Puget Energy and PSE operate one reportable business segment, referred to as the regulated utility segment. For more information on this segment, see Note 17, "Segment Information" to the consolidated financial statements included in Item 8 of this report.

Corporate Location

PSE’s and Puget Energy's principal executive offices are located at ~~10885~~355 110th Ave NE, 4^th ~~Street, Suite 1200,~~ Bellevue, Washington 98004 and the telephone number is (425) 454-6363.

Available Information

The Company’s reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available or may be accessed free of charge at the Company’s website, www.pugetenergy.com. The Securities and Exchange Commission (SEC) maintains an internet site that contains reports, proxy and information ~~required by Item 101(e) of Regulation S-K is incorporated herein by reference to~~statements, and other information regarding issuers that file electronically with the ~~material under “Additional Information” in Part III Item 10, "Directors, Executive Officers~~SEC and ~~Corporate Governance".~~information may also be obtained via the SEC Internet website at www.sec.gov.

Regulation and Rates

PSE is subject to the regulatory authority of: (i) the FERC with respect to the transmission of electricity, the sale of electricity at wholesale, accounting and certain other matters; and (ii) the Washington Commission as to retail rates, accounting, the issuance of securities and certain other matters. PSE also must comply with mandatory electric system reliability standards developed by the North American Electric Reliability Corporation (NERC), the electric reliability organization certified by the FERC, whose standards are enforced by the Western Electricity Coordinating Council (WECC) in PSE’s operating territory.

Rate mechanisms include: (i) trackers that typically track specific costs during the previous twelve-month period and (ii) riders that project cost recovery during a ~~forward looking~~forward-looking twelve-month period. Both allow recovery of expenditures ~~without~~outside the ~~lengthy~~ process of a full ~~GRC.~~general rate case (GRC).

The following table shows PSE’s rate filings for its trackers and riders and whether or not they are included in decoupling rates:



Rate Filings		Electric			Natural Gas
Baseline rates		Yes			Yes
~~Annual rate plan increase~~		~~Yes~~	~~Yes~~
Expedited rate filing rider	Yes			Yes
~~Merger credit~~		No	No
Power cost only rates mechanism	No			N/A
Federal incentive tracker		No			N/A
Low income rates tracker		No			No
Pipeline cost recovery mechanism tracker		N/A			No
Prior year decoupling deferral tracker		No			No
Property tax tracker		No			No
Renewable energy credit tracker		No			N/A
Residential exchange credits tracker		No			N/A
Conservation costs rider		No			No
PGA rider		N/A			No

General Rate Case Filing

~~On January 13, 2017,~~ PSE filed ~~its~~a GRC with the Washington Commission on June 20, 2019, requesting an overall increase in electric and natural gas rates of 6.9% and 7.9%, respectively. PSE requested a return on equity of 9.8% with an overall rate of return of 7.62%. In addition to the ~~settlement agreement was accepted by~~traditional areas of focus (revenue requirements, cost allocation, rate design and cost of capital), the ~~Washington Commission~~Company completed an attrition study and included a portion of the attrition revenue requirement in the overall request in order to address the expected regulatory lag in the rate year. Additionally, as the non-plant related excess deferred taxes that resulted from the Tax Cuts and Jobs Act (TCJA) remained outstanding from PSE’s Expedited Rate Filing (ERF) as discussed below, PSE requested in its GRC to pass back the amounts over four years.On September 17, 2019, PSE filed a supplemental filing in the GRC, which provided updates as discussed in our original filing, but did not impact the requested overall electric and natural gas rate increases, return on ~~December 5, 2017~~equity or overall rate of return as originally filed.On January 15, 2020, PSE filed rebuttal testimony which included a reduction to the requested return on equity to 9.5%, which decreased the rate of return to 7.48%.The requested rate increase for both electric and natural gas remained at 6.9% and 7.9%, respectively. For both electric and

natural gas PSE did not originally request its full attrition adjustment; therefore, the ~~rates became effective December 19, 2017.~~ decrease in return on equity led to a reduction in the electric rate increase of only $1.5 million and did not have an impact on the natural gas rate increase.

For further details regarding the ~~2017~~2019 GRC filing, see Note ~~3, "Regulation~~4, "Regulations and Rates" to the consolidated financial statements included in Item 8 of this report.

Expedited Rate Filing

On November 7, 2018, PSE filed an ERF with the Washington Commission. On January 22, 2019, all parties in the proceeding reached an agreement on settlement terms. The settlement agreement was filed on January 30, 2019. On February 21, 2019, the Washington Commission approved the settlement with one condition: PSE must pass back the deferred balance associated with the tax over-collection of $34.6 million from January 1, 2018, through April 30, 2018, over a one-year period which began May 1, 2019.

For further details regarding the 2018 ERF filing, see Note 4, "Regulations and Rates" to the consolidated financial statements included in Item 8 of this report.

Washington Commission Tax Deferral Filing

The TCJA was signed into law in December 2017. As a result of this change, PSE re-measured its deferred tax balances under the new corporate tax rate. PSE filed an accounting petition on December 29, 2017, requesting deferred accounting treatment for the impacts of tax reform. The deferred accounting treatment results in the tax rate change being captured in the deferred income tax balance with an offset to the regulatory liability for deferred income taxes. Additionally, on March 30, 2018, PSE filed for a rate change for electric and natural gas customers associated with TCJA to reflect the decrease in the federal corporate income tax rate from 35% to 21%. Other outcomes associated with PSE’s tax deferral filing are discussed in the ERF and GRC disclosures.

Decoupling Filings

While fluctuations in weather conditions will continue to affect PSE's billed revenue and energy supply expenses from month to month, PSE's decoupling mechanisms assist in mitigating the impact of weather on operating revenue and net income. Since July 2013, the Washington Commission has allowed PSE to record a monthly adjustment to its electric and natural gas operating revenues related to electric transmission and distribution, natural gas operations and general administrative costs and beginning December 19, 2017, fixed production costs from most residential, commercial and industrial customers. This monthly adjustment mitigates the effects of abnormal weather, conservation impacts and changes in usage patterns per customer. As a result, ~~these~~ electric and natural gas delivery revenues are recovered on a per customer basis and electric fixed production energy costs are recovered on the basis of a fixed monthly amount regardless of actual consumption levels. The energy supply costs, which are part of the power cost adjustment (PCA) and purchased gas adjustment (PGA) mechanisms, are not included in the decoupling mechanism. Total electric and natural gas revenue recorded under the decoupling mechanisms will be affected by customer growth and not actual ~~consumption.~~consumption except for fixed production costs, which are held at the level of cost from the most recent rate proceeding and are not impacted by customer growth. Following each calendar year, PSE will recover from, or refund to, customers the difference between allowed decoupling revenue and the corresponding actual revenue during the following May to April time period. For further details regarding decoupling filings, see Note 3,4, "Regulation and Rates" to the consolidated financial statements included in Item 8 of this report.

Electric RateFilings

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” islevels are set, in part, based on normalized assumptions about weather and ~~hydrological~~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 ~~$30.0 million~~ cumulative deferral trigger is reached.

~~On August 7, 2015, the Washington Commission issued an order approving changes to the PCA mechanism. The settlement agreement took effect~~Effective January 1, 2017, ~~and will apply~~ the following graduated ~~scale:~~

scale is used in the PCA mechanism:


	Company's Share			Customers’ Share
Annual Power Cost Variability	Over	Under	Over	Under
Over or Under Collected by up to $17 million	100%	100%	—%	—%
Over or Under Collected by between $17 million - $40 million	35	50	65	50
Over or Under Collected beyond $40 + million	10	10	90	90

Power Cost Adjustment Clause Filing

The Power Cost Adjustment Clause filing reflects the transition fee as required by Section 12 of the Microsoft Special Contract.

Electric Conservation Rider

The electric conservation rider collects revenue to cover the costs incurred in providing services and programs for conservation. Rates change annually on May 1 to collect the annual budget that started the prior January and to true-up for actual compared to forecast conservation expenditures from the prior year, as well as actual ~~load being different than~~compared to the forecasted load set in rates.

Electric Property Tax Tracker Mechanism

The purpose of the property tax tracker mechanism is to pass through the cost of all property taxes incurred by the Company. The mechanism was implemented in 2013 and removed property taxes from general rates and included those costs for recovery in an adjusting tariff rate. After the implementation, the mechanism acts as a tracker rate schedule and collects the total amount of property taxes assessed. The tracker is adjusted each year in May based on that year's assessed property taxes and true-up from the prior year.

Federal Incentive Tracker Tariff

The Federal Incentive Tracker Tariff passes through to customers the benefits associated with the wind-related treasury grants. The filing results in a credit back to customers for pass-back of treasury grant amortization and pass-through of interest and any related true-ups. The filing is adjusted annually for new ~~Federal~~federal benefits, actual versus forecast interest and to true-up for actual load being different than the forecasted load set in rates. Rates change annually on January 1. Additionally, this tracker is impacted by the TCJA previously discussed. Accordingly, PSE filed for a one-time rate change to be effective May 1, 2018, to recognize the decrease in the federal corporate income tax rate from 35% to 21%.

Residential Exchange Benefit

The residential exchange program passes through the residential exchange program benefits that PSE receives from the Bonneville Power Administration (BPA). Rates change biennially on October 1.

Power Cost Only Rate Case

A power cost rate case (PCORC) is a limited-scope proceeding to reset power cost rates. In addition to providing the opportunity to reset all power costs, the PCORC proceeding also provides for timely review of new resource acquisition costs and inclusion of such costs in rates at the time the new resource goes into service. To achieve this objective, the Washington Commission is not required to but historically has used an expedited six-month PCORC decision timeline rather than the statutory 11-month timeline for a GRC.

~~Residential Exchange Benefit~~

~~The residential exchange program passes through the residential exchange program benefits that PSE receives from the Bonneville Power Administration (BPA). Rates change bi-annually on October 1.~~

~~Electric Property Tax Tracker Mechanism~~

The purpose of the property tax tracker mechanism is to pass through the cost of all property taxes incurred by the Company. The mechanism was implemented in 2013 and removed property taxes from general rates and included those costs for recovery in an adjusting tariff rate. After the implementation, the mechanism acts as a tracker rate schedule and collects the total amount of property taxes assessed. The tracker will be adjusted each year in May based on that year's assessed property taxes and true-up from the prior year.

Natural Gas Rate Filings

Natural Gas Cost Recovery Mechanism

The purpose of the ~~CRM~~cost recovery mechanism (CRM) is to recover capital costs related to projects included in PSE's pipe replacement program plan on file with the Washington Commission with the intended effect of enhancing the safety of the natural gas distribution system. Rates change annually on November 1.

Purchased Gas Adjustment

PSE has a PGA mechanism that allows PSE to recover expected natural gas supply and transportation costs and defer, as a receivable or liability, any natural gas supply and transportation costs that exceed or fall short of this expected natural gas cost amount in PGA mechanism rates, including accrued interest. PSE is authorized by the Washington Commission to accrue carrying costs on PGA receivable and payable balances. A receivable or payable balance in the PGA mechanism reflects an under recovery or over recovery, respectively, of natural gas cost through the PGA mechanism. Rates typically change annually on November 1.1, although out-of-cycle rate changes are allowed at other times of the year if needed.

Natural Gas Property Tax Tracker Mechanism

Natural Gas Conservation Rider

The natural gas conservation rider collects revenue to cover the costs incurred in providing services and programs for conservation. Rates change annually on May 1 to collect the annual budget that started the prior January and to true-up for actual ~~versus~~compared to forecast conservation expenditures from the prior year, as well as actual ~~load being different than~~compared to the forecasted load set in rates.

For additional information on electric and natural gas rates, see Management's Discussion and Analysis, "Regulation and Rates" included in Item 7 of this report.

ELECTRIC UTILITY OPERATING STATISTICS


	Year Ended December 31,										Year Ended December 31,
	2017			2016			2015				2019		2018		2017
Generation and purchased power, MWh										Generation and purchased power, MWh
Company-controlled resources	10,825,778			11,577,608			12,747,014			Company-controlled resources	13,420,043		11,168,286		10,825,778
Contracted resources	8,337,348			7,023,786			5,911,012			Contracted resources	6,752,261		7,654,872		8,337,348
Non-firm energy purchased	6,147,778			6,005,797			5,315,266			Non-firm energy purchased	5,707,102		6,490,602		6,147,778
Total generation and purchased power	25,310,904			24,607,191			23,973,292			Total generation and purchased power	25,879,406		25,313,760		25,310,904
Less: losses and Company use	(1,568,599		)	(1,547,619		)	(1,514,272		)	Less: losses and Company use	(1,298,854)		(1,513,451)		(1,568,599)
Total energy sales, MWh	23,742,305			23,059,572			22,459,020			Total energy sales, MWh	24,580,552		23,800,309		23,742,305
Electric energy sales, MWh										Electric energy sales, MWh
Residential	10,931,999			10,245,326			10,164,703			Residential	10,756,628		10,497,389		10,931,999
Commercial	9,089,842			8,895,950			8,999,068			Commercial	8,837,457		8,932,681		9,089,842
Industrial	1,214,818			1,223,214			1,257,958			Industrial	1,161,149		1,189,828		1,214,818
Other customers	87,230			90,753			94,847			Other customers	85,302		84,382		87,230
Total energy sales to customers	21,323,889			20,455,243			20,516,576			Total energy sales to customers	20,840,536		20,704,280		21,323,889
Sales to other utilities and marketers	2,418,416			2,604,329			1,942,444			Sales to other utilities and marketers	3,740,016		3,096,029		2,418,416
Total energy sales, MWh	23,742,305			23,059,572			22,459,020			Total energy sales, MWh	24,580,552		23,800,309		23,742,305
Transportation, including unbilled	2,001,244			2,085,574			2,012,827			Transportation, including unbilled	2,322,021		2,028,727		2,001,244
Electric energy sales and transportation, MWh	25,743,549			25,145,146			24,471,847			Electric energy sales and transportation, MWh	26,902,573		25,829,036		25,743,549
Electric operating revenue by classes										Electric operating revenue by classes
(Dollars in Thousands)										(Dollars in Thousands)
Residential	$	1,232,075		$	1,138,871		$	1,061,117		Residential	$	1,139,356	$	1,147,260	$	1,232,075
Commercial	892,360			872,057			867,786			Commercial	854,910		885,457		892,360
Industrial	112,817			113,469			114,223			Industrial	105,020		110,607		112,817
Other customers	19,729			20,045			20,216			Other customers	18,408		18,718		19,729
Total operating revenue from customers	2,256,981			2,144,442			2,063,342			Total operating revenue from customers	2,117,694		2,162,042		2,256,981
Transportation, including unbilled	12,584			10,937			10,143			Transportation, including unbilled	19,512		13,878		12,584
Sales to other utilities and marketers	53,789			50,124			46,666			Sales to other utilities and marketers	109,105		89,324		53,789
Decoupling revenue	9,975			29,968			13,630			Decoupling revenue	15,673		13,530		9,975
Other decoupling revenue¹	(27,706		)	(21,168		)	(16,634		)	Other decoupling revenue¹	(6,866)		(5,475)		(27,706)
Miscellaneous operating revenue	115,040			24,189			11,321			Miscellaneous operating revenue	241,923		182,620		115,040
Total electric operating revenue	$	2,420,663		$	2,238,492		$	2,128,468		Total electric operating revenue	$	2,497,041	$	2,455,919	$	2,420,663
Number of customers served (average):										Number of customers served (average):
Residential	998,078			984,739			970,830			Residential	1,025,024		1,010,574		998,078
Commercial	126,829			125,067			123,072			Commercial	129,944		128,845		126,829
Industrial	3,399			3,425			3,434			Industrial	3,328		3,362		3,399
Other	6,722			6,472			6,283			Other	7,323		6,992		6,722
Transportation	16			16			16			Transportation	80		16		16
Total customers	1,135,044			1,119,719			1,103,635			Total customers	1,165,699		1,149,789		1,135,044

_______________


¹	~~Includes decoupling cash collections, rate of return excess earnings, and decoupling 24-month revenue reserve.~~

^1.Includes decoupling cash collections, rate of return excess earnings, and decoupling 24-month revenue reserve.

ELECTRIC UTILITY OPERATING STATISTICS (Continued)


	Year Ended December 31,										Year Ended December 31,
	2017			2016			2015				2019			2018			2017
Average kWh used per customer:										Average kWh used per customer:
Residential	10,953			10,404			10,470			Residential	10,494			10,388			10,953
Commercial	71,670			71,129			73,120			Commercial	68,010			69,329			71,670
Industrial	357,404			357,143			366,324			Industrial	348,903			353,905			357,404
Other	12,977			14,022			15,096			Other	11,649			12,068			12,977
Average revenue per customer:										Average revenue per customer:
Residential	$	1,234		$	1,157		$	1,093		Residential	$	1,112		$	1,135		$	1,234
Commercial	7,036			6,973			7,051			Commercial	6,579			6,872			7,036
Industrial	33,191			33,130			33,262			Industrial	31,556			32,899			33,191
Other	2,935			3,097			3,218			Other	2,514			2,677			2,935
Average retail revenue per kWh sold:										Average retail revenue per kWh sold:
Residential	$	0.1127		$	0.1112		$	0.1044		Residential	$	0.1059		$	0.1093		$	0.1127
Commercial	0.0982			0.0980			0.0964			Commercial	0.0967			0.0991			0.0982
Industrial	0.0929			0.0928			0.0908			Industrial	0.0904			0.0930			0.0929
Other	0.2262			0.2209			0.2131			Other	0.2158			0.2218			0.2262
Average retail revenue per kWh sold	$	0.1058		$	0.1048		$	0.1006		Average retail revenue per kWh sold	$	0.1016		$	0.1044		$	0.1058
Heating degree days	4,584			3,823			3,800			Heating degree days	4,208			4,065			4,584
Percent of normal - NOAA²30-year average	97.2		%	81.0		%	80.5		%	Percent of normal - NOAA² 30-year average	89.6		%	86.2		%	97.2		%
Load factor³	51.6		%	56.2		%	56.2		%	Load factor³	61.6		%	64.2		%	51.6		%

Effective Date
Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)
May 1, 2017 (0.4)% $(0.9)
May 1, 2016 0.3 5.7
May 1, 2015 0.3 6.5

Natural Gas Rates

Natural Gas Cost Recovery Mechanism

The following table sets forth CRM rate adjustments approved by the Washington Commission and the corresponding impact on PSE’s revenue based on the effective dates:


Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)
November 1, 2019	0.8%	$7.0
November 1, 2018	0.5	5.0
November 1, 2017	0.5	4.9

Effective Date
Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)
November 1, 2017 0.5% $4.9
November 1, 2016 0.6 5.6
November 1, 2015 0.5 5.3

Purchased Gas Adjustment

On April 25, 2019, the Washington Commission approved PSE’s request for an out-of-cycle change to purchased gas adjustment (PGA) rates with the rate change taking effect May 1, 2019. The out-of-cycle PGA filing was needed to begin amortizing a large PGA commodity deferral balance that had grown due to higher than projected commodity costs during the 2018/19 winter. These higher than projected commodity costs were primarily due to an October 9, 2018, rupture and subsequent explosion on Westcoast Pipeline which is one of the major pipelines feeding PSE’s distribution system. The pipeline was repaired in October 2018, however supply capacity on the pipeline was limited over the 2018/19 winter leading to higher prices. February weather was also much colder than normal which also increased the demand for natural gas. The amortization period will be from May 2019 through April 2020.

On October 24, 2019, the Washington Commission approved PSE’s request for November 2019 PGA rates, with the rate change taking effect on November 1, 2019. As part of that filing, PSE requested PGA rates increase annual revenue by $17.8 million, while the new tracker rates increased by annual revenue of $100.6 million; this was in addition to continuing the collection on the remaining balance of $54.0 million from the out-of-cycle PGA. The tracker rates include deferral balances for the three separate amounts: (i) $114.4 million of under collected commodity balances deferred in February and March; (ii) a $10.8 million balance of over-collected commodity costs for the 2018 PGA, and (iii) a $4.1 million remaining balance from the $54.7 million credit to customers, caused by the 2017 over-collection, established in the 2018 tracker. The high commodity deferral balances for winter months through March 2019 were the result of three noteworthy events last winter experienced by PSE: the Enbridge pipeline rupture, unusually low temperatures in February and March, and a compressor failure in February at the Jackson Prairie storage facility. Additionally, to reduce customer impact, as part of the approved PGA filing, PSE will be collecting $114.4 million commodity deferrals and related interest over a two year period, instead of the historic one year period, from November 2019 through October 2021.

The following table sets forth the PGA rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:


Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)
November 1, 2019	13.4%	$118.3
May 1, 2019	6.3	54.0
November 1, 2018	(10.9)	(98.4)
November 1, 2017	(3.3)	(30.8)

Effective Date
Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)
November 1, 2017 (3.3)% $(30.8)
November 1, 2016 (0.4) (4.1)
November 1, 2015 (17.4) (185.9)

Natural Gas Property Tax Tracker Mechanism

The following table sets forth property tax tracker mechanism rate adjustments approved by the Washington Commission and the corresponding impact on PSE’s revenue based on the effective dates:


Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)
May 1, 2019	(0.2)%	$(1.6)
May 1, 2018	(0.2)	(2.2)
May 1, 2017	(0.1)	(1.1)

Effective Date
Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)
May 1, 2017 (0.1)% $(1.1)
May 1, 2016 0.4 3.5
June 1, 2015 (0.2) (2.3)

Natural Gas Conservation Rider

The following table sets forth conservation rider rate adjustments approved by the Washington Commission and the corresponding annual impact on PSE’s revenue based on the effective dates:


Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)
May 1, 2019	0.1%	$1.1
May 1, 2017	(0.1)	(1.0)

Effective Date
Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)
May 1, 2017 (0.1)% $(1.0)
May 1, 2016 0.3 2.9
May 1, 2015 0.2 2.3

Other Proceedings

~~Large Customer Retail Wheeling~~Microsoft Special Contract

~~On October 7, 2016,~~Following discussions between PSE, ~~filed~~the Microsoft Corporation, and others, and after completing a ~~tariff to provide open access service to a narrow set of qualifying customers. Subsequent to that tariff filing, parties to~~negotiated regulatory process, the ~~case reached~~Washington Commission issued an ~~all-party settlement that converted the tariff to~~order in July 2017 approving a special contract ~~only allowing~~between PSE and Microsoft relating to retail access for ~~the~~Microsoft loads ~~of the Microsoft Corporation~~ currently being served under PSE’s electric Schedule 40. The special contract includes the following conditions: (i) Microsoft must exceed Washington State’s current renewable portfolio standards, (ii) the remainder of power sold to itMicrosoft must be carbon free, (iii) there will be no reduction in ~~its~~Microsoft's funding of PSE’s conservation programs, (iv) ~~an exit~~Microsoft paid a transition fee ~~be paid~~ that ~~will be~~was a straight pass-through to customers and (v) Microsoft will fund enhanced low-income support. A definitive agreement among the parties, the special contract and supportive testimony were filed with the Washington Commission on April 11, 2017 with hearings that occurred on May 3, 2017. The Washington Commission issued an order on July 13, 2017 approving PSE’s special contract with Microsoft. Microsoft ~~cannot begin~~began taking service under the special contract ~~until it has~~on April 1, 2019, after meeting the ~~required metering installed, has contracts for~~eligibility requirements under the ~~supply and transmission of its power supply and pays the exit fee. PSE currently anticipates these conditions will be met in early 2019.~~special contract.

Voluntary Long-Term Renewable Energy

OnEffective September ~~28,~~ 2016, the Washington Commission approved PSE's tariff revision to create an additional voluntary renewable energy ~~product, effective September 30, 2016.~~product. This provides customers with ~~energy choices~~electric generation resource options to help them meet their sustainability goals. Incremental costs of the program will be allocated to the voluntary participants of the program as is the case with PSE’s existing Green Power programs. PSE ~~initially~~ offered this service, Green Direct, to larger customers (aggregated annual loads greater than ~~10,000,000 kWh)~~10,000 MWh) and government customers. ~~Approximately 136.8 MW of~~The initial resource option offered under this rate schedule is a new wind generation ~~facilities will be constructed~~facility with the capacity of approximately 136.8 MW currently under construction in the region by a developer under contract to ~~PSE~~PSE. The project is fully subscribed and is expected to ~~meet~~begin generating power in 2020. Twenty-one customers will receive the ~~demand for this voluntary renewable~~anticipated output of the project.

In July 2018, the Washington Commission approved a second phase of the Green Direct product. The phase 2 offering will be a blend of the phase 1 wind and a solar project to be built in Washington. Phase 1 customers will receive wind through 2020; and then are expected to receive the blended energy ~~product project. PSE anticipates that~~in 2021. An additional twenty customers will start receiving energy through ~~this~~phase 2 of the program, ~~in 2019.~~likely by 2021.

For additional information, see ~~Business,~~Note 4, "Regulation and Rates" to the consolidated financial statements included in Item 18 of this report.

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 renew existing, or obtain access to new credit facilities and could increase the cost of such facilities. 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 acquisitions, including generating capacity, 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. In October 2017, PSE and Puget Energy each entered into new 5-year credit facilities that replaced the previous facilities and are scheduled to mature in October 2022. For additional information on credit facilities, see Note 7, “Liquidity Facilities and Other Financing Arrangements" included in Item 8 of this report.

Regulatory Compliance Costs and Expenditures

PSE's operations are subject to extensive federal, state and local laws and regulations. These 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, including climate change and endangered species protection, waste handling and disposal (including generation by-products such as coal ash), remediation of contamination and siting new facilities also impact the Company's operations. PSE must spend a significant amount of 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.

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; and therefore, PSE’s business has historically been recognized as a natural monopoly. However, PSE faces competition from public utility districts and municipalities that want to establish their own municipal-owned utility, as a result of which PSE may lose a number of customers. ~~Further,~~ PSE also faces increasing competition for sales to its retail ~~customers. Alternative~~customers through alternative methods of electric energy generation, including solar and other self-generation ~~methods, compete with PSE for sales to existing electric retail customers.~~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.

Results of Operations

Puget Sound Energy

The following discussion should be read in conjunction with the audited 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 years ended December 31, ~~2017, 2016~~2019, and ~~2015.~~December 31, 2018.

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 departure from GAAP presentation. 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 ~~maintain electric and natural gas margins to ultimately~~ 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.

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 changes in PSE’s electric margin ~~from 2016~~for the years ended December 31, 2018, to ~~2017:~~December 31, 2019:

_______________

~~_______________~~

^*Includes decoupling cash collections, rate of return excess earnings, and decoupling 24-month revenue reserve.

~~2016~~2018 compared to ~~2017~~2019

Electric Operating Revenue

Electric operating revenues increased ~~$182.2~~$41.2 million primarily due to ~~higher retail sales of $112.5 million,~~ increased transportation and other revenue of ~~$92.5~~$65.0 million, sales to other utilities and marketers of $19.8 million and decoupling revenue of $2.1 million; partially offset by ~~decreased decoupling revenue~~lower retail sales of ~~$20.0~~$44.3 million and other decoupling revenue of ~~$6.5~~$1.4 million. These items are discussed in detail below:

•Electric retail sales ~~increased $112.5~~ decreased $44.3 million due to a decrease of $60.7 million in rates partially offset by an increase ~~of $100.0 million from additional~~in retail electricity usage of ~~4.2%~~0.7%, or $16.4 million, compared to the prior ~~year and an increase in rates of $12.5 million due to the decoupling rate mechanism.~~year. The additional usage was due to an increase of residential sales and ~~commercial use per customer~~other retail sales of ~~6.7%~~2.5% and ~~2.2%~~1.1%, respectively, which was driven by an increase in heating degree days of ~~19.9%~~3.5% compared to ~~2016,~~2018 and an increase in retail customers of 1.4%.

See Management's Discussion and Analysis, "Regulation and Rates" included in Item 7 of this report for rate changes.

~~Decoupling revenue~~ ~~decreased $20.0~~•Sales to other utilities and marketers increased $19.8 million due to a 20.8% increase in sales volume and a 1.0% increase in price. During the 1st quarter of 2019, wholesale prices increased 115.7% due to spot power prices at Mid-Columbia that increased to an 18-year high largely driven by record-breaking natural gas prices and there was increase in volumes from an additional 111.8% of combustion turbine (CT) generation or an additional 61.2% CT generation at year to date as a result of favorable heat rates and increased demand for wholesale market power.

•Decoupling revenue increased $2.1 million, primarily attributable to an $8.5 million increase in PCA fixed cost deferral revenues. In the current year, actual PCA revenues declined significantly as a result of lower rates, offset in

part by increased usage as noted above in the retail revenue section. This resulted in current year under collection, as compared to prior year over collection. This increase was partially offset by a $6.3 million decrease in delivery deferral revenues, attributable to a decline in allowed revenues year over year as a result of lower allowed rate per customer.

•Other decoupling ~~deferrals~~revenue decreased $1.4 million, primarily related to earnings in excess of ~~$23.5~~allowed ROR. In 2018, $10.1 million ~~driven by actual revenue being closer~~of earnings in excess of allowed ROR was passed back to ~~PSE's allowed revenue per the decoupling mechanism~~customers, as compared to ~~2016. The increase~~only $3.5 million in ~~actual revenue was due to an increase in load as discussed above in electric retail sales.~~the current year. This decrease of $6.6 million was partially offset by an increase of $4.4 million attributable to lower current period amortization of prior year under collection in ~~decoupling revenue of $3.5 million due to fixed production cost deferrals, which were removed from the PCA mechanism and placed into the decoupling mechanism effective January 1, 2017.~~

~~Other decoupling revenue~~ ~~decreased~~ ~~$6.5 million~~ ~~due to an increase~~2019 than in ~~decoupling collections of $9.5 million due to an increase in rates in 2017.~~2018. In ~~2016,~~addition, there was ~~$1.3~~a $1.7 million increase related to GAAP alternative revenue program recognition guidelines. In 2018, there was $0.8 million of ~~decoupling deferred~~ revenue that ~~could~~was not anticipated to be collected within 24 months, ~~compared to no reserve~~and therefore was deferred. This amount was recognized in the ~~current year. The decoupling collection and refund~~first quarter of ~~rate of return (ROR) excess earnings are driven by~~2019, when the ~~tariff rates and retail sales.~~

alternative revenue program revenue recognition guidelines were met.

•Transportation and other revenue increased ~~$92.5~~$65.0 million primarily due to a change in production tax credit (PTC) deferral revenue of $73.2 million due to a $19.9 million reduction to revenue in 2016 as PTCs were generated compared to no PTC generated in 2017, as well as, a $51.2 million remeasurement of the PTC deferral in 2017 due to tax law change. Additionally, there was an increase in net wholesale natural gas sales of ~~$17.5~~$34.8 million, and an increase in tax reform deferrals for revenue subject to refunds of $38.9 million, partially offset by a decrease in production tax credit (PTC) deferral revenue of $14.9 million for the re-purpose of the PTCs The increase in net wholesale non-core natural gas sales was due to ~~increased purchased electricity, as discussed below.~~

an approximately 28% increase in the average price of the non-core natural gas sold year ended December 31, 2019, compared to year ended December 31, 2018, offset by a 17% decrease in sales volume. Also contributing to the increase in the net amount was an $18.3 million decrease in the cost of the natural gas sold due to the 17% decrease in sales volume, offset by a 6% increase in the average cost of the natural gas sold which was driven by an increase in the average price of non-core natural gas purchases. The higher natural gas prices occurred in late 2018 and peaked in early 2019 and were due to the effects of the late 2018 Enbridge pipeline rupture which led to a decrease in natural gas supply and higher than expected demand due to cold weather during that time.

Electric Power Costs

Electric power costs increased ~~$43.2~~$90.7 million primarily due to an increase of ~~$58.4 million of purchased electricity costs, partially offset by a decrease of $9.1~~$78.7 million of electric generation fuel ~~expense~~costs and ~~an increase of $6.1~~$13.8 million of ~~residential exchange credits.~~purchased electricity costs. These items are discussed in detail below:

•Purchased electricity expense increased ~~$58.4~~$13.8 million primarily due to ~~an 11.2%~~a 15.9% increase in wholesale ~~electricity purchases,~~prices partially offset by a ~~0.2%~~11.9% decrease in ~~prices.~~wholesale electricity purchases. The ~~increase~~decrease in purchases was primarily driven by ~~an increase in load and lower wholesale electricity prices on the open market compared to generating power. Additionally,~~ a decrease in hydro purchases at Mid-Columbia of ~~hydro and wind production of 7.4% and 14.7%~~23.7%, ~~increased the need to purchase additional wholesale power.~~

~~Electric generation fuel~~ ~~expense decreased $9.1 million primarily~~ due to ~~a $2.7 million reduction~~unfavorable hydro conditions, driving an increase in combustion turbine generation, costs as a result of a 7.9% reduction in combustion turbine generation due to favorable wholesale electricity prices and a $6.3 million decrease in coal generation costs primarily at Colstrip units 3 and 4 for variable fuel costs due to less coal delivered and burned in 2017.

~~Residential exchange credits~~ increased $6.1 million resulting from higher Residential Exchange Program (REP) credits associated with the BPA REP settlement due to the REP credit tariff increase in 2017 and increased usage. The REP credit is a pass-through tariff item with a corresponding credit in electric operating revenue, with no impact on net income. The Northwest Power Act, through the REP, provides access to the benefits of low-cost federal power for residential and small farm customers of regional utilities, including PSE. The program is administered by BPA. Pursuant to agreements (including settlement agreements) between BPA and PSE, BPA has provided payments of REP benefits to PSE, which ~~PSE has passed through to its residential and small farm customers in the form of electricity bill credits.~~

~~The following chart displays the changes in PSE’s electric margin from 2015 to 2016:~~

~~_______________~~


^*	~~Includes decoupling cash collections, rate of return excess earnings, and decoupling 24-month revenue reserve.~~

~~2015 compared to 2016~~

~~Electric Operating Revenue~~

~~Electric operating revenues~~ increased $110.0 million primarily due to higher retail sales of $81.1 million, increased decoupling revenue of $16.3 million and transportation and other revenue of $13.6 million. These items are discussed in detail below:

~~Electric retail sales~~ increased $81.1 million due to increases in rates of $86.4 million primarily from the reduction of the residential exchange credits and an increase in the decoupling rate mechanism. The increase from rates was partially offset by $5.6 million due to a 0.3% reduction in retail electricity usage. The reduction in usage was due to a decrease of residential, commercial and industrial average use per customer of 0.6%, 2.7% and 2.5%, respectively, as a result of energy efficiency. The reduction in use per customer were offset by an increase in retail customers of 1.5% and an increase in heating degree days of 0.6% compared to 2015.

~~Decoupling revenue~~ increased $16.3 million due to actual revenues were lower than PSE's allowed revenue per the decoupling mechanism compared to 2015. This increase was primarily from residential and commercial decoupled rate schedules, which increased $15.6 million in 2016. The increase was driven from an increase in customers which increases the allowed revenue and a decrease in use per customer, which lowers the actual revenue resulting in higher decoupled revenue.

~~Other decoupling revenue~~ decreased $4.5 million due to an increase of $16.8 million of decoupling collections as compared to 2015 from an increase in rates in 2016; partially offset by a decrease in the ROR excess earnings sharing of $13.5 million from a reduction in the ROR excess earnings accrual of $6.5 million compared to 2015 and an increase of $7.0 million in refunds to customers for the 2015 ROR excess earnings set into customer rates in 2016. The decoupling collection and refund of ROR excess earnings are driven by the tariff rates and retail sales.

~~Transportation and other revenue~~ increased $13.6 million primarily due to a reduction of amortization of PTC deferral credits of $10.1 million since PTC generation at Hopkins Ridge ended in 2015 and increase in net wholesale natural gas sales of $6.8 million.

~~Electric Power Costs~~

~~Electric power costs~~ increased $40.1 million primarily due to a decrease of $42.6 million of residential exchange credit, an increase of $32.1 million of purchased electricity costs, partially offset by a decrease of $34.6 million of electric generation fuel expense. These items are discussed in detail below:

~~Purchased electricity~~ expense increased $32.1 million primarily due to a 16.1% increase in wholesale electricity purchases, partially offset by a 8.3% decrease in wholesale electricity prices. The increase in purchases was primarily driven by an increase in load and lower wholesale electricity prices on the open market compared to generating power. Additionally, an increase of hydro and wind production of 32.2% and 14.4% decreased the need to purchase additional wholesale ~~power due to favorable conditions.~~

power.

•Electric generation fuel expense ~~decreased $34.6~~increased $78.7 million primarily due to a ~~$43.0~~$63.0 million ~~reduction~~increase in combustion turbine generation costs primarily driven by an increase in generation of 61.2% as a result of ~~a 28.8% reduction in combustion turbine generation due to~~ favorable heat rates, unfavorable wholesale electricity prices, reduced hydro purchases of 23.7% and ~~increased~~reduced hydro and wind generation of 22.0% and ~~hydro generation.~~13.7%, respectively. This was partially offset by ~~an $8.4 million increase~~a decrease in ~~coal generation costs primarily due to an increase~~cost per kWh generated of 8.7%,

For additional information on prior years, please see discussion in ~~the weighted-average cost~~Item 7, "Non-GAAP Financial Measures - Electric Margin" of ~~coal.~~

Form 10-K for period ended December 31, 2018.

~~Residential exchange credits~~ decreased $42.6 million resulting from lower Residential Exchange Program (REP) credits associated with the BPA REP settlement. The REP credit tariff was lowered effective October 1, 2015. The REP credit is a pass-through tariff item with a corresponding credit in electric operating revenue, with no impact on net income. The Northwest Power Act, through the REP, provides access to the benefits of low-cost federal power for residential and small farm customers of regional utilities, including PSE. The program is administered by BPA. Pursuant to agreements (including settlement agreements) between BPA and PSE, BPA has provided payments of REP benefits to PSE, which PSE has passed through to its residential and small farm customers in the form of electricity bill credits.

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 ~~to customers~~ 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~~over- and ~~under~~under- recoveries of natural gas costs included in baseline PGA rates are deferred and either refunded or collected from customers, respectively, in future periods.

The following chart displays the changes in PSE’s natural gas margin ~~from 2016~~for the years ended December 31, 2018, to ~~2017:~~December 31, 2019:

_______________

^*Includes decoupling cash collections, rate of return excess earnings, and decoupling 24-month revenue reserve.

~~2016~~2018 compared to ~~2017~~2019

Natural Gas Operating Revenue

Natural gas operating revenueincreased ~~$107.3~~$24.6 million primarily due to higher retail sales of ~~$148.1~~$9.3 million, increased transportation and other revenue of $11.9 million and increased other decoupling revenue of ~~$5.9~~$7.3 million; partially offset by a decrease in decoupling revenue of ~~$48.6~~$3.8 million. These items are discussed in the following details:

•Natural gas retail sales increased ~~$148.1~~$9.3 million due to ~~an increase of $155.1 million in natural gas sales, which is a result of~~ an increase in natural gas load of ~~18.0% from 2016,~~4.8%, or $44.7 million in natural gas sales, which was partially offset by a decrease in ~~revenue per therm~~rates of ~~$6.9~~$35.4 million. ~~The decrease in revenue per therm was~~Natural gas load increased primarily due to ~~a rate decrease on customer bills for PGA, which decreased rates 0.4% effective November 1, 2016 and~~the year over year increase in ~~decoupling rates~~usage for residential and commercial firm customers of ~~2.4% effective May 1, 2017, see~~6.0% and 4.9%, respectively. These increases were driven by a 3.5% increase in heating degree days as well as a 1.3% increase in natural gas customers. See Management's Discussion and Analysis, "Regulation and Rates" included in Item 7 of this report for rate changes.

•Decoupling revenue decreased $3.8 million. This is primarily attributable to higher natural gas ~~rate changes. Natural~~usage, as noted above in the retail revenue section. This resulted in actual natural gas ~~load increased primarily due~~revenues being closer to allowed natural gas revenues in the current year as compared to the increase in average therms used per residential and commercial customers of 17.4% and 18.9%, respectively, compared to 2016 as a result of a 19.9% increase in heating degree days and an increase of 1.5% in natural gas customers, whichprior year.

•Other decoupling revenue increased ~~the natural gas heating load compared to prior year.~~

~~Decoupling revenue~~ ~~decreased $48.6~~$7.3 million, primarily due to ~~an increase~~a $12.0 million decrease in use per customer, driven by an increase in heating degree days as discussed above in natural gas retail sales. This caused actual revenue to increase closer to PSE's allowed revenue, which lowered decoupled revenue in 2017.

~~Other decoupling revenue~~ ~~increased~~ ~~$5.9 million~~current year amortization of prior year under collection, due to lower amortization rates. This was offset in part by activity related to earnings in excess of allowed ROR. In 2018, the ~~following: (i) an increase~~prior year's estimate of earnings in ~~decoupling collections~~excess of ~~$14.7 million from an increase~~allowed ROR was trued up to match actual earnings in ~~the amortization rate in 2017 and an increase in therms used; (ii) in 2017,~~excess of allowed ROR by a favorable $3.4 million. In 2019, there was ~~$19.6~~no prior year estimate of earnings in excess of allowed ROR to require true up. Also in 2018, earnings in excess of allowed ROR of $3.5 million was passed back to customers. In the current year, only $2.2 million was passed-back to customers.

•Transportation and other revenue increased $11.9 million primarily due to tax reform deferrals for revenue subject to refund of deferred decoupling revenue that was recognized as it met the alternative revenue program revenue recognition criteria that it is expected to be collected from customers within 24 months, compared to the 24-month reserve of $9.6 million in 2016; and (iii) an increase in net overearnings accruals and cash refunds of $8.6$15.4 million.

Natural Gas Energy Costs

Purchased natural gas expense ~~increased $46.1~~decreased $5.7 million due to ~~an increase~~a decrease in natural gas costs included in PGA rates ~~effective November 1, 2016 as compared to those effective November 1, 2015, and an increase in natural gas usage of 18.0%.~~

~~The following chart displays the changes in PSE’s natural gas margin from 2015 to 2016:~~

~~_______________~~


^*	~~Includes decoupling cash collections, rate of return excess earnings, and decoupling 24-month revenue reserve.~~

~~2015 compared to 2016~~

~~Natural gas operating revenue~~ ~~decreased $57.0 million primarily due to lower natural gas retail sales revenue of $53.7 million and a decrease in other decoupling revenue of $2.7 million, see discussion below.~~

~~Natural gas retail sales revenue~~ decreased $53.7 million due to a decrease in revenue per therm of $90.6 million, partially offset by an increase of $41.0 million in natural gas sales, due to an increase in natural gas load of 4.6% from 2015. The decrease in revenue per therm was primarily due to a rate decrease on customer bills for PGA, which decreased rates 17.4% effective November 1, 2015 partially offset by an increase in decoupling rates of 2.8% effective May 1, 2016, see Management's Discussion and Analysis, "Regulation and Rates" included in Item 7 of this report for natural gas rate changes. Natural gas load increased primarily due to the increase in average therms used per residential and commercial customers of 4.0% and 0.7%, respectively, compared to 2015. In addition, natural gas customers increased by 1.6% and heating degree days increased by 0.6%, which increased the natural gas heating load compared to prior year.

~~Other decoupling revenue~~ decreased $2.7 million due to an increase in decoupling deferral collection of $17.9 million, as a result of an additional $17.3 million being set in rates on May 1, 2016, which was partially offset by a decrease in ROR excess earnings sharing accrual of $12.5 million and an increase in ROR excess earnings refund in 2016 of $2.5 million. The decoupling collection and refund of ROR excess earnings are driven by the tariff rates and customer usage.

~~Natural Gas Energy Costs~~

~~Purchased natural gas~~ ~~expense decreased $89.4 million primarily due to lower natural gas costs included in PGA rates effective November 1, 2015,~~ which was partially offset by an increase in natural gas usage of ~~4.6%~~4.8%.

For additional information on prior years, please see discussion in Item 7, "Non-GAAP Financial Measures - Natural Gas Margin" of Form 10-K for period ended December 31, 2018.

Other Operating Expenses and Other Income (Deductions)

The following chart displays the details of PSE's other operating expenses and other income (deductions) ~~from period 2016~~for the years ended December 31, 2018, to ~~2017:~~December 31, 2019:

~~2016~~

2018 compared to ~~2017~~2019

Other Operating Expenses

•Net unrealized (gain) loss on derivative instruments ~~expense increased $114.6~~ decreased $45.2 million to a net loss of ~~$30.8~~$3.6 million for the year ended December 31, ~~2017. The primary~~2019. One of the drivers for the ~~increase consist~~change is related to the net settlements of ~~a reduction of $20.6~~electric and natural gas trades previously recorded as $36.4 million in gains ~~from contract settlements previously recorded as~~and $15.4 million in losses, ~~that settled~~respectively. The other driver is related to ~~purchased electricity or~~the change in the weighted average forward prices for electric ~~generation fuel~~and natural gas. Specifically, electric price decreased 16.7% resulting in a $2.6 million loss for electric. Natural gas derivative unrealized losses of $21.6 million were due to a higher cost basis of forward trades due to high natural gas prices in late 2018 and early 2019 and a ~~$94.0~~decrease in forward prices at December 31, 2019.

•Utility operations and maintenance expense decreased $6.0 million ~~loss~~primarily due to a decrease in natural gas and electricity forward prices of 26.9% and 27.5%, respectively. The $20.6 million reduction from contract settlements was comprised of a $16.5 million from natural gas and a $4.1 million from wholesale electric contracts. The decrease in the weighted average natural gas and wholesale electric forward prices resulted in a $78.4 million loss and a $15.6 million loss, respectively.

~~Utility operations and maintenance~~ ~~expense increased $15.8 million primarily driven by increases in~~ the following: ~~$6.7~~(i) bad debt expense of $5.4 million ~~for electric~~due to an improved collection process, (ii) underground cable maintenance expense of $2.5 million, (iii) leak surveys expense of $2.3 million due to reliability strategic initiatives, and ~~natural gas operations~~(iv) rent expense of $1.7 million due to facility consolidations; partially offset by (v) an increase in hardware and software maintenance costs of $7.5 million due to an increase in IT projects..

•Non-utility and other expense decreased $7.0 million primarily due to ~~increased electric operations third-party service provider~~a decrease in biogas gas purchase expense of $5.6 million and a decrease in non-qualified pension plan costs of $3.2 million and gas distribution system integrity costs of $2.0 million $5.5 million increase in outside services expense for customer service optimization initiatives that began in 2016, and a $4.6 million increase in overall labor expense. These increases were$1.9 million; partially offset by ~~$1.6 million reduction of uncollectible account costs compared to 2016.~~

~~Non-utility and other~~ ~~expense increased $14.5 million primarily due to~~ an increase in the long-term incentive plan accrual of ~~$12.3~~$1.4 million due to an increase in ~~2017 which resulted from a total return~~long-term incentive plan awards in 2017 of 29.1% which resulted in the total return component to be funded at 200.0%. For more information see Part III, "Executive Compensation" included in Item 11 of this report for the Company's long term incentive plan.

2019.

•Depreciation and amortization expense ~~increased $55.8~~decreased $25.2 million primarily ~~due to the following:~~driven by: (i) electric depreciation expense of $12.1 million, primarily due to asset net additions to distribution, transmission, and general plant of $186.4 million, $92.0 million and $83.1 million respectively; (ii) natural gas depreciation expense of $6.1 million increased due primarily to net additions to distribution assets of $192.3 million; (iii) $15.5 million of amortization expense due to

~~computer software net additions of $123.7 million; (iv)~~a decrease in amortization of PTC regulatory liability of ~~$2.1~~$15.4 million in ~~2017;~~2019 as compared to 2018, (ii) a decrease of $21.7 million in common amortization due the deferral treatment of IT amortization effective May 1, 2019, as submitted to the Washington Commission, (iii) a decrease of $11.0 million for amortization of the Microsoft transition fee set in rates by a Washington Commission order, (iv) a decrease in amortization driven by the deferral treatment of $12.7 million for meter assets effective April 1, 2019, as submitted to the Washington Commission, (v) a decrease ~~of Lower Snake River U.S. Treasury interest~~ in conservation

amortization of ~~$3.2 million;~~$15.1 million due to lower rates in 2019 as compared to 2018; partially offset by (vi) an increase in common amortization of ~~ARO accretion~~$33.8 million driven by net additions of $88.3 million of software; (vii) electric depreciation expense ~~of $2.8~~increased $10.2 million ~~due to a change in the Colstrip ARO in 2016; and (vii) conservation amortization increased $13.4 million, $10.3 for electric and $3.2 for natural gas,~~ primarily due to ~~an increase~~net asset additions to distribution of ~~usage attributed to~~$212.5 million and (viii) an increase in ~~heating degree days and customers for both electric and~~ natural gas ~~in 2017 as compared~~depreciation expense of $7.3 million primarily due to ~~2016.~~net asset additions to distribution of $214.5 million.

•Taxes other than income taxes ~~increased $32.0~~ decreased $2.7 million primarily due to ~~increases~~decreases in municipal taxes of ~~$11.5~~$2.4 million ~~and state excise taxes of $10.2 million~~, as well as a ~~result~~decrease of ~~an increase in revenue and an increase of $9.3~~$2.1 million ~~in property taxes~~ related to ~~increased~~the property ~~values and expected levy rates.~~

tax tracker.

Other Income, Interest Expense and Income Tax Expense

•Other income/expense decreased $10.1 million as a result of an increase in other income of $7.9 million and a decrease in other expenses of $2.1 million. Primarily contributing to the increase was an increase of $6.6 million of PGA interest income. Additionally, there was an increase in Washington Commission allowance for funds used during construction (AFUDC) of $3.9 million due to a $31.8 million increase in eligible construction work in progress in 2019 as compared to 2018.

~~Income tax~~•Interest expense increased ~~$36.6~~$11.3 million primarily ~~driven by the impact~~related to PSE's issuance of ~~tax reform on the deferred tax balances and partially offset by a 4.3% decrease in pre-tax income.~~$450.0 million of senior notes at an interest rate of 3.25%. For additional information, see Note ~~13,~~7, "Long-Term Debt" to the consolidated financial statements included in Item 8 of this report.

•Income tax expense decreased $11.6 million primarily driven by $7.5 million attributable to a decrease in pre-tax income and $4.0 million to attributable to permanent and flow through items. For further details, see Note 14, "Income Taxes" to the consolidated financial statements included in Item 8 of this report.

~~The following chart displays the details of PSE's other operating expenses and other income (deductions) from period 2015 to 2016:~~

~~2015 compared to 2016~~

~~Other~~For additional information on prior years, please see discussion in Item 7, "Other Operating Expenses

~~Net unrealized (gain) loss on derivative instruments~~ ~~expense decreased $71.1 million to a net gain~~ and Other Income (Deductions)" of ~~$83.8 million~~Form 10-K for ~~the year~~period ended December 31, 2016. The primary drivers for the 2016 net gain consist of a $61.7 million gain from contract settlements previously recorded as losses in the 2015 unrealized gain on derivative instruments that settle to purchased electricity and electric generation fuel. The $61.7 million gain from contract settlements was comprised of a $39.7 million gain from natural gas and a $22.0 million gain from wholesale electric contract settlements. Natural gas and wholesale electricity gain increased $22.1 million primarily due to increases in forward market prices of 5.7% and 10.8%, respectively. This compares to a net gain of $12.7 million in 2015, comprised of $83.6 million in settlement gains offset by a $70.9 million loss due to a decrease in natural gas and wholesale electricity prices.2018.

~~Utility operations and maintenance~~ expense increased $37.8 million primarily driven by (i) an increase of $26.9 million of maintenance expense primarily related to natural gas leak repairs and sewer cross bore inspections, maintenance on gearboxes and generators at the Hopkins Ridge and Wild Horse wind generation facilities, electric distribution maintenance for overhead lines and vegetation management; (ii) an increase of outside services expense of $7.4 million primarily related to customer service initiatives; (iii) an increase of salary expense of $2.9 million primarily related to incentive increases; partially offset by (iv) a decrease of $4.6 million in meter reading expense due to the purchase of previously leased meter reading equipment during 2015.

~~Depreciation and amortization~~ expense increased $15.7 million primarily due to $16.5 million of depreciation expense primarily due to net additions of $173.9 million of natural gas distribution assets, $148.5 million of electric distribution assets and $90.6 million of electric transmission assets.

~~Taxes other than income taxes~~ increased $8.1 million primarily due to an increase in electric property taxes of $6.0 million based on assessed value and levy rates, electric state excise and municipal taxes of $5.8 million driven by an increase in electric revenue, partially offset by a decrease of $4.8 million in natural gas state excise and municipal taxes from a decrease in natural gas revenue.

~~Other Income, Interest Expense and Income Tax Expense~~

~~Interest expense~~ decreased $6.3 million primarily due to a reduction of $3.8 million in interest on long-term debt related to debt that was refinanced in May 2015 at an interest rate of 4.30% compared to interest rates of 5.197% and 6.75%; and an increase of $1.7 million related to allowance for funds used during construction (AFUDC) debt due to an increase in average construction work in progress (CWIP).

~~Income tax expense~~ increased $49.4 million primarily driven by $44.0 million from higher pre-tax income and an increase of $6.5 million due to Hopkins Ridge no longer generating PTCs. PTCs are generated for the first ten years at a wind facility. As of December 2015, Hopkins Ridge is no longer eligible to generate PTCs. For additional information, see Note 13, "Income Taxes" to the consolidated financial statements included in Item 8 of this report.

Puget Energy

Substantially all the operations of Puget Energy are conducted through its regulated subsidiary, PSE. Puget Energy’s results of operation for the years ended December 31, ~~2017, 2016~~2018, and ~~2015~~December 31, 2019, were as follows:

~~2016~~2018 compared to ~~2017~~2019

Summary Results of Operations

Puget Energy’s net income decreased by ~~$137.7~~$24.9 million, which is primarily attributable to ~~an income tax expense increase of $79.3 million, as well as~~a decrease in PSE's net income ~~decrease~~ of ~~$60.5~~$24.2 million. ~~The following are significant factors that impacted Puget Energy’s net income which are not included~~

For additional information on prior years, please see discussion in ~~PSE’s discussion:~~

~~Income Tax Expense~~ increased by $79.3 million primarily due to tax reform passed on December 22, 2017 that lowered the corporate tax rate from 35.0% to 21.0%. As a result, income tax expense was effected by the revaluation of Puget Energy's deferred tax assets at the 21.0% rate.

~~2015 compared to 2016~~

Item 7, "PE Summary Results of ~~Operations~~Operation" of Form 10-K for period ended December 31, 2018.

Puget Energy’s net income increased by $71.7 million, which is primarily attributable to PSE's net income increase of $76.4 million. The following are significant factors that impacted Puget Energy’s net income which are not included in PSE’s discussion:

~~Non-utility expense and other~~ ~~increased $5.1 million primarily due to legal outside services of $2.8 million and qualified pension expense of $1.2 million.~~

Capital Resources and Liquidity

Capital Requirements

Contractual Obligations and Commercial Commitments

The following are PSE’s and Puget Energy’s aggregate contractual obligations as of December 31, ~~2017:~~2019:


	Payments Due Per Period
(Dollars in Thousands)	Total		2020		2021-2022		2023-2024		Thereafter
Contractual obligations:
Energy purchase obligations¹	$	6,355,478	$	1,033,400	$	1,574,582	$	1,339,851	$	2,407,645
Long-term debt including interest²	8,874,206		229,109		453,394		453,394		7,738,309
Short-term debt including interest	176,000		176,000		—		—		—
Service contract obligations	615,117		72,445		149,517		155,189		237,966
Non-cancelable operating leases³	269,398		22,500		44,383		42,105		160,410
PSE finance leases³	1,528		643		787		98		—
Pension and other benefits funding and payments	82,967		41,659		8,316		10,495		22,497
Total PSE contractual cash obligations	16,374,694		1,575,756		2,230,979		2,001,132		10,566,827
Long-term debt including interest²	2,428,548		547,880		1,422,008		53,300		405,360
Total Puget Energy contractual cash obligations	$	18,803,242	$	2,123,636	$	3,652,987	$	2,054,432	$	10,972,187

Payments Due Per Period
(Dollars in Thousands) Total 2018 2019 - 2020 2021 - 2022 Thereafter
Contractual obligations:
Energy purchase obligations¹
$ 5,508,991
$ 824,417
$ 1,352,132
$ 1,184,192
$ 2,148,250
Long-term debt including interest²
7,967,957
402,854
393,521
393,521
6,778,061
Short-term debt including interest 329,463
329,463
—
—
—
Service contract obligations 724,899
76,919
145,371
149,222
353,387
Non-cancelable operating leases³
171,813
21,371
36,584
15,884
97,974
PSE capital leases³
1,162
527
538
97
—
Pension and other benefits funding and payments 78,187
23,803
10,685
6,305
37,394
Total PSE contractual cash obligations 14,782,472
1,679,354
1,938,831
1,749,221
9,415,066
Long-term debt including interest²
2,321,374
201,763
647,043
1,038,008
434,560
Total Puget Energy contractual cash obligations $ 17,103,846
$ 1,881,117
$ 2,585,874
$ 2,787,229
$ 9,849,626

~~_______________~~^{____________________}


¹	Energy purchase contracts were entered into as part of PSE’s obligation to serve retail electric and natural gas customers’ energy requirements. As a result, costs are generally recovered either through base retail rates or adjustments to retail rates as part of the power and natural gas cost adjustment mechanisms.


²	For individual long-term debt maturities, see Note 6, "Long-Term Debt," to the consolidated financial statements included in Item 8 of this report. For Puget Energy, the amount above excludes the fair value adjustments related to the merger.


³	~~For additional information, see Note 8, "Leases" to the consolidated financial statements included in Item 8 of this report.~~

^1.Energy purchase contracts were entered into as part of PSE’s obligation to serve retail electric and natural gas customers’ energy requirements. As a result, costs are generally recovered either through base retail rates or adjustments to retail rates as part of the power and natural gas cost adjustment mechanisms.

^2.For individual long-term debt maturities, see Note 7, "Long-Term Debt," to the consolidated financial statements included in Item 8 of this report. For Puget Energy, the amount above excludes the fair value adjustments related to the merger.

^3.For additional information, see Note 9, "Leases" to the consolidated financial statements included in Item 8 of this report.

The following are PSE’s and Puget Energy’s aggregate availability under commercial commitments as of December 31, ~~2017:~~2019:


	Amount of Available Commitments Expiration Per Period													Amount of Available Commitments Expiration Per Period
(Dollars in Thousands)	Total			2018		2019 - 2020		2021 - 2022		Thereafter			(Dollars in Thousands)	Total	2020	2021-2022	2022-2023	Thereafter
Commercial commitments:													Commercial commitments:
PSE revolving credit facility¹	$	800,000		$	—	$	—	$	800,000	$	—		PSE revolving credit facility¹	$800,000	$—	$—	$800,000	$—
Inter-company short-term debt²	30,000			—		—		—		30,000			Inter-company short-term debt²	30,000	—	—	—	30,000
Total PSE commercial commitments	830,000			—		—		800,000		30,000			Total PSE commercial commitments	830,000	—	—	800,000	30,000
Puget Energy revolving credit facility³	697,400			—		—		697,400		—			Puget Energy revolving credit facility³	775,900	—	—	775,900	—
Less: Inter-company short-term debt elimination²	(30,000		)	—		—		—		(30,000		)	Less: Inter-company short-term debt elimination²	(30,000)	—	—	—	(30,000)
Total Puget Energy commercial commitments	$	1,497,400		$	—	$	—	$	1,497,400	$	—		Total Puget Energy commercial commitments	$1,575,900	$—	$—	$1,575,900	$—

_______________

As of December 31, 2017, PSE had a credit facility which provides $800.0 million of short-term liquidity needs and includes a backstop to the Company's commercial paper program. The credit facility matures in October 2022. The credit facility also includes a swingline feature allowing same day availability on borrowings up to $75.0 million and an expansion feature that, upon the banks' approval, would increase the total size of the facility to $1.4 billion. As of December 31, 2017, no loans or letters of credit were outstanding under the credit facility and $329.5 million was outstanding under the commercial paper program. The credit agreement is syndicated among numerous lenders. Outside of the credit agreement, PSE has a $3.1 million letter of credit in support of a long-term transmission contract and a $1.0 million letter of credit in support of natural gas purchases in Canada.


²	~~As of December 31, 2017, PSE had a revolving credit facility with Puget Energy in the form of a promissory note to borrow up to $30.0 million.~~

As of December 31, 2017, Puget Energy had a revolving senior secured credit facility totaling $800.0 million, which matures in October 2022. The revolving senior secured credit facility is syndicated among numerous lenders. The revolving senior secured credit facility also has an expansion feature that, upon the banks' approval, would increase the size of the facility to $1.3 billion. As of December 31, 2017, there was $102.6 million drawn and outstanding under the Puget Energy credit facility.

^1.As of December 31, 2019, PSE had a credit facility which provides $800.0 million of short-term liquidity needs and includes a backstop to the Company's commercial paper program. The credit facility matures in October 2023. The credit facility also includes a swingline feature allowing same day availability on borrowings up to $75.0 million and an expansion feature that, upon the banks' approval, would increase the total size of the facility to $1.4 billion. As of December 31, 2019, no loans or letters of credit were outstanding under the credit facility and $176.0 million was outstanding under the commercial paper program. The credit agreement is syndicated among numerous lenders. Outside of the credit agreement, PSE has a $2.8 million letter of credit in support of a long-term transmission contract and a $1.0 million letter of credit in support of natural gas purchases in Canada.

^2.As of December 31, 2019, PSE had a revolving credit facility with Puget Energy in the form of a promissory note to borrow up to $30.0 million.

^3.As of December 31, 2019, Puget Energy had a revolving senior secured credit facility totaling $800.0 million, which matures in October 2023. The revolving senior secured credit facility is syndicated among numerous lenders. The revolving senior secured credit facility also has an expansion feature that, upon the banks' approval, would increase the size of the facility to $1.3 billion. As of December 31, 2019, there was $24.1 million drawn and outstanding under the Puget Energy credit facility.

Off-Balance Sheet Arrangements

As of December 31, ~~2017,~~2019, the Company had no off-balance sheet arrangements that have or are reasonably likely to have a material effect on the Company's financial ~~condition, other than the items disclosed in Note 8, "Leases" and in Note 15, "Commitment and Contingencies" to the consolidated financial statements included in Item 2 of this report.~~condition.

Utility Construction Program

PSE’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 and customer growth and to support reliable energy delivery. Construction expenditures, excluding equity AFUDC, totaled ~~$963.7~~$919.3 million in ~~2017.~~2019. Presently planned utility construction expenditures, excluding equity AFUDC, are as follows:


Capital Expenditure Projections
(Dollars in Millions)	2020	2021	2022
Total energy delivery, technology and facilities expenditures	$965.5	$1,031.1	$1,023.7

Capital Expenditure Projections
(Dollars in Thousands) 2018 2019 2020
Total energy delivery, technology and facilities expenditures $ 1,003,000
$ 839,000
$ 740,000

The program is subject to change based upon general business, economic and regulatory conditions. Utility construction expenditures and any new generation resource expenditures ~~are typically~~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 ~~utility construction program~~planned capital expenditures ~~periodically can and do~~may result in a level of spending that will exceed its cash flow ~~generated~~ from operations. As a result, execution of PSE’s ~~utility construction program~~strategy is dependent in part on continued access to capital markets.

Capital Resources

Cash from Operations


Puget Sound Energy	Year Ended December 31,									Puget Sound Energy	Year Ended December 31,
(Dollars in Millions)	2017			2016			Change
(Dollars in Thousands)										(Dollars in Thousands)	2019		2018		Change
Net income	$	320,054		$	380,581		$	(60,527	)	Net income	$	292,924	$	317,162	$	(24,238)
Non-cash items¹	782,890			631,440			151,450			Non-cash items¹	677,261		670,632		6,629
Changes in cash flow resulting from working capital²	105,281			(46,554		)	151,835			Changes in cash flow resulting from working capital²	(107,355)		80,541		(187,896)
Regulatory assets and liabilities	(88,875		)	(152,786		)	63,911			Regulatory assets and liabilities	(79,173)		(71,348)		(7,825)
Purchased gas adjustment										Purchased gas adjustment	(132,766)		—		(132,766)
Other non-current assets and liabilities³	(32,547		)	6,235			(38,782		)	Other non-current assets and liabilities³	(26,967)		(1,083)		(25,884)
Net cash provided by operating activities	$	1,086,803		$	818,916		$	267,887		Net cash provided by operating activities	$	623,924	$	995,904	$	(371,980)

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of

Puget Sound Energy, Inc.

Opinions on the Financial Statements and Internal Control over Financial ~~Reporting~~Reporting.

We have audited the consolidated financial statements, including the related notes and financial statement schedule, of Puget Sound Energy, Inc. ~~(the Company)~~ and its subsidiary (the “Company”) as listed in the accompanying index (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, ~~2017,~~2019, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2019 and ~~2016~~, 2018, and the results of ~~their~~its operations and ~~their~~its cash flows for each of the three years in the period ended December 31, ~~2017~~2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017,~~2019, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial ~~Reporting.~~Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~("PCAOB")~~(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Seattle, Washington

~~March 1, 2018~~February 21, 2020

We have served as the Company or its predecessor’s auditor since 1933.

PUGET ENERGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands)


	Year Ended December 31,
	2019		2018		2017
Operating revenue:
Electric	$	2,497,041	$	2,455,919	$	2,420,663
Natural gas	875,371		850,748		997,759
Other	28,718		39,829		41,854
Total operating revenue	3,401,130		3,346,496		3,460,276
Operating expenses:
Energy costs:
Purchased electricity	652,560		638,775		590,030
Electric generation fuel	282,864		204,174		206,275
Residential exchange	(79,187)		(77,454)		(75,933)
Purchased natural gas	290,976		296,699		360,009
Unrealized (gain) loss on derivative instruments, net	3,574		(41,662)		30,790
Utility operations and maintenance	596,676		602,638		592,277
Non-utility expense and other	47,907		54,519		53,864
Depreciation and amortization	656,323		666,432		481,969
Conservation amortization	96,571		111,714		121,216
Taxes other than income taxes	333,858		336,603		360,673
Total operating expenses	2,882,122		2,792,438		2,721,170
Operating income (loss)	519,008		554,058		739,106
Other income (deductions):
Other income	59,905		52,957		49,283
Other expense	(9,053)		(11,201)		(14,076)
Interest charges:
AFUDC	14,559		13,695		10,826
Interest expense	(356,638)		(343,795)		(354,802)
Income (loss) before income taxes	227,781		265,714		430,337
Income tax (benefit) expense	17,073		30,092		255,143
Net income (loss)	$	210,708	$	235,622	$	175,194

Year Ended December 31,
2017 2016 2015
Operating revenue:
Electric $ 2,420,663
$ 2,238,492
$ 2,128,468
Natural gas 997,759
890,510
947,549
Other 41,854
35,299
16,683
Total operating revenue 3,460,276
3,164,301
3,092,700
Operating expenses:

Energy costs:

Purchased electricity 590,030
531,596
499,522
Electric generation fuel 206,275
215,331
249,907
Residential exchange (75,933 ) (69,824 ) (112,473 )
Purchased natural gas 360,009
313,954
403,310
Unrealized (gain) loss on derivative instruments, net 30,790
(83,795 ) (13,233 )
Utility operations and maintenance 584,263
568,492
530,720
Non-utility expense and other 40,487
27,151
10,818
Depreciation and amortization 481,969
439,579
420,807
Conservation amortization 121,216
107,784
110,866
Taxes other than income taxes 360,673
328,649
320,531
Total operating expenses 2,699,779
2,378,917
2,420,775
Operating income (loss) 760,497
785,384
671,925
Other income (deductions):

Other income 27,892
25,539
20,711
Other expense (14,104 ) (10,923 ) (6,764 )
Non-hedged interest rate swap expense 28
(1,062 ) (3,796 )
Interest charges:

AFUDC 10,826
9,304
7,575
Interest expense (354,802 ) (355,139 ) (356,696 )
Income (loss) before income taxes 430,337
453,103
332,955
Income tax (benefit) expense 255,143
140,204
91,776
Net income (loss) $ 175,194
$ 312,899
$ 241,179

The accompanying notes are an integral part of the consolidated financial statements.

PUGET ENERGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)


	Year Ended December 31,
	2019		2018		2017
Net income (loss)	$	210,708	$	235,622	$	175,194
Other comprehensive income (loss):
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $(1,846) and $(12,677) and $5,078, respectively	(6,947)		(47,690)		9,430

Reclassification of stranded taxes to retained earnings due to tax reform	—		(5,230)		—
Other comprehensive income (loss)	(6,947)		(52,920)		9,430
Comprehensive income (loss)	$	203,761	$	182,702	$	184,624

Year Ended December 31,
2017 2016 2015
Net income (loss) $ 175,194
$ 312,899
$ 241,179
Other comprehensive income (loss):

Net unrealized gain (loss) from pension and postretirement plans, net of tax of $5,078, $(3,471) and $5,087, respectively 9,430
(6,446 ) 9,444
Reclassification of net unrealized (gain) loss on energy derivative instruments, net of tax of $0, $0 and $179, respectively —
—
333
Other comprehensive income (loss) 9,430
(6,446 ) 9,777
Comprehensive income (loss) $ 184,624
$ 306,453
$ 250,956

~~The accompanying notes are an integral part of the consolidated financial statements.~~

~~PUGET ENERGY, INC.~~

~~CONSOLIDATED BALANCE SHEETS~~

~~(Dollars in Thousands)~~

~~ASSETS~~

December 31,
2017 2016
Utility plant (at original cost, including construction work in progress of $495,937 and $420,278, respectively):
Electric plant $ 8,135,847
$ 7,673,772
Natural gas plant 3,307,545
3,051,586
Common plant 811,815
594,994
Less: Accumulated depreciation and amortization (2,428,524 ) (2,161,796 )
Net utility plant 9,826,683
9,158,556
Other property and investments:

Goodwill 1,656,513
1,656,513
Other property and investments 182,355
106,418
Total other property and investments 1,838,868
1,762,931
Current assets:

Cash and cash equivalents 26,616
28,878
Restricted cash 10,145
12,418
Accounts receivable, net of allowance for doubtful accounts of $8,901 and $9,798, respectively 341,110
329,375
Unbilled revenue 222,186
234,053
Purchased gas adjustment receivable —
2,785
Materials and supplies, at average cost 107,003
106,378
Fuel and natural gas inventory, at average cost 49,908
58,181
Unrealized gain on derivative instruments 22,247
54,341
Prepaid expense and other 21,996
43,046
Power contract acquisition adjustment gain 12,207
33,413
Total current assets 813,418
902,868
Other long-term and regulatory assets:

Regulatory asset for deferred income taxes —
72,038
Power cost adjustment mechanism 4,576
4,531
Regulatory assets related to power contracts 19,454
22,613
Other regulatory assets 948,532
1,034,348
Unrealized gain on derivative instruments 2,158
8,738
Power contract acquisition adjustment gain 162,711
241,648
Other 74,389
58,109
Total other long-term and regulatory assets 1,211,820
1,442,025
Total assets $ 13,690,789
$ 13,266,380

The accompanying notes are an integral part of the consolidated financial statements.

PUGET ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

~~CAPITALIZATION AND LIABILITIES~~ASSETS


	December 31,
	2019		2018
Utility plant (at original cost, including construction work in progress of $591,199 and $550,466, respectively):
Electric plant	$	8,811,889	$	8,515,482
Natural gas plant	3,916,040		3,598,732
Common plant	1,096,649		1,027,023
Less: Accumulated depreciation and amortization	(3,236,240)		(2,832,321)
Net utility plant	10,588,338		10,308,916
Other property and investments:
Goodwill	1,656,513		1,656,513
Other property and investments	286,975		244,444
Total other property and investments	1,943,488		1,900,957
Current assets:
Cash and cash equivalents	45,259		37,521
Restricted cash	20,887		18,041
Accounts receivable, net of allowance for doubtful accounts of $8,294 and $8,408, respectively	316,352		338,782
Unbilled revenue	224,657		205,285
Purchased gas adjustment receivable	—		9,921
Materials and supplies, at average cost	115,684		116,180
Fuel and natural gas inventory, at average cost	52,083		53,351
Unrealized gain on derivative instruments	23,626		46,507
Prepaid expenses and other	27,504		25,674
Power contract acquisition adjustment gain	9,067		6,114
Total current assets	835,119		857,376
Other long-term and regulatory assets:
Power cost adjustment mechanism	41,745		4,735
Purchased gas adjustment receivable	132,766		—
Regulatory assets related to power contracts	14,146		16,693
Other regulatory assets	673,021		773,552
Unrealized gain on derivative instruments	7,682		2,512
Power contract acquisition adjustment gain	147,530		156,597
Operating lease right-of-use asset	183,048		—
Other	92,980		77,523
Total other long-term and regulatory assets	1,292,918		1,031,612
Total assets	$	14,659,863	$	14,098,861

December 31,
2017 2016
Capitalization:
Common shareholder’s equity:
Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding $ —
$ —
Additional paid-in capital 3,308,957
3,308,957
Retained earnings 465,355
413,468
Accumulated other comprehensive income (loss), net of tax (24,282 ) (33,712 )
Total common shareholder’s equity 3,750,030
3,688,713
Long-term debt:

First mortgage bonds and senior notes 3,164,412
3,362,000
Pollution control bonds 161,860
161,860
Junior subordinated notes 250,000
250,000
Long-term debt 1,902,600
1,812,480
Debt discount, issuance costs and other (220,943 ) (234,679 )
Total long-term debt 5,257,929
5,351,661
Total capitalization 9,007,959
9,040,374
Current liabilities:

Accounts payable 359,586
317,043
Short-term debt 329,463
245,763
Current maturities of long-term debt 200,000
2,412
Purchased gas adjustment payable 16,051
—
Accrued expenses:

Taxes 117,948
111,428
Salaries and wages 53,220
49,749
Interest 73,564
73,610
Unrealized loss on derivative instruments 64,859
44,310
Power contract acquisition adjustment loss 2,762
3,159
Other 80,206
71,996
Total current liabilities 1,297,659
919,470
Other Long-term and regulatory liabilities:

Deferred income taxes 746,868
1,570,931
Unrealized loss on derivative instruments 21,235
16,261
Regulatory liabilities 731,587
654,622
Regulatory liability for deferred income taxes 1,011,626
—
Regulatory liabilities related to power contracts 174,918
275,061
Power contract acquisition adjustment loss 16,693
19,454
Other deferred credits 682,244
770,207
Total other long-term and regulatory liabilities 3,385,171
3,306,536
Commitments and contingencies (Note 15)

Total capitalization and liabilities $ 13,690,789
$ 13,266,380

The accompanying notes are an integral part of the consolidated financial statements.

PUGET ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

CAPITALIZATION AND LIABILITIES


	December 31,
	2019		2018
Capitalization:
Common shareholder’s equity:
Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding	$	—	$	—
Additional paid-in capital	3,308,957		3,308,957
Retained earnings	775,491		629,003
Accumulated other comprehensive income (loss), net of tax	(84,149)		(77,202)
Total common shareholder’s equity	4,000,299		3,860,758
Long-term debt:
First mortgage bonds and senior notes	4,212,000		3,764,412
Pollution control bonds	161,860		161,860

Long-term debt	1,758,100		1,961,900
Debt discount, issuance costs and other	(211,635)		(215,681)
Total long-term debt	5,920,325		5,672,491
Total capitalization	9,920,624		9,533,249
Current liabilities:
Accounts payable	325,913		480,069
Short-term debt	176,000		379,297
Current maturities of long-term debt	452,412		—

Accrued expenses:
Taxes	99,979		118,112
Salaries and wages	50,091		50,785
Interest	74,855		70,099
Unrealized loss on derivative instruments	13,428		46,661
Power contract acquisition adjustment loss	2,418		2,547
Operating lease liabilities	15,862		—
Other	107,809		79,312
Total current liabilities	1,318,767		1,226,882
Other Long-term and regulatory liabilities:
Deferred income taxes	824,720		789,297
Unrealized loss on derivative instruments	12,693		11,095
Regulatory liabilities	730,879		747,203
Regulatory liability for deferred income taxes	946,179		975,974
Regulatory liabilities related to power contracts	156,597		162,711
Power contract acquisition adjustment loss	11,728		14,146
Operating lease liabilities	174,327		—
Other deferred credits	563,349		638,304
Total long-term and regulatory liabilities	3,420,472		3,338,730
Commitments and contingencies (Note 16)
Total capitalization and liabilities	$	14,659,863	$	14,098,861

The accompanying notes are an integral part of the consolidated financial statements.

PUGET ENERGY, INC.

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY

(Dollars in Thousands)



	Common Stock					Additional				Accumulated Other
	Shares	Amount		Paid-in Capital		Retained Earnings		Comprehensive Income (Loss)		Total Equity
Balance at December 31, 2016	200	$	—	$	3,308,957	$	413,468	$	(33,712)	$	3,688,713
Net income (loss)	—	—		—		175,194		—		175,194
Common stock dividend paid	—	—		—		(123,307)		—		(123,307)
Other comprehensive income (loss)	—	—		—		—		9,430		9,430
Balance at December 31, 2017	200	$	—	$	3,308,957	$	465,355	$	(24,282)	$	3,750,030
Net income (loss)	—	—		—		235,622		—		235,622
Common stock dividend paid	—	—		—		(77,204)		—		(77,204)
Other comprehensive income (loss)	—	—		—		—		(52,920)		(52,920)
Cumulative effect of accounting change	—	—		—		5,230		—		5,230
Balance at December 31, 2018	200	$	—	$	3,308,957	$	629,003	$	(77,202)	$	3,860,758
Net income (loss)	—	—		—		210,708		—		210,708
Common stock dividend paid	—	—		—		(64,220)		—		(64,220)
Other comprehensive income (loss)	—	—		—		—		(6,947)		(6,947)

Balance at December 31, 2019	200	$	—	$	3,308,957	$	775,491	$	(84,149)	$	4,000,299

Common Stock Additional Accumulated Other
Shares Amount
Paid-in
Capital
Retained Earnings
Comprehensive
Income (Loss)

Total
Equity
Balance at December 31, 2014 200
$ —
$ 3,308,957
$ 271,414
$ (37,043 ) $ 3,543,328
Net income (loss) —
—
—
241,179
—
241,179
Common stock dividend paid —
—
—
(263,059 ) —
(263,059 )
Other comprehensive income (loss) —
—
—
—
9,777
9,777
Balance at December 31, 2015 200
$ —
$ 3,308,957
$ 249,534
$ (27,266 ) $ 3,531,225
Net income (loss) —
—
—
312,899
—
312,899
Common stock dividend paid —
—
—
(148,965 ) —
(148,965 )
Other comprehensive income (loss) —
—
—
—
(6,446 ) (6,446 )
Balance at December 31, 2016 200
$ —
$ 3,308,957
$ 413,468
$ (33,712 ) $ 3,688,713
Net income (loss) —
—
—
175,194
—
175,194
Common stock dividend paid —
—
—
(123,307 ) —
(123,307 )
Other comprehensive income (loss) —
—
—
—
9,430
9,430
Balance at December 31, 2017 200
$ —
$ 3,308,957
$ 465,355
$ (24,282 ) $ 3,750,030

The accompanying notes are an integral part of the consolidated financial statements.

PUGET ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)


											Year Ended December 31,
	Year Ended December 31,										2019		2018		2017
	2017			2016			2015
Operating activities:
Net income (loss)	$	175,194		$	312,899		$	241,179
Operating Activities:										Operating Activities:
Net Income (Loss)										Net Income (Loss)	$	210,708	$	235,622	$	175,194
Adjustments to reconcile net income (loss) to net cash provided by operating activities:										Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	481,969			439,579			420,807			Depreciation and amortization	656,323		666,432		481,969
Conservation amortization	121,216			107,784			110,866			Conservation amortization	96,571		111,714		121,216
Deferred income taxes and tax credits, net	254,524			139,640			91,978			Deferred income taxes and tax credits, net	7,475		19,457		254,524
Net unrealized (gain) loss on derivative instruments	30,650			(88,704		)	(17,255		)	Net unrealized (gain) loss on derivative instruments	3,574		(41,662)		30,650
Derivative contracts classified as financing activities due to merger	—			—			8,045
AFUDC - equity	(15,027		)	(12,576		)	(9,325		)	AFUDC - equity	(15,802)		(17,191)		(15,027)
Production tax credits	(53,331		)	—			—
Production tax credit										Production tax credit	(68,622)		(83,976)		(53,331)
Other non-cash	17,568			16,812			16,155			Other non-cash	(4,639)		15,339		17,568
Funding of pension liability	(18,000		)	(24,000		)	(18,000		)	Funding of pension liability	(18,000)		(18,000)		(18,000)
Regulatory assets and liabilities	(88,875		)	(153,643		)	(156,491		)	Regulatory assets and liabilities	(79,233)		(71,348)		(88,875)
Other long-term assets and liabilities	(27,411		)	16,435			21,729
Purchased gas adjustment										Purchased gas adjustment	(132,766)		—		—
Other long term assets and liabilities										Other long term assets and liabilities	(16,098)		2,695		(27,411)
Change in certain current assets and liabilities:										Change in certain current assets and liabilities:
Accounts receivable and unbilled revenue	132			(21,763		)	(66,703		)	Accounts receivable and unbilled revenue	3,058		17,659		132
Materials and supplies	(625		)	(28,134		)	4,945			Materials and supplies	(6,018)		(9,177)		(625)
Fuel and natural gas inventory	8,266			473			9,332			Fuel and natural gas inventory	1,268		(3,443)		8,266
Purchased gas adjustment										Purchased gas adjustment	9,921		(25,972)		18,836
Prepayments and other	21,050			(25,927		)	4,086			Prepayments and other	(1,103)		(3,679)		21,050
Purchased gas adjustment	18,836			(15,374		)	33,662
Accounts payable	26,396			32,465			(48,037		)	Accounts payable	(116,311)		117,270		26,396
Taxes payable	6,520			(3,426		)	7,072			Taxes payable	(18,133)		164		6,520
Other	13,079			36,750			(5,323		)	Other	15,163		(7,723)		13,079
Net cash provided by (used in) operating activities	972,131			729,290			648,722			Net cash provided by (used in) operating activities	527,336		904,181		972,131
Investing activities:										Investing activities:
Construction expenditures - excluding equity AFUDC	(1,040,135		)	(706,444		)	(587,225		)	Construction expenditures - excluding equity AFUDC	(959,387)		(1,072,670)		(1,040,135)
Restricted cash	2,273			(4,469		)	24,914
Other	(195		)	(1,921		)	754			Other	6,908		2,097		(195)
Net cash provided by (used in) investing activities	(1,038,057		)	(712,834		)	(561,557		)	Net cash provided by (used in) investing activities	(952,479)		(1,070,573)		(1,040,330)
Financing activities:
Financing Activities:										Financing Activities:
Change in short-term debt, net	83,700			86,759			74,004			Change in short-term debt, net	(203,297)		49,834		83,700
Dividends paid	(123,307		)	(148,965		)	(263,059		)	Dividends paid	(64,220)		(77,204)		(123,307)

Proceeds from long-term debt and bonds issued	90,120			12,481			825,000			Proceeds from long-term debt and bonds issued	689,351		804,050		90,120
Redemption of bonds and notes	—			—			(711,000		)	Redemption of bonds and notes	—		(600,000)		—
Derivative contracts classified as financing activities due to merger	—			—			(8,045		)
Other	13,151			19,653			902			Other	13,893		8,513		13,151
Net cash provided by (used in) financing activities	63,664			(30,072		)	(82,198		)	Net cash provided by (used in) financing activities	435,727		185,193		63,664
Net increase (decrease) in cash and cash equivalents	(2,262		)	(13,616		)	4,967
Cash and cash equivalents at beginning of period	28,878			42,494			37,527
Cash and cash equivalents at end of period	$	26,616		$	28,878		$	42,494
Net increase (decrease) in cash, cash equivalents, and restricted cash										Net increase (decrease) in cash, cash equivalents, and restricted cash	10,584		18,801		(4,535)
Cash, cash equivalents, and restricted cash at beginning of period										Cash, cash equivalents, and restricted cash at beginning of period	55,562		36,761		41,296
Cash, cash equivalents, and restricted cash at end of period										Cash, cash equivalents, and restricted cash at end of period	66,146		55,562		36,761
Supplemental cash flow information:										Supplemental cash flow information:
Cash payments for interest (net of capitalized interest)	$	326,798		$	329,603		$	339,866		Cash payments for interest (net of capitalized interest)	$	328,703	$	322,476	$	326,798
Cash payments (refunds) for income taxes	1,649			—			2			Cash payments (refunds) for income taxes	10,616		8,303		1,649

Non-cash financing and investing activities:										Non-cash financing and investing activities:
Accounts payable for capital expenditures eliminated from cash flows	$	92,959		$	76,813		$	51,588
Accounts payable for capital expenditures eliminated from cash flow										Accounts payable for capital expenditures eliminated from cash flow	$	58,329	$	97,673	$	92,959
Reclassification of Colstrip from utility plant to a regulatory asset	(49,177		)	176,804			—			Reclassification of Colstrip from utility plant to a regulatory asset	4,163		(3,086)		(49,177)
Reclassification of hydro treasury grants to a regulatory liability	95,935			—			—			Reclassification of hydro treasury grants to a regulatory liability	$	—	$	—	$	95,935

Puget Sound Energy
(Dollars in Thousands)
Details about accumulated other comprehensive income (loss) components Affected line item in the statement where net income (loss) is presented
Amount reclassified from accumulated
other comprehensive income (loss)
2017
2016 2015
Net unrealized gain (loss) and prior service cost on pension plans:
Amortization of prior service cost (a) $ 1,529
$ 1,529
$ 1,526
Amortization of net gain (loss) (a) (13,972 ) (15,955 ) (22,268 )
Total before tax (12,443 ) (14,426 ) (20,742 )
Tax (expense) or benefit 4,355
5,049
7,260
Net of tax (8,088 ) (9,377 ) (13,482 )
Net unrealized gain (loss) on energy derivative instruments:
Commodity contracts: Electric derivatives Purchased electricity —
—
(1,055 )
Tax (expense) or benefit —
—
369
Net of Tax —
—
(686 )
Net unrealized gain (loss) on treasury interest rate swaps:
Interest rate contracts Interest expense (488 ) (488 ) (488 )
Tax (expense) or benefit 171
171
171
Net of Tax (317 ) (317 ) (317 )
Total reclassification for the period Net of Tax $ (8,405 ) $ (9,694 ) $ (14,485 )

~~_______________~~


^(a)	These AOCI components are included in the computation of net periodic pension cost, see Note 12, "Retirement Benefits," to the consolidated financial statements included in item 8 of this report for additional details.

SUPPLEMENTAL QUARTERLY FINANCIAL DATA

The following unaudited amounts, in the opinion of the Company, include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results of operations for the interim periods. Quarterly amounts vary during the year due to the seasonal nature of the utility business.


Puget Energy	2019 Quarter
(Unaudited; Dollars in Thousands)	First		Second		Third		Fourth
Operating revenue	$	1,114,839	$	670,930	$	627,007	$	988,354
Operating income	213,460		39,115		26,126		240,307
Net income (loss)	132,154		(32,952)		(39,443)		150,949

Puget Energy 2017 Quarter
(Unaudited; Dollars in Thousands) First
Second
Third
Fourth
Operating revenue $ 1,077,232
$ 719,767
$ 660,377
$ 1,002,900
Operating income 271,727
130,030
99,044
259,696
Net income (loss) 127,550
35,275
12,836
(467 )


	2018 Quarter
(Unaudited; Dollars in Thousands)	First		Second		Third		Fourth
Operating revenue	$	1,038,008	$	671,852	$	651,464	$	985,172
Operating income	232,785		84,091		37,297		199,885
Net income (loss)	146,897		3,642		(21,970)		107,053


Puget Sound Energy	2019 Quarter
(Unaudited; Dollars in Thousands)	First		Second		Third		Fourth
Operating revenue	$	1,114,839	$	670,930	$	627,007	$	988,354
Operating income	214,159		39,780		26,721		241,955
Net income (loss)	147,302		(8,325)		(15,257)		169,204


	2018 Quarter
(Unaudited; Dollars in Thousands)	First		Second		Third		Fourth
Operating revenue	$	1,038,008	$	671,852	$	651,464	$	985,172
Operating income	235,856		81,701		46,147		193,432
Net income (loss)	163,037		26,778		3,891		123,456

129

2016 Quarter
(Unaudited; Dollars in Thousands) First
Second
Third
Fourth
Operating revenue $ 962,697
$ 668,169
$ 618,278
$ 915,157
Operating income 284,824
175,634
88,072
236,854
Net income (loss) 141,186
64,553
2,335
104,825

Puget Sound Energy 2017 Quarter
(Unaudited; Dollars in Thousands) First
Second
Third
Fourth
Operating revenue $ 1,077,232
$ 719,767
$ 660,377
$ 1,002,900
Operating income 268,431
126,800
96,369
257,009
Net income (loss) 143,092
50,654
29,100
97,208

2016 Quarter
(Unaudited; Dollars in Thousands) First
Second
Third
Fourth
Operating revenue $ 962,697
$ 668,169
$ 618,594
$ 915,158
Operating income 281,425
171,991
84,476
237,101
Net income (loss) 156,505
80,900
18,977
124,199

SCHEDULE I: CONDENSED FINANCIAL INFORMATION OF PUGET ENERGY

Puget Energy

Condensed Statements of Income and Comprehensive Income (Loss)

(Dollars in Thousands)


	Year Ended December 31,
	2019		2018		2017
Non-utility expense and other	$	(1,495)	$	(1,345)	$	(1,466)
Other income (deductions):
Equity in earnings of subsidiary	294,724		320,122		323,568
Non-hedged interest rate swap expense	—		—		28
Interest income	6,643		4,273		1,039
Interest expense	(111,716)		(108,816)		(106,072)
Income tax expense (benefit)	22,552		21,388		(41,903)
Net income (loss)	$	210,708	$	235,622	$	175,194
Comprehensive income (loss)	$	203,761	$	182,702	$	184,624

Year Ended December 31,
2017 2016 2015
Non-utility expense and other $ (1,466 ) $ (5,252 ) $ (1,617 )
Other income (deductions):

Equity in earnings of subsidiary 323,568
385,838
309,603
Non-hedged interest rate swap expense 28
(1,062 ) (3,796 )
Interest income 1,039
2
63
Interest expense (106,072 ) (104,600 ) (100,114 )
Income taxes (41,903 ) 37,973
37,040
Net income (loss) 175,194
312,899
241,179
Comprehensive income (loss) $ 184,624
$ 306,453
$ 250,956

See accompanying notes to the condensed financial statements.

130

Puget Energy

Condensed Balance Sheets

(Dollars in Thousands)


	December 31,					December 31,
	2017		2016			2019		2018
Assets:					Assets:
Investment in subsidiaries	$	3,721,553	$	3,571,550	Investment in subsidiaries	$	4,153,618	$	3,820,347
Other property and investments:					Other property and investments:
Goodwill	1,656,513		1,656,513		Goodwill	1,656,513		1,656,513
Current assets:					Current assets:
Cash	751		397		Cash	947		2,067
Receivables from affiliates¹	78,570		213		Receivables from affiliates¹	180,527		138,714
Total current assets	79,321		610		Total current assets	181,474		140,781
Long-term assets:					Long-term assets:
Deferred income taxes	208,889		309,812		Deferred income taxes	235,428		221,660
Other	3,196		521		Other	2,056		2,040
Total long-term assets	212,085		310,333		Total long-term assets	237,484		223,700
Total assets	$	5,669,472	$	5,539,006	Total assets	$	6,229,089	$	5,841,341
Capitalization and liabilities:					Capitalization and liabilities:
Common equity	$	3,750,030	$	3,688,713	Common equity	$	4,000,299	$	3,860,728
Long-term debt	1,892,672		1,808,828		Long-term debt	1,752,644		1,954,205
Total capitalization	5,642,702		5,497,541		Total capitalization	5,752,943		5,814,933
Current liabilities:					Current liabilities:
Account Payable	1,042		15,801		Account Payable	208		260
Current maturities of long-term debt					Current maturities of long-term debt	450,000		—
Interest	25,728		25,523		Interest	25,938		26,148
Unrealized loss on derivative instruments	—		141
Total current liabilities	26,770		41,465		Total current liabilities	476,146		26,408
Long-term liabilities:
Total long-term liabilities	—		—
Commitments and contingencies (Note 3)
Commitments and contingencies (Note 16)					Commitments and contingencies (Note 16)
Total capitalization and liabilities	$	5,669,472	$	5,539,006	Total capitalization and liabilities	$	6,229,089	$	5,841,341

_______________


¹	~~Eliminated in consolidation.~~

¹Eliminated in consolidation.

See accompanying notes to the condensed financial statements.

131

Puget Energy

Condensed Statements of Cash Flows

(Dollars in Thousands)


	Year Ended December 31,
	2019		2018		2017
Operating activities:
Net cash provided by (used in) operating activities	$	68,724	$	79,176	$	139,005
Investing activities:
Investment in subsidiaries	(210,000)		—		(24,222)
(Increase) decrease in loan to subsidiary	(41,708)		(59,864)		(78,155)
Other	—		—		(437)
Net cash provided by (used in) investing activities	(251,708)		(59,864)		(102,814)
Financing activities:
Dividends paid	(64,220)		(77,204)		(123,307)
Issuance of bond	246,200		209,300		—
Issuance/redemption of term-loan and other long-term debt	—		(150,000)		90,120
Issue costs and others	(116)		(92)		(2,650)
Net cash provided by (used in) by financing activities	181,864		(17,996)		(35,837)
Increase (decrease) in cash	(1,120)		1,316		354
Cash at beginning of year	2,067		751		397
Cash at end of year	$	947	$	2,067	$	751

Year Ended December 31,
2017 2016 2015
Operating activities:
Net cash provided by (used in) operating activities 139,005
$ 145,719
$ 171,576
Investing activities:

Investment in subsidiaries (24,222 ) —
(28,900 )
(Increase) decrease in loan to subsidiary (78,155 ) —
28,933
Other (437 ) (6,078 ) (5,632 )
Net cash provided by (used in) investing activities (102,814 ) (6,078 ) (5,599 )
Financing activities:

Dividends paid (123,307 ) (148,965 ) (263,059 )
Issuance of bond —
—
400,000
Issuance/redemption of term-loan and other long-term debt 90,120
12,480
(299,000 )
Issue costs and others (2,650 ) (3,398 ) (3,341 )
Net cash provided by (used in) by financing activities (35,837 ) (139,883 ) (165,400 )
Increase (decrease) in cash 354
(242 ) 577
Cash at beginning of year 397
639
62
Cash at end of year $ 751
$ 397
$ 639

See accompanying notes to the condensed financial statements.

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NOTES TO CONDENSED FINANCIAL STATEMENTS

(1) Basis of Presentation

Puget Energy is an energy services holding company that conducts substantially all of its business operations through its regulated subsidiary, PSE. Puget Energy also hasa wholly-owned non-regulated subsidiary, named Puget LNG, LLC (Puget LNG). Puget LNG was formed onin November ~~29,~~ 2016, and has the sole purpose of owning, developing and financing the non-regulated activity of a ~~LNG~~liquefied natural gas (LNG) facility at the Port of Tacoma, Washington. These condensed financial statements and related footnotes have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X. These financial statements, in which Puget Energy’s subsidiaries have been included using the equity method, should be read in conjunction with the consolidated financial statements and notes thereto of Puget Energy included in Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. Puget Energy owns 100% of the common stock of its subsidiaries.

Equity earnings of subsidiary included earnings from PSE of ~~$320.1~~$292.9 million, ~~$380.6~~$317.2 million and ~~$304.2~~$320.1 million for the years ended December 31, ~~2017, 2016~~2019, 2018, and ~~2015,~~2017, respectively, and business combination accounting adjustments under ASC 805 recorded at Puget Energy for PSE of ~~$3.9~~$2.9 million, ~~$5.2~~$4.7 million and ~~$5.4~~$3.9 million for the years ended December 31, ~~2017, 2016~~2019, 2018, and ~~2015,~~2017, respectively. Investment in subsidiaries includes Puget Energy business combination accounting adjustments under ASC 805 that are recorded at Puget Energy.

(2) Long-Term Debt

For information concerning Puget Energy’s long-term debt obligations, see Note 6,7, "Long-Term Debt" to the consolidated financial statements included in Item 8 of this report.

(3) Commitments and Contingencies

For information concerning Puget Energy’s material contingencies and guarantees, see Note ~~15,~~16, "Commitments and Contingencies" to the consolidated financial statements included in Item 8 of this report.

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SCHEDULE II:VALUATION AND QUALIFYING ACCOUNTS AND RESERVES


Puget Energy and Puget Sound Energy (Dollars in Thousands)	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Deductions		Balance at End of Period
Year Ended December 31, 2019
Accounts deducted from assets on balance sheet:
Allowance for doubtful accounts receivable	$	8,408	$	17,633	$	17,747	$	8,294
Year Ended December 31, 2018
Accounts deducted from assets on balance sheet:
Allowance for doubtful accounts receivable	$	8,901	$	24,846	$	25,339	$	8,408
Year Ended December 31, 2017
Accounts deducted from assets on balance sheet:
Allowance for doubtful accounts receivable	$	9,798	$	26,266	$	27,163	$	8,901

Puget Energy and
Puget Sound Energy
(Dollars in Thousands)
Balance at
Beginning of
Period

Additions
Charged to
Costs and
Expenses
Deductions
Balance
at End
of Period
Year Ended December 31, 2017
Accounts deducted from assets on balance sheet:
Allowance for doubtful accounts receivable $ 9,798
$ 26,266
$ 27,163
$ 8,901
Year Ended December 31, 2016

Accounts deducted from assets on balance sheet:

Allowance for doubtful accounts receivable $ 9,756
$ 24,389
$ 24,347
$ 9,798
Year Ended December 31, 2015

Accounts deducted from assets on balance sheet:

Allowance for doubtful accounts receivable $ 7,472
$ 20,732
$ 18,448
$ 9,756

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

PugetEnergy

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 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 December 31, ~~2017~~2019, the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and 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

During 2018, Puget Energy implemented internal controls covering the evaluation and assessment of leasing contracts related to the adoption of the new leasing standard as of January 1, 2019.

There have been no changes in Puget Energy’s internal control over financial reporting during the quarter ended December 31, ~~2017~~2019, that have materially affected, or are reasonably likely to materially affect, Puget Energy’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Puget Energy’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Under the supervision and with the participation of Puget Energy’s President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, Puget Energy’s management assessed the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, Puget Energy’s management concluded that its internal control over financial reporting was effective as of December 31, ~~2017.~~2019.

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Puget Energy’s effectiveness of internal control over financial reporting as of December 31, ~~2017~~2019, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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 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 December 31, ~~2017,~~2019, the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and 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

During 2018, PSE implemented internal controls covering the evaluation and assessment of leasing contracts related to the adoption of the new leasing standard as of January 1, 2019.

There have been no changes in PSE’s internal control over financial reporting during the quarter ended December 31, ~~2017~~2019, that have materially affected, or are reasonably likely to materially affect, PSE’s internal control over financial reporting.

In January 2017, PSE implemented a financial systems modernization project designed to improve the financial processes, tools and methods used throughout our business. The new/updated systems were used in preparing financial information for the year ended December 31, 2017. Management monitored developments related to the financial systems modernization project, including working with the project team to ensure control impacts were identified and documented, in order to assist management in evaluating impacts to internal control. System integration and user acceptance testing were conducted to aid management in its evaluations. Post-implementation reviews of the system implementation and impacted business processes were being conducted to enable management to evaluate the design and effectiveness of internal controls during 2017.

During 2017, PSE implemented internal controls covering the evaluation and assessment of revenue contracts related to the adoption of the new revenue recognition standard as of January 1, 2018. PSE does not anticipate significant changes to internal controls over financial reporting as a result of the adoption of this new standard.

Management’s Report on Internal Control over Financial Reporting

PSE’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Under the supervision and with the participation of PSE’s President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, PSE’s management assessed the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, PSE’s management concluded that its internal control over financial reporting was effective as of December 31, ~~2017.~~2019

PSE’s effectiveness of internal control over financial reporting as of December 31, ~~2017~~2019, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

ITEM 9B. OTHER INFORMATION

~~Departure of Directors and Certain Officers; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers~~None.

Effective February 28, 2018, the sole shareholders of Puget Sound Energy and PSE (together, the Companies") appointed and elected Christopher Hind to the Boards of Directors of the Companies (the "Boards"). Mr. Hind was appointed to replace David MacMillan, who resigned from the Boards effective January 18, 2018. Initially, Mr. Hind will not be appointed to any committees of the Board.

Mr. Hind is currently the Senior Principal, Private Infrastructure with Canada Pension Plan Investment Board ("CPPIB"), which position he has held since January 2016. Prior to that, Mr. Hind served as a Managing Director, Investment Banking, at CIBC from October 1997 to January 2016. Mr. Hind also currently serves on the board of directors of Transportadora de Gas del Peru S.A., the largest transporter of natural gas and natural gas liquids in Peru.

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Mr. Hind was selected by CPPIB and pursuant to the Amended and Restated Bylaws of each of the Companies, will serve as an Owner Director on their respective Boards of Directors. Mr. Hind will not receive any director compensation from the Companies for his service as an Owner Director on the Boards, but will be reimbursed for out-of-pocket expenses.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors

As of ~~March 1, 2018, eleven~~February 21, 2020, twelve directors constitute Puget Energy’s Board of Directors and ~~twelve~~thirteen directors currently constitute PSE’s Board of Directors, as set forth below. The directors are selected in accordance with the Amended and Restated Bylaws of each of Puget Energy and PSE, pursuant to which, the investor-owners of Puget Holdings (the indirect parent company of both Puget Energy and PSE) are entitled to select individuals to serve on the boards of Puget Energy and PSE.

Scott Armstrong, age ~~58,~~60, has been a director on the boards of PSE since June of 2015 and on the board of Puget Energy since November 2017. Mr. Armstrong was President and CEO of Group Health Cooperative of Seattle, Washington, a health insurance and medical care provider, positions he had held since January 2005, until its acquisition by Kaiser Permanente on February 1, 2017. An independent director not affiliated with any of the Company’s investors, Mr. Armstrong’s executive leadership experience in a heavily regulated industry that has undergone extensive change, along with his involvement in civic affairs in the Pacific Northwest, are among the reasons for his appointment to the PSE board.

~~Andrew Chapman~~Kenton Bradbury, age ~~62,~~50, has been a director on the boards of both Puget Energy and PSE ~~since February 2009. Mr. Chapman~~effective April 17, 2019. He is currently the ~~Vice President~~Managing Director of ~~Macquarie~~OMERS Infrastructure ~~and Real Assets~~Management Inc., a ~~division of the Macquarie Group, which~~ position he has held since ~~2006.~~2015. Prior to ~~joining~~that, Mr. Bradbury served as a director of Infracapital, the ~~Macquarie Group, Mr. Chapman was~~infrastructure investment arm of M&G Investments, and served as Senior Vice President ~~– Strategy &~~of Infrastructure and Regulation at E.ON in Germany. Mr. Bradbury will not receive any director compensation from the Companies for ~~American Water from 2005 to 2006 and Regional Managing~~his service as an Owner Director ~~from 2003 to 2004. Mr. Chapman also served~~on the Boards, but will be reimbursed for out-of-pocket expenses.

Richard Dinneny, age 57, has been a director on the boards of both Puget Energy and PSE effective April 17, 2019. Mr. Dinneny is currently the Senior Portfolio Manager, Infrastructure and Renewable Resources for British Columbia Investment Management Corporation (BCI) where he has responsibility for all aspects of investing in infrastructure transactions. Mr. Dinneny is a director of Vier Gas Services GmbH & Co. KG, Essen, the owner of Open Grid Europe, German’s leading natural gas transport company. Mr. Dinneny served on the board of Cleco Group LLC, Cleco Corporate Holdings LLC, and Cleco Power LLC. Mr. ~~Chapman represents~~Dinneny will not receive any director compensation from the ~~Company’s Macquarie affiliated investors~~Companies for his service as an Owner Director on the boards, in accordance with the terms of the Puget Energy and PSE bylaws, and brings to his service many years of experience in the operational and financial management challenges specific to regulated utilities.Boards, but will be reimbursed for out-of-pocket expenses.

Barbara Gordon, a~~ge 59,~~age 61, has been a director on the board of PSE since November 2017. Ms. Gordon currently serves on the Woodland Park Zoo board of directors and as the Vice Chair of the Animal Care Committee. Ms. Gordon previously served as a Vice President of the board of directors for Seattle-King County Habitat for ~~Humanity.~~Humanity, a non-profit organization (2016-2018). Prior to that time, Ms. Gordon ~~previously~~ served as Executive Vice President and Chief Customer Officer of Bellevue-based Apptio, a developer of technology business management software (2016-2017)~~. Prior to that time, Ms. Gordon served as~~, Senior Vice President and Chief Operating Officer of Isilon/EMC, a digital storage systems company (2013-2016), and as Corporate Vice President of Worldwide Customer Service and Support at Microsoft (2003-2013). An independent director not affiliated with any of the Company's investors, Ms. Gordon brings to the Board her expertise in customer-facing technology initiatives and enterprise level management of customer service and support.

~~Kimberly Harris~~Christopher Hind, age ~~53, is~~50, has been a director on the boards of both Puget Energy and PSE ~~which positions she has held~~ since March 1, 2011. Ms. Harris has also been President and Chief Executive Officer since March 1, 2011. Prior to that time, Ms. Harris served as President from July 2010 through February 2011. Ms. Harris also served as Executive Vice President and Chief Resource Officer from May 2007 until July 2010, and was Senior Vice President Regulatory Policy and Energy Efficiency from 2005 until May 2007. Ms. Harris is currently on the board of directors of U.S. Bancorp, a bank holding company, and serves as chair of the American Gas Association.

~~Christopher Hind, age 48, has been elected a director on the boards of both Puget Energy and PSE effective~~ February 28, 2018. He is currently the Senior Principal, Private Infrastructure with Canada Pension Plan Investment Board ~~("CPPIB")~~(CPPIB), an investment management organization, which position he has held since January 2016. Prior to that, Mr. Hind served as a Managing Director, Investment Banking, at CIBC, a financial institution, from October 1997 to January 2016. Mr. Hind also currently serves on the board of directors of Transportadora de Gas del Peru S.A., the largest transporter of natural gas and natural gas liquids in Peru. Mr. Hind was selected by CPPIB and pursuant to the Amended and Restated Bylaws of each of the Companies, will serve as an Owner Director on their respective Boards of Directors. Mr. Hind will not receive any director compensation from the Companies for his service as an Owner Director on the Boards, but will be reimbursed for out-of-pocket expenses.

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Steven W. Hooper, age ~~64, is~~66, has been a director on the boards of both Puget Energy and PSE ~~which positions he has held~~ since January 2015. Mr. Hooper is currently co-founder and partner of Ignition Partners, a venture capital firm that focuses on technology based in Bellevue, Washington, which position he has held since 2000. Previously, Mr. Hooper was the co-CEO of Teledesic (1998-2000) and CEO of Nextlink (1997-1998) and AT&T Wireless (1994-1997). Mr. Hooper also currently serves on the boards of directors of Recreational Equipment, Inc. (REI), an outdoor equipment company, and Airbiquity, Inc., an automotive telematics company, as well as on the boards of various Ignition Partners portfolio companies. An independent director not affiliated with any of the Company’s investors, Mr. Hooper’s leadership skills,

experience with the challenges facing regulated businesses, and involvement with regional educational and civic organizations are some of the reasons that led to his appointment to the Puget Energy and PSE boards.

~~Karl Kuchel~~Tom King, age ~~39,~~58, has been a director on the boards of both Puget Energy and PSE effective April 17, 2019. Mr. King is currently the Operating Executive with AEA investors, a middle market private equity firm, which position he has held since ~~January 2017,~~2017. Mr. King served as Chairman and President of National Grid U.S. from 2007-2015. Prior to that, he was president of PG&E Corporation and Chairman and CEO of Pacific Gas and Electric from 2003-2007. Mr. King serves on the board of Entregado Group and Allied Power Group and served on the board of Peak Reliability and EnergySavvy, Inc. Mr. King serves on the boards of Puget Energy and PSE as a representative of CPPIB’s ownership interests, pursuant to the ~~Company’s Macquarie affiliated investors and FSS Infrastructure Trust, consistent with~~terms of the Puget Energy and PSE bylaws. Mr. Kuchel is currently the Chief Executive Officer of Macquarie Infrastructure Partners, Inc., which position he has held since June 2016. Prior to that time, Mr. Kuchel served as Chief Operating Officer (from November 2010 through May 2016) of Macquarie Infrastructure Partners, Inc. Mr. Kuchel also currently serves on the boards of directors of various other portfolio companies managed and advised by Macquarie Infrastructure Partners, Inc., and provides the Puget Energy and PSE boards the benefit of his experience managing and overseeing the financial and operational affairs of infrastructure owners.

~~Christopher Leslie~~Mary Kipp, age ~~53,~~52, has been a director on the boards of both Puget Energy and PSE effective January 3, 2020. Ms. Kipp has also been elected President and Chief Executive officer since ~~February 2009, as a representative~~January 3, 2020, and was President of ~~the Company’s Macquarie affiliated investors consistent with the~~ Puget Energy and PSE ~~bylaws. Mr. Leslie is currently an Executive Director of Macquarie Group Limited, which position he has held since 2005,~~from August 2019 to December 2019. Prior to that time Ms. Kipp served as President, ~~of Macquarie Infrastructure and Real Assets Inc., and since 2006~~ Chief Executive Officer and Director of ~~Macquarie Infrastructure Partners Inc. Mr. Leslie~~El Paso Electric Company (El Paso) from May 2017 to August 2019. Prior to that she served as Chief Executive Officer and director of El Paso from December 2015 to May 2017, and President of El Paso from 2014 to 2015. Ms. Kipp also ~~serves~~served as ~~a director on the board of Cleco Power, LLC. In addition~~Senior Vice President, General Counsel and Chief Compliance Officer at El Paso from 2010 to his management and banking skills, Mr. Leslie provides the Puget Energy and PSE boards the benefit of his experience with electric utilities, gas distribution systems and other aspects of the infrastructure sector.2014.

Paul McMillan,age ~~63,~~65, has been a director on the boards of both Puget Energy and PSE since April 23, 2015. Mr. McMillan is currently principal of Tidal Shift Capital Inc., which provides consulting and project development services to energy and infrastructure clients, of Toronto, Ontario, Canada, which position he has held since July 2009. He served as Senior Vice President of EPCOR Energy Division of Edmonton, Alberta, Canada, from May 2005 to July 2009 and President of EPCOR Merchant and Capital LP from September 2000 to May 2005. ~~In addition, Mr. McMillan is on the board of BluEarth Renewables.~~ Mr. McMillan serves on the boards of Puget Energy and PSE as a representative of Aimco’s ownership interests, pursuant to the terms of the Puget Energy and PSE bylaws, and brings to this service his experience in energy and gas operations and trading as well as renewable and gas project development.

Mary McWilliams, age ~~69,~~71, has been a director on the boards of both Puget Energy and PSE since March 1, 2011. Ms. McWilliams was most recently the Executive Director at Washington Health Alliance, a health care organization, which position she held from 2008 to 2014. She also served as President and Chief Executive Officer at Regence BlueShield from 2000 to 2008. In addition, Ms. McWilliams serves as a Board member of the Virginia Mason Health System, a health care services organization. Her civic commitments have included Seattle Rotary, Seattle Symphony, YWCA and ~~Business Health Trust.~~the Greater Seattle Chamber of Commerce. Ms. ~~McWilliams’s~~McWilliams’ significant experience managing consumer-focused organizations with challenging regulatory and compliance regimes, her civic involvement in the community, as well as her extensive knowledge of the western Washington economy, generally, are some of the reasons that led to her appointment to the Puget Energy and PSE boards on behalf of the CPPIB.

~~Etienne Middleton~~Christopher Trumpy, age 43, has been a director on the boards of both Puget Energy and PSE since March 1, 2016. Mr. Middleton is currently the Senior Principal, Private Infrastructure with CPPIB, which position he has held since 2009. Mr. Middleton serves on the boards of Puget Energy and PSE as a representative of CPPIB's ownership interests, pursuant to the terms of the Puget Energy and PSE bylaws, and brings to this service his skills in financial management of infrastructure providers. Mr. Middleton also serves on the boards of Transelec S.A., a Chilean transmission company, and Grupo Costanera, a Chilean toll-road operator.

~~Christopher Trumpy, age 63,~~65, has been a director on the boards of both Puget Energy and PSE since January 12, 2010. Mr. Trumpy is currently a consultant at Circle Square Solutions, a policy and governance consulting firm, which position he has held since 2013. He served as the Chairman of the Pacific Carbon Trust from 2008 to 2013. He also served as Chairman of the British Columbia Investment Management Corporation (or ~~bcIMC)~~BCI) from 2000 to 2008. In addition, Mr. Trumpy served as Deputy Minister at Ministries of Finance, Environment and Provincial Revenue from 1998 to 2009. Mr. Trumpy represents the ownership stake in the Company of ~~bcIMC,~~BCI, in accordance with the terms of the Puget Energy and PSE bylaws, and provides the boards the benefit of his significant leadership roles in government and policy-making, among other attributes.

Martijn Verwoest, age 43, has been a director on the boards of both Puget Energy and PSE effective April 17, 2019. Mr. Verwoest is currently the Head of Energy & Utilities at Stichting Pensioenfonds Zorg en Welzijn (PGGM), and is a member of their Infrastructure Investment Committee since 2007. From 2001 to 2007, he worked in PGGM’s public equity department. Mr. Verwoest will not receive any director compensation from the Companies for his service as an Owner Director on the Boards, but will be reimbursed for out-of-pocket expenses.

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Steven Zucchet, age 54, has been a director on the boards of both Puget Energy and PSE effective April 17, 2019. Mr. Zucchet is currently the Managing Director at Ontario Municipal Employees Retirement System Infrastructure Management (OMERS). Since joining OMERS in 2003, Mr. Zucchet has led numerous transactions and had asset management responsibilities at a number of utility and generation companies in Canada and the United States. He is currently on the board of Oncor and Bruce Power Inc. Mr. Zucchet will not receive any director compensation from the Companies for his service as an Owner Director on the Boards, but will be reimbursed for out-of-pocket expenses.

Executive Officers

The information required by this item with respect to Puget Energy and PSE is incorporated herein by reference to the material under “Executive Officers of the Registrants” in Part I of this report.

Audit Committee

The Puget Energy and PSE Boards of Directors have both established an Audit Committee. Directors ~~Andrew Chapman,~~Kenton Bradbury, Richard Dinneny, Steven Hooper, ~~Karl Kuchel~~Paul McMillan and ~~Paul McMillan~~Tom King are the members of the Audit Committee. The Board has determined that ~~Andrew Chapman and~~ Paul McMillan ~~meet~~meets the definition of “Audit Committee Financial Expert” under United States Securities and Exchange Commission (SEC) rules. Puget Energy and PSE currently do not have any outstanding stock listed on a national securities exchange and, therefore, there are no independence standards applicable to either company in connection with the independence of its Audit Committee members.

Procedures by which Shareholders may recommend Nominees to the Board of Directors

There have been no material changes to the procedures by which shareholders may recommend nominees to the Boards of Directors of Puget Energy and PSE. Members of the Boards of Directors of Puget Energy and PSE are nominated and elected in accordance with the provisions of their respective Amended and Restated Bylaws.

Code of ~~Ethics~~Conduct

Puget Energy and PSE have adopted a Corporate Ethics and Compliance Code applicable to all directors, officers and employees and a Code of Ethics applicable to the Chief Executive Officer and senior financial officers, which are available on the website www.pugetenergy.com. If any material provisions of the Corporate Ethics and Compliance Code or the Code of Ethics are waived for the Chief Executive Officer or senior financial officers, or if any substantive changes are made to either code as they relate to any director or executive officer, we will disclose that fact on our website within four business days. In addition, any other material amendments of these codes will be disclosed.

~~Additional Information~~

Communications with the Board

Interested parties may communicate with an individual director or the Board of Directors as a group via U.S. Postal mail directed to: Chairman of the Board of Directors, c/o Corporate Secretary, Puget Energy, Inc., P.O. Box 97034, ~~PSE-12,~~EST-11, Bellevue, Washington 98009-9734. Please clearly specify in each communication the applicable addressee or addressees you wish to contact. All such communications will be forwarded to the intended director or Board as a whole, as applicable.

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ITEM 11. EXECUTIVE COMPENSATION

Puget Energy

Puget Sound Energy

Executive Compensation

Compensation and Leadership Development Committee Interlocks and Insider Participation

The members of the Compensation and Leadership Development Committee (referred to as the Committee) of the Boards of Directors (referred to as the Board) of Puget Energy and PSE (referred to as the Company) are named in the Compensation and Leadership Development Committee Report. No members of the Committee were officers or employees of the Company or any of its subsidiaries during ~~2017,~~2019, nor were they formerly Company officers or had any relationship otherwise requiring disclosure. Each member meets the independence requirements of the SEC and the New York Stock Exchange (NYSE).

Compensation Discussion and Analysis

This section provides information about the compensation program for the Company’s Named Executive Officers who are included in the Summary Compensation Table below. For ~~2017~~2019, the Company’s Named Executive Officers and titles were:

•Kimberly J. Harris, President and Chief Executive Officer (CEO); until August 30, 2019, and CEO until her retirement effective January 2, 2020;

•Mary E. Kipp, President, effective August 30, 2019, and President and CEO, effective January 3, 2020;

•Daniel A. Doyle, Senior Vice President and Chief Financial Officer (CFO);

•Steve R. Secrist, Senior Vice President, General Counsel, Chief Ethics and Compliance Officer; and

•Marla D. Mellies, Senior Vice President, Chief Administrative ~~Officer; and~~Officer.

•~~Philip K. Bussey, Senior Vice President, Chief Customer Officer~~

This section also includes a discussion and analysis of the overall objectives of our compensation program and each element of compensation the Company ~~provides.~~provides to its Named Executive Officers.

Compensation Program Objectives

The Company’s executive compensation program has two main objectives:

•Support sustained Company performance by attracting, retaining and motivating talented people to run the business.

•Align incentive compensation payments with the achievement of short and long-term Company goals.

The Committee is responsible for developing and monitoring an executive compensation program and philosophy that achieves the foregoing objectives. In performing its duties, the Committee obtains information and advice on various aspects of the executive compensation program from its independent executive compensation consultant, ~~Frederic W. Cook & Co., Inc. (FW Cook)~~Meridian Compensation Partners, LLC (Meridian). The Committee recommends to the ~~full~~ Board for approval both the salary level for our CEO, based on information provided by ~~FW Cook,~~Meridian and other relevant factors described below, and the salary levels for the other executives, based on recommendations from our CEO. The Committee also recommends to the Board for ~~its~~ approval the annual and long-term incentive compensation plans for the executives, the setting of performance goals and the determination of target and actual awards under those plans, based on the compensation philosophy and taking into consideration information provided by ~~FW Cook.~~Meridian and other relevant factors.

In ~~2017,~~2019, the ~~Committee~~Company used the following strategies to achieve the objectives of our executive compensation program:

•Design and deliver a competitive total compensation opportunity. To attract, retain and motivate a talented executive team, the ~~Committee~~Company believes that total pay opportunity should be competitive with companies of similar size, revenue, industry and scope of ~~operations so that new executives will want to join the Company and current executives will be retained.~~operations. As described below in the discussion of Compensation Program Elements (Review of Pay Element Competitiveness), the Committee, with the support of Meridian, annually compares executive compensation levels to external market data from similar companies in our industry and targets each element of target total direct compensation ~~(the sum of base~~(base salary and target annual and long-term incentive award opportunities) to the 50th percentile of the market data with variations by individual executive, as appropriate.During 2019, the Committee worked with Meridian to develop a compensation package for the new President, and now President and CEO, Mary Kipp, who succeeded Ms. Harris. The ~~Committee~~terms of Ms. Kipp’s compensation are described below.The Company also

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recognizes the importance of providing retirement income. ~~Executives choose to work for~~As such, the ~~Company as opposed to a variety of other alternative organizations, and one financial goal of employees is to provide a secure future for themselves and their families. The~~ Committee reviews ~~the design of~~our retirement programs ~~provided by our comparator group~~ and provides benefits that are ~~commensurate~~competitive with ~~this group.~~

our peers.

•Place a significant portion of each executive’s target ~~total~~incentive compensation at risk to align executive compensation with Company financial and operating performance. Under its “pay for performance” philosophy, the ~~Committee works to design and deliver~~Company maintains an incentive compensation program that supports the Company’s business strategy ~~as approved by the Board~~ and aligns executive interests with those of investors and customers. The Committee believes that a significant portion of each executive’s compensation should be “at risk” and earned based on achievement relative to annual and long-term performance goals. For example, Ms. Harris, CEO in 2019, had a mix of 2019 cash compensation comprised of 22% base salary and 78% at-risk target compensation. By establishing goals, monitoring results, and rewarding achievement of goals, the Company ~~focuses~~seeks to focus executives on actions that will improve the Company and enhance investor value, while also retaining key talent. The Committee annually evaluates and establishes the performance ~~factors~~goals and targets for our annual and long-term incentive programs and considers adjustments as appropriate to meet the objectives of our executive compensation program. As described under “Risk Assessment,” the Company’s policies and practices surrounding incentive pay are structured in a manner to mitigate the risk that employees would seek to take untoward risks in an attempt to increase incentive program results.

•Oversee the Company’s talent management process to ensure that executive leadership continues uninterrupted by executive retirements or other personnel changes. The CEO leads talent reviews for leadership succession planning through meetings and discussions with her executive team. Each executive conducts talent reviews of senior employees that report to him or her and who have high potential for assuming greater responsibility in the Company. Utilizing evaluations and assessments, the Committee and the Board annually review these assessments of executive readiness, the plans for development of the Company’s key executives, and progress made on these succession plans. The Committee and the Board directly participate in discussion of succession plans for the position of CEO. As part of its ongoing succession planning efforts, during 2019, the Committee and the Board executed a CEO succession plan pursuant to which Ms. Kipp became CEO effective January 2020.

Compensation Philosophy

The target total compensation package is designed to provide participants with appropriate incentives that are competitive with the comparator group described below and motivate the achievement of current operational performance and customer service goals as well as the long-term objective of enhancing investor value. The Company does not have a specific policy regarding the mix of compensation elements, although long-term incentive awards comprise the largest portion of each executive’s incentive pay. The Company arrives at a mix of pay by setting each compensation element relative to market comparators. The Company delivered cash compensation to the Named Executive Officers in 2019 through base salary to provide liquidity for the executives and through incentive programs to focus performance on important Company goals and to increase the alignment with investors.

As a matter of philosophy, all three components of target total direct compensation are generally targeted at the 50th percentile of industry practice, with deviations by individual executive as described below. If Company performance results are below expectations, actual compensation is expected to be below this targeted level. If Company performance exceeds target, actual compensation is expected to be above this targeted level.

Individual pay adjustments are reviewed annually to see how they position the executive relative to the 50th percentile of market pay, while also considering other factors such as, the executive’s recent performance, experience level, company performance, retention and internal pay equity. Notwithstanding the median philosophy, the Company may choose to target an executive’s compensation above or below the 50th percentile of market pay when that individual has a role with greater or lesser responsibility than the best comparison job or when our executive’s experience and performance differ from those typically found in the market.

Role of Market Data

The Company uses market data compiled by Meridian to inform its pay decisions on base salary, target annual incentives and target long-term incentive awards. Market data is obtained from both industry-specific surveys and proxy statements of public companies selected for inclusion in the Company’s custom executive compensation benchmarking peer group. The market survey data were sourced from a select cut from the Willis Towers Watson 2018 Energy Services Survey, comprised of utility and other companies similar in size and scope of operations to PSE. The 22 companies in the custom market survey cut used to inform target compensation decisions for 2019 are shown below:

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Custom Survey Peer Group
1.	Alliant Energy	10.	Hawaiian Electric Industries, Inc.	19.	Spire, Inc.
2.	Ameren	11.	NiSource	20.	Vectren
3.	Atmos Energy	12.	OGE Energy	21.	WEC Energy Group
4.	Avangrid	13.	ONE Gas, Inc	22.	Westar Energy
5.	Avista	14.	Pinnacle West Capital
6.	Black Hills	15.	PNM Resources
7	CMS Energy	16.	Portland General Electric
8	Eversource Energy	17.	SCANA
9.	Great Plains Energy	18.	Southwest Gas

The market survey data were supplemented with proxy statement data for select positions in the Company’s executive compensation peer group, which was comprised of 16 companies, all but one of which overlapped with companies included in the market survey data. The 2018 median revenue of the executive compensation peers was $3.6 billion, which was comparable to PSE’s annual revenues of $3.4 billion at the time the peer group was developed. The peer companies included in the Company’s executive compensation benchmarking peer group to inform 2019 compensation decisions are the same as those used for 2018 and are shown below:


Proxy Peer Group
1.	Alliant Energy	7.	Great Plains Energy	13.	SCANA
2.	Ameren	8.	MDU Resources Group	14.	Vectren
3.	Avista	9.	NiSource	15.	WEC Energy
4.	Black Hills	10.	OGE Energy	16.	Westar Energy
5.	CMS Energy	11.	Pinnacle West Capital
6.	Eversource Energy	12.	Portland General Electric

Compensation Program Elements

The Company’s executive compensation program encompasses a mix of base salary, annual and long-term incentive compensation, retirement programs, health and welfare benefits and a limited number of perquisites. The Company also provides certain ~~post-~~

~~termination~~post-termination and change in control benefits to executives who were employed by the Company prior to March ~~2009.~~2009 under certain legacy arrangements. Since the Company is not publicly listed and does not grant equity awards to its executives, it relies on a mix of fixed and variable cash-based compensation elements to achieve its compensation ~~objectives.~~

~~The target total compensation package is designed to provide participants with appropriate incentives that are competitive with~~objectives, including a performance unit plan, which helps align the ~~comparator group described below and drive the achievement~~interests of current operational performance and customer service goals as well as the long-term objective of enhancing investor value. The Company does not have a specific policy regarding the mix of compensation elements, although long-term incentive awards comprise the largest portion of each executive’s incentive pay. The Company arrives at a mix of pay by setting each compensation element relative to market comparators. The Company delivered cash compensation to the Named Executive Officers ~~in 2017 through base salary to provide liquidity for the executives and through incentive programs to focus performance on important Company goals and to increase the alignment~~ with those of investors.

~~Review of Pay Element Competitiveness~~

To help inform the Committee’s recommendations for 2017 base salaries, target annual incentives and target long-term incentive awards, the Committee reviewed market data obtained from both industry-specific surveys and proxy statements of public companies selected for inclusion in the Company’s custom executive compensation benchmarking peer group. The market survey data were sourced from a select cut from the Towers Watson 2016 Energy Services Survey, comprised of utility and other companies similar in size and scope of operations to PSE. The 23 companies in the custom market survey cut used to inform target compensation decisions for 2017 were:

Custom Survey Peer Group
1. AGL Resources 9. LLG&E and KU Energy 17. Southwest Gas
2. Alliant Energy 10. MDU Resources Group 18. Teco Energy
3. Ameren 11. OGE Energy 19. UGI
4. Atmos Energy 12. Oncor Electric Delivery 20. UNS Energy
5. Avista 13. Pinnacle West Capital 21. Vectren
6. Black Hills 14. PNM Resources 22. WEC Energy Group
7. CMS Energy 15. Portland General Electric 23. Westar Energy
8. CPS Energy 16. SCANA

As noted, the market survey data were supplemented with proxy statement data for select positions in the Company’s executive compensation peer group, which was comprised of 16 companies, all but three of which overlapped with companies included in the market survey data. The 2016 median revenue of the executive compensation peers was $3.4 billion, which was comparable to PSE’s annual revenues of $3.1 billion at the time the peer group was developed. The peer companies included in the Company’s executive compensation benchmