million increase in natural gas amortization driven by an increase in LNG deferrals.
•Taxes other than income taxesincreased $3.3 million primarily due to an increase of $4.9 million in state excise taxes driven by higher tax deductions in 2023 and an increase of $2.1 million in municipal taxes; partially offset by a $3.8 million decrease in property taxes.
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Other Income, Interest Expense and Income Tax Expense
•Other income/expenseincreased $12.0 million from net other income of $13.8 million in 2023 to net other income of $25.8 million in 2024, due to an increase of $13.5 million in other income that was partially offset by an increase of $1.5 million in other expense. The increase in other income was primarily due to a $5.7 million increase in equity allowance for funds used during construction (AFUDC) due to an increase in eligible CWIP and AFUDC rate and an increase in taxable interest and dividend income of $4.0 million driven by interest income related to the investment of bond proceeds from the June 2024 bond issuances, for further details see Note 10, "Other" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
•Interest expense increased $8.6 million primarily due to an increase of $11.0 million in interest expense due to the June 2024 PSE bond issuances. This was partially offset by an increase in debt AFUDC of $3.1 million due to an increase in eligible CWIP and AFUDC rates.
•Income tax expensedecreased $19.1 million primarily driven by a decrease in pre-tax book income in the three months ended September 30, 2024 as compared to 2023.
Other Operating Expenses and Other Income (Deductions)
The following chart displays the details of PSE's operating expenses and other income (deductions) for the nine months ended September 30, 2024 and 2023:
Nine Months Ended September 30, 2024 Compared to 2023
•Net unrealized (gain) loss on derivative instruments decreased $69.5 million to a net loss of $131.7 million for the nine months ended September 30, 2024. The primary driver was a $239.9 million decrease in the loss due to the net settlement of $124.8 million of electric and $115.1 million of natural gas trades previously recorded as loss. This was partially offset by a $170.4 million increase in loss due to a decrease in the weighted average forward prices for electric and natural gas of 4.8% and 18.1%, respectively. For further details, see Note 4, "Accounting for Derivative Instruments and Hedging Activities" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
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•Utility operations and maintenanceexpense increased $30.6 million primarily due to increases in the following: (i) $20.6 million due to an increase in Schedule 129 - low income program in electric and natural gas rates, see "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report, (ii) $6.7 million in Washington Commission and GRC related filing fees, (iii) $4.1 million in pension related expenses, (iv) $3.4 million related to maintenance on other power generation and electric equipment and (v) $2.5 million related to increased maintenance costs for emergent underground line work. These increases were partially offset by (i) $6.4 million related to CEIP, transportation electrification, Colstrip and LNG tracker items and (ii) $4.5 million related to a reduction in outside services costs.
•Depreciation and amortization expenseincreased $28.6 million due to: (i) $8.8 million increase in conservation amortization due to increases in conservation rates effective May 1, 2024, (ii) $7.3 million increase in electric distribution depreciation from 2023 primarily driven by net additions of electric distribution underground conductors and device assets, (iii) $4.9 million increase in electric transmission depreciation from 2023 primarily driven by net additions of electric transmission poles and fixtures, (iv) $3.4 million increase in natural gas distribution depreciation from 2023 primarily driven by net additions in natural gas distribution plastic mains assets, and (v) $2.5 million increase in natural gas amortization driven by an increase in LNG deferrals. These increases were partially offset by a $3.9 million decrease in electric amortization primarily due to a decrease in Get to Zero electric amortization.
•Taxes other than income taxesdecreased $3.9 million primarily due to a decrease in property taxes of $8.6 million, which were partially offset by an increase of $4.6 million in state excise, municipal, and other taxes.
Other Income, Interest Expense and Income Tax Expense
•Other income/expenseincreased $19.0 million from net other income of $37.1 million in 2023 to net other income of $56.1 million in 2024, due to an increase of $24.8 million in other income partially offset by an increase of $5.8 million in other expense. The increase in other income was primarily due to a $12.6 million increase in equity AFUDC due to an increase in eligible CWIP and AFUDC rate, an increase in taxable interest and dividend income of $4.1 million driven by interest income related to the investment of bond proceeds from the June 2024 bond issuances, for further details see Note 10, "Other" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report, and an increase of $4.1 million in the non-service cost component of the qualified pension net periodic benefit cost for 2024 compared to 2023. The increase in other expense was primarily due to $4.9 million related to Colstrip major maintenance.
•Interest expense increased $18.5 million primarily due to an increase of $21.8 million in interest expense due to the May 2023 and June 2024 PSE bond issuances, $3.8 million due to the CCA natural gas recovery and $2.9 million other interest expense. This was partially offset by an increase in debt AFUDC of $9.6 million due to an increase in eligible CWIP and AFUDC rates.
•Income tax expenseincreased $1.7 million primarily driven by an increase in pre-tax book income in the nine months ended September 30, 2024 as compared to 2023.
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Puget Energy
Primarily, all operations of Puget Energy are conducted through PSE. Puget Energy's net income (loss) for the three months ended September 30, 2024 and 2023 is as follows:
Three Months Ended September 30, 2024 compared to 2023
Summary Results of Operation
Puget Energy's net income decreased by $115.8 million. This is primarily due to: (i) a decrease in PSE's net income of $104.3 million, (ii) an increase in income tax expense of $7.6 million driven by the change in pre-tax book income, and (iii) an increase in interest expense of $3.3 million due to a higher amount drawn on the Puget Energy line of credit in the three months ended September 30, 2024 compared to 2023.
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Puget Energy's net income (loss) for the nine months ended September 30, 2024 and 2023 is as follows:
Nine Months Ended September 30, 2024 compared to 2023
Summary Results of Operation
Puget Energy's net income increased by $21.9 million. This is primarily attributable to an increase in PSE's net income of $11.3 million, a decrease in tax expense of $16.7 million driven by the change in pre-tax book income and a decrease in net loss of $7.0 million at Puget LNG. The increases were partially offset by an increase in interest expense of $11.8 million due to a higher amount drawn on the Puget Energy line of credit during the nine months ended September 30, 2024 compared to 2023.
Capital Requirements
Contractual Obligations and Commercial Commitments
In addition to the contractual obligations and consolidated commercial commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, during the nine months ended September 30, 2024, the Company entered into new Electric Portfolio and Electric Wholesale Market Transaction contracts with estimated payment obligations totaling $2.7 billion through 2053.
For further information, see Part II, Item 8, Note 16, "Commitments and Contingencies" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Off-Balance Sheet Arrangements
As of September 30, 2024, the Company had no off-balance sheet arrangements that have had or are reasonably likely to have a material effect on the Company's financial condition. The Company does have standby letter of credit arrangements.
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For more information, see Note 10, "Other" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
Utility Construction Program
The Company's construction programs for generating facilities, the electric transmission system, the natural gas and electric distribution systems and the Tacoma LNG facility are designed to meet regulatory requirements, support customer growth and improve energy system reliability. The Company had adjusted capital expenditures, resulting in a decrease of $173.3 million compared to forecasted amounts for the nine months ended September 30, 2024. The decrease was primarily due to underruns of (i) strategic project spend driven by timing and project schedule constraints, (ii) electric reliability initiatives driven by project savings, (iii) generation driven by the timing of project spend, (iv) product development driven by delays and transition to purchased power agreements reducing capital spend, and (v) IT operations spend driven by timing of project spend. Construction expenditures, excluding equity AFUDC, totaled $1,143.8 million for the nine months ended September 30, 2024. Presently planned utility construction expenditures, excluding equity AFUDC, are as follows:
Capital Expenditure Projections
(Dollars in Millions) 2024 2025 2026
Total energy delivery, technology and facilities expenditures $1,716.0 $1,936.4 $2,231.7
The program is subject to change based upon general business, economic and regulatory conditions. Utility construction expenditures and any new generation resource expenditures may be funded from a combination of sources, which may include cash from operations, short-term debt, long-term debt and/or equity. PSE's planned capital expenditures may result in a level of spending that will exceed its cash flow from operations. As a result, execution of PSE's strategy is dependent in part on continued access to capital markets.
Capital Resources
Cash from Operations
Puget Sound Energy Nine Months Ended
September 30,
(Dollars in Thousands) 2024 2023 Change
Net income $ 53,715 $ 42,403 $ 11,312
Non-cash items1
702,250 674,298 27,952
Changes in cash flow resulting from working capital2
154,979 99,922 55,057
Regulatory assets and liabilities (9,322) 134,755 (144,077)
Purchased gas adjustment (71,600) 174,840 (246,440)
GHG emission allowances (83,910) (112,037) 28,127
Other non-current assets and liabilities3
(40,137) (42,545) 2,408
Net cash provided by operating activities $ 705,975 $ 971,636 $ (265,661)
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1 Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity, production tax credits (PTCs) and other miscellaneous non-cash items.
2 Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayment, accounts payable and accrued expenses.
3 Other non-current assets and liabilities include funding of pension liability.
Nine Months Ended September 30, 2024 compared to 2023
Cash generated from operationsfor the nine months ended September 30, 2024 decreased by $265.7 million, which includes a net income increase of $11.3 million. The following are significant factors that impacted PSE's cash flows from operations:
•Cash flows resulting from non-cash itemsincreased $28.0 million primarily due to: (i) an increase in deferred income taxes of $82.8 million, (ii) an increase in depreciation and amortization of $19.8 million and (iii) an increase of $8.8 million in conservation amortization. The increases were partially offset by: (i) a $69.5 million change in net
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unrealized loss on derivative instruments from $201.2 million in 2023 to $131.7 million in 2024 and (ii) a change in equity AFUDC of $12.6 million.
•Cash flows resulting from changes in working capitalincreased $55.1 million primarily due to: (i) accounts payable decreased faster in 2023 compared to 2024, which led to increased cash inflow of $209.0 million, (ii) a reduction in prepayment for purchased electricity led to $29.3 million of cash inflow, (iii) $800.0 million of senior secured notes issued in June 2024 resulted in additional interest expense accruals, which led to increased cash inflow of $10.9 million and (iv) a more gradual increase in material and fuel inventory, which increased $17.3 million in 2024 compared to $24.6 million increase in 2023, led to $7.3 million increase of cash inflow. The increases were partially offset by: (i) cash outflow of $174.2 million due to the timing of accounts receivable collections, as the balance of accounts receivable decreased $193.8 million in 2024 compared to a decrease of $368.1 million in 2023 and (ii) cash outflow of $28.9 million due to the change in tax payable balance.
•Cash flows resulting from regulatory assets and liabilitiesdecreased $144.1 million, which was primarily due to: (i) cash outflow of $97.1 million related to PCA mechanism, which increased $32.7 million in the nine months ended September 30, 2024 compared to a decrease of $64.5 million in the same period of 2023, (ii) cash outflow of $25.2 million related to revenue decoupling mechanism, which had marginal change in the nine months ended September 30, 2024 compared to a decrease of $24.3 million in the same period of 2023, (iii) a $17.4 million decrease driven by recovery of the Crisis Affected Customer Assistance Program through Schedule 129 during the nine months ended 2023, at which point the program was fully recovered, thus there was no recovery in the same period of 2024, and (iv) major maintenance and major inspections at several generation stations in 2024 that led to higher cash outflow of $7.3 million in the nine months ended September 30, 2024 compared to the same period in 2023.
•Cash flows resulting from purchased gas adjustmentdecreased $246.4 million, which was mainly driven by an increase in actual natural gas cost and a decrease in allowed PGA recovery in 2024 compared to 2023. Actual natural gas costs led to a $24.8 million increase in 2024 compared to 2023. Meanwhile, the total amount of allowed PGA recovery in 2024 decreased $193.7 million compared to 2023. In addition, there was a $27.9 million refund, including interest, from a counterparty settlement received in 2023.
•Cash flow resulting from GHG emission allowancesincreased $28.1 million, which was due to a lower cost to obtain the Washington emission allowances for GHG emissions associated with the Company's electric and natural gas business activities in compliance with the CCA as the emission allowance prices were lower in 2024 compared to the same period in 2023.
Puget Energy Nine Months Ended
September 30,
(Dollars in Thousands) 2024 2023 Change
Net income $ (73,990) $ (84,641) $ 10,651
Non-cash items1
38,687 57,108 (18,421)
Changes in cash flow resulting from working capital2
11,255 7,844 3,411
Other non-current assets and liabilities3
(2,027) (1,868) (159)
Net cash provided by operating activities $ (26,075) $ (21,557) $ (4,518)
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1 Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity, PTCs and other miscellaneous non-cash items.
2 Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayments, accounts payable and accrued expenses.
3 Other noncurrent assets and liabilities include funding of pension liability.
Nine Months Ended September 30, 2024 compared to 2023
Cash generated from operationsfor the nine months ended September 30, 2024, in addition to the changes discussed at PSE above, decreased by $4.5 million compared to the same period in 2023, which includes a net income increase of $10.7 million. The remaining change was primarily impacted by the factors explained below:
•Non-cash itemsdecreased $18.4 million primarily due to the change in deferred income taxes.
•Changes in cash flow resulting from working capitalincreased $3.4 million primarily due to (i) a $1.3 million increase due to an increase in accrual of interest expense driven by increased borrowing on credit facility and (ii) a $1.4 million increase related to the change in PSE's intercompany account receivable and account payable balances with Puget LNG and Puget Energy, which are eliminated upon consolidation of Puget Energy.
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Financing Program
The Company's external financing requirements principally reflect the cash needs of its construction program, its schedule of maturing debt and certain operational needs. The Company anticipates refinancing the redemption of bonds or other long-term borrowings with its credit facilities and/or the issuance of new long-term debt. Access to funds depends upon factors such as Puget Energy's and PSE's credit ratings, prevailing interest rates and investor receptivity to investing in the utility industry, Puget Energy and PSE. The Company believes it has sufficient liquidity through its credit facilities and access to capital markets to fund its needs over the next twelve months.
Proceeds from PSE's short-term borrowings and sales of commercial paper are used to provide working capital and the interim funding of utility construction programs. Puget Energy and PSE continue to have reasonable access to the capital and credit markets.
As of September 30, 2024, both Puget Energy and PSE have stable outlooks from Moody's, Fitch, and S&P. Although neither Puget Energy nor PSE have any debt whose maturity would be accelerated upon a ratings downgrade, Management continually monitors the credit rating environment for both Puget Energy and PSE as a credit rating downgrade may increase the cost of borrowing for Puget Energy and PSE in future long-term financings or under their existing credit facilities. Any increase in the cost of borrowing could negatively impact Puget Energy and PSE's future results of operations as well as future liquidity, access to debt capital resources and financial condition. Additionally, a ratings downgrade could impact the Company's ability to issue dividends. A downgrade to Puget Energy and PSE's credit ratings would not impact debt covenants under our existing credit facilities nor would it impact other contracts, as neither include credit rating triggering event clauses. A credit rating decrease for PSE could result in increased cash collateral required for commodity contracts, which would adversely affect PSE's liquidity. Management cannot predict with certainty the actions credit agencies may take, if any, in response to weaker near term credit metrics, regulatory and rate recovery uncertainties, and management's efforts to contain the growth of capital and operating expenditures. Containing the growth of capital and operating expenditures will be limited, over the near term, due to continuing strategic and risk mitigation imperatives and the necessity of providing safe, reliable and resilient service levels to customers.
Puget Sound Energy
Debt Restrictive Covenants
The type and amount of future long-term financings for PSE may be limited by provisions in PSE's electric and natural gas mortgage indentures.
PSE's ability to issue additional secured debt may also be limited by certain restrictions contained in its electric and natural gas mortgage indentures. Under the most restrictive tests at September 30, 2024, PSE could issue:
•Approximately $0.7 billion of additional first mortgage bonds under PSE's electric mortgage indenture based on approximately $1.2 billion of electric bondable property available for issuance, subject to an interest coverage ratio limitation of 2.0 times net earnings available for interest (as defined in the electric utility mortgage), which PSE exceeded at September 30, 2024; and
•Approximately $1.0 billion of additional first mortgage bonds under PSE's natural gas mortgage indenture based on approximately $1.7 billion of natural gas bondable property available for issuance, subject to a combined natural gas and electric interest coverage test of 1.75 times net earnings available for interest and a natural gas interest coverage test of 2.0 times net earnings available for interest (as defined in the natural gas utility mortgage), both of which PSE exceeded at September 30, 2024.
At September 30, 2024, PSE had approximately $9.2 billion in electric and natural gas rate base to support the interest coverage ratio limitation test for net earnings available for interest.
Dividend Payment Restrictions
The payment of dividends by PSE to Puget Energy is restricted by provisions of certain covenants applicable to long-term debt contained in PSE's electric and natural gas mortgage indentures. At September 30, 2024, approximately $1.8 billion of unrestricted retained earnings was available for the payment of dividends under the most restrictive mortgage indenture covenant.
Beginning February 6, 2009, pursuant to the terms of the merger order by the Washington Commission, PSE may not declare or pay dividends if PSE's common equity ratio, calculated on a regulatory basis, is 44.0% or below except to the extent a lower equity ratio is ordered by the Washington Commission. Also, pursuant to the merger order, PSE may not declare or make any distribution unless on the date of distribution PSE's corporate credit/issuer rating is investment grade, or, if its credit ratings are below investment grade, PSE's ratio of earnings before interest, tax, depreciation and amortization (EBITDA) to interest expense for the most recently ended four fiscal quarter period prior to such date is equal to or greater than 3.0 to
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1.0. The common equity ratio, calculated on a regulatory basis, was 47.9% at September 30, 2024, and the EBITDA to interest expense ratio was 4.7 to 1.0 for the twelve months ended September 30, 2024.
PSE's ability to pay dividends is also limited by the terms of its credit facilities, pursuant to which PSE is not permitted to pay dividends during any Event of Default (as defined in the facilities), or if the payment of dividends would result in an Event of Default, such as failure to comply with certain financial covenants. At September 30, 2024, the Company was in compliance with all applicable covenants, including those pertaining to the payment of dividends.
For more information on PSE's credit facilities, long term debt, demand promissory note, and shelf registrations see Part I, Item 1, Note 10, "Other" of this report and Part II, Item 8, Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Puget Energy
Dividend Payment Restrictions
Puget Energy's ability to pay dividends is also limited by the merger order issued by the Washington Commission in 2009. Pursuant to the merger order, Puget Energy may not declare or make a distribution unless on such date Puget Energy's ratio of consolidated EBITDA to consolidated interest expense for the four most recently ended fiscal quarters prior to such date is equal to or greater than 2.0 to 1.0. Puget Energy's EBITDA to interest expense was 3.5 to 1.0 for the twelve months ended September 30, 2024.
At September 30, 2024, the Company was in compliance with all applicable covenants, including those pertaining to the payment of dividends.
For further information on Puget Energy's credit facilities, shelf registrations, and long-term debt, see Part I, Item 1, Note 10, "Other" included in this report and Part II, Item 8, Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Other
New Accounting Pronouncements
For the discussion of new accounting pronouncements, see Note 2, "New Accounting Pronouncements" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
Washington Clean Energy Transformation Act
In May 2019, Washington passed the CETA, which supports Washington's clean energy economy and transitioning to a clean, affordable, and reliable energy future. The CETA requires all electric utilities to eliminate coal-fired generation from their electric supply to customers by December 31, 2025; requires all electric utilities to be carbon-neutral by January 1, 2030 through a combination of non-emitting electric generation, renewable generation, and/or alternative compliance options; and makes it the state policy that, by 2045, 100% of electric generation and retail electricity sales will come from renewable or non-emitting resources. CEIPs are required every four years from each investor-owned utility (IOU). The plan must propose interim targets for meeting the 2045 standard between 2030 and 2045 and describe an actionable plan that the IOU intends to pursue to meet the standard. The Washington Commission may approve, reject or recommend alterations to an IOU's plan. The Company intends to seek recovery of any costs associated with CETA through the regulatory process. On December 17, 2021, PSE filed its final CEIP, which proposed a plan for the implementation of CETA for 2022-2025 and associated project costs. On June 6, 2023, the Washington Commission approved PSE's CEIP, subject to conditions. On November 2, 2023, PSE filed a Biennial CEIP Update with the Washington Commission.
Washington Climate Commitment Act
In 2021, Washington adopted the CCA, which establishes a GHG emissions cap-and-invest program that requires covered entities, including electric and gas utilities, to purchase allowances to cover their GHG emissions with a cap on available allowances beginning on January 1, 2023 that declines annually through 2050. The WDOE published final regulations on September 29, 2022, effective October 30, 2022. Allowances can be obtained through quarterly auctions, or bought and sold on a secondary market.
As an electric utility, PSE is required to obtain emission allowances or offset credits for GHG emissions associated with electricity generated in or imported into the state to serve Washington load, and all electricity generated by Washington PSE facilities with total annual emissions exceeding 25,000 metric tons of carbon dioxide equivalent per year. As an electric utility subject to Washington's CETA, which is discussed below, PSE receives emission allowances from WDOE at no cost through 2050 for direct emissions associated with electricity used to serve Washington State load to eliminate the cost burden of the program on electric ratepayers.
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As a gas utility, PSE is required to obtain emission allowances for GHG emissions associated with (i) natural gas supplied to customers and (ii) any natural gas system associated facilities with emissions that exceed 25,000 metric tons of carbon dioxide equivalent per year. PSE receives some no-cost emission allowances from WDOE to mitigate impacts to natural gas ratepayers. WDOE's allocation of no-cost allowances to PSE is based on a percentage of PSE baseline natural gas system related emissions (determined from 2015-2019 natural gas system related emissions) and declines annually in proportion with the Washington State carbon goals reaching zero no-cost allowances in 2050.
Offset credit use is limited and is not additive to allowances; the WDOE subtracts any offsets used from the total allowance budget. In the first compliance period, 2023-2026, participating entities can cover up to 5% of their emissions with offset credits, and can cover an additional 3% with credits from projects on federally recognized Tribal lands. In the second compliance period, 2027-2030, the general limit drops to 4%, with an additional 2% from projects on Tribal lands.
In 2023, the WDOE announced an intent to pursue an agreement with California to link with its cap and trade program which is administered by the California Air Resources Board.
Integrated Resource Plans, Resource Acquisition and Development
For further information, see Part I, Item 1 "Integrated Resource Plans, Resource Acquisition and Development" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Environmental Remediation
The Company is subject to federal and state requirements for protection of the environment, including those for the discharge of hazardous materials and remediation of contaminated sites. A potentially responsible party has joint and several liability under existing U.S. environmental laws. In instances where we have been designated a potentially responsible party by the Environmental Protection Agency or state environmental agency, we are potentially liable for the cost of remediating contamination at current work sites and former work sites. Such sites include former manufactured gas plants operated by PSE predecessors, such as Gas Works Park on the shore of Lake Union in Seattle, and contaminated facilities with other connections to PSE predecessors, such as the location of a long-defunct creosote manufacturer which had purchased waste products from PSE predecessors (e.g. Quendall Terminals site on Lake Washington in Renton, Washington). In each case, PSE assesses, based on in-depth studies, expert analyses and legal reviews, our environmental remediation obligations related to the contaminated sites, including assessments of ranges and probabilities of recoveries from other responsible parties and/or insurance carriers. PSE develops a range of reasonably estimable costs that includes a low and high end of a range for all remediation sites for which we have sufficient information. There are some potential remediation obligations where the costs of remediation cannot be reasonably estimated. Liabilities are recorded based on the best estimate or the low end of a range of reasonably possible costs expected to be incurred to remediate sites. It's possible that costs are incurred in excess of the recorded amounts because of changes in laws and/or regulations, the solvency of other liable parties, higher than expected costs and/or the discovery of new or additional contamination. The Company believes a significant portion of its past and future environmental remediation costs are recoverable from insurance companies, from third parties and/or from customers under a Washington Commission order.
Grid Resilience and Innovation Partnerships Program
In 2021, the Infrastructure Investment and Jobs Act was signed into law, which among other investments and programs, established the U.S. Department of Energy's (DOE) Grid Resilience and Innovation Partnerships (GRIP) Program. The GRIP program was established to enhance grid flexibility and improve the resilience of the power system against growing threats of extreme weather and climate change. As of the date of this report, PSE has been selected for three grant awards under the GRIP program either through individual applications or participating in consortium grant applications: (i) PSE participated in the North Plains Connector grant consortium along with other utilities in the Pacific Northwest region that on August 7, 2024 was selected for a grant of $700.0 million of federal cost sharing; (ii) PSE applied for the Skagit River Valley Transformation for Climate Resiliency project that was selected on October 18, 2024 for a grant of $45.8 million of federal cost sharing; and (iii) PSE partnered in a coalition with E Source and other Pacific Northwest utilities on the Increasing Energy Resilience via Technology Investment Acceleration project, which was selected on October 18, 2024 for a grant of $77.0 million of federal cost sharing. As of the time of this report, all three grants must complete award negotiations and proceed to a signed award with the DOE in order to receive federal cost sharing funds. Thus, at this time, the Company cannot predict the timing or amount of federal cost sharing that will be received.
For additional information see Item 8, Note 4, "Regulation and Rates" to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
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Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to various forms of market risk, consisting primarily of adverse changes in commodity prices, counterparty credit risk, as well as interest rate risk. PSE actively manages market risk and maintains risk policies and procedures designed to discourage unauthorized risk-taking, reduce commodity price volatility, and manage the various risks inherent to the energy portfolio. There have been no material changes to market risks affecting the Company from those set forth in Part II, Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Commodity Price Risk
The nature of serving regulated electric and natural gas customers with its portfolio of owned and contracted electric generation resources exposes PSE and its customers to some volumetric and commodity price risks. PSE's Energy Risk Management Committee establishes energy risk management policies and procedures to manage commodity and volatility risks and the related effects on credit, tax, accounting, financing and liquidity.
PSE's objective is to minimize commodity price exposure and risks associated with volumetric variability in the natural gas and electric portfolios. It is not engaged in the business of assuming risk for the purpose of speculative trading. PSE hedges open natural gas and electric positions to reduce both the portfolio risk and the volatility risk in prices.
Counterparty Credit Risk
PSE is exposed to credit risk primarily through buying and selling electricity and natural gas to serve customers. Credit risk is the potential loss resulting from a counterparty's non-performance under an agreement. PSE manages credit risk with policies and procedures for counterparty analysis and measurement, monitoring and mitigation of exposure. Additionally, PSE has entered into commodity master arrangements (i.e., WSPP, ISDA or NAESB) with its counterparties to mitigate credit exposure.
Interest Rate Risk
The Company believes its interest rate risk primarily relates to the use of short-term debt instruments and anticipated long-term debt financing needed to fund capital requirements. The Company manages its interest rate risk through the issuance of mostly fixed-rate debt with varied maturities. The Company utilizes internal cash from operations and borrowings under its commercial paper program, and its credit facilities to meet short-term funding needs. During periods of financial market or interest rate volatility, the Company may utilize its credit facilities for short term funding needs instead of the commercial paper program. Credit facility borrowings are based on a more stable base rate and the credit spread is fixed. Short-term obligations are commonly refinanced with fixed-rate bonds or notes when needed and when interest rates are considered favorable. The Company may also enter into swaps or other financial hedge instruments to manage the interest rate risk associated with the debt.
Item 4. Controls and Procedures
Puget Energy
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of Puget Energy's management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, Puget Energy has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2024, the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer of Puget Energy concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in Puget Energy's internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, Puget Energy's internal control over financial reporting.
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Puget Sound Energy
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of PSE's management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, PSE has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2024, the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer of PSE concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in PSE's internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, PSE's internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Contingencies arising out of the Company's normal course of business existed as of September 30, 2024. Litigation is subject to numerous uncertainties and the Company is unable to predict the ultimate outcome of these matters. For further details, see Note 8, "Commitments and Contingencies" in the Combined Notes to Consolidated Financial Statements included in Item 1 of this report.
SEC regulations require the Company to disclose certain information about proceedings arising under federal, state or local environmental provisions if the Company reasonably believes that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to the SEC regulations and given the size of the Company's operations, the Company elected a threshold of $1.0 million for purposes of determining whether disclosure of any such proceedings is required. As of the date of this filing, we are not aware of any matters that exceed this threshold and meet the definition for disclosure.
Item 1A. Risk Factors
There have been no material changes from the risk factors set forth in Part I, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Although the Company has not been materially affected, the following represents an ongoing risk that the Company continues to monitor.
The changing resource composition of the region and within PSE's generation portfolio may be insufficient to meet customers' energy demands.Growing variance in actual and forecasted load or generation could impact the cost of balancing generation resources and may inhibit the Company's ability to meet retail load obligations or make PSE more reliant on wholesale markets which could have a significant impact on energy costs. Furthermore, as climate change results in more frequent extreme weather conditions and seasonal fluctuations become more pronounced, the variability of load and generation increase. As the Company and other utilities in the region continue to add solar- and wind-powered generation capacity, each of which is a climate-dependent resource, the Company's ability to reliably and cost effectively serve retail loads may become more challenging, adversely impacting the Company's financial condition, customer satisfaction, and reputation.
Item 5. Other Information
During the three months ended September 30, 2024, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).
Item 6. Exhibits
Included in the Exhibit Index are a list of exhibits filed as part of this Quarterly Report on Form 10-Q.
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EXHIBIT INDEX
22.1*
Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize Securities of the Registrant.
31.1*
Chief Executive Officer certification of Puget Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Chief Financial Officer certification of Puget Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3*
Chief Executive Officer certification of Puget Sound Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4*
Chief Financial Officer certification of Puget Sound Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 Financial statements from the Quarterly Report on Form 10-Q of Puget Energy, Inc. and Puget Sound Energy, Inc. for the quarter ended September 30, 2024 filed on November 5, 2024 formatted in Inline XBRL: (i) the Consolidated Statement of Income (Unaudited), (ii) the Consolidated Statements of Comprehensive Income (Unaudited), (iii) the Consolidated Balance Sheets (Unaudited), (iv) the Consolidated Statements of Cash Flows (Unaudited), (v) the Consolidated Statements of Common Shareholder's Equity (Unaudited), and (vi) the Notes to Consolidated Financial Statements
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).
__________________
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
PUGET ENERGY, INC.
PUGET SOUND ENERGY, INC.
/s/ Stacy Smith
Stacy Smith
Controller & Principal Accounting Officer
Date: November 5, 2024
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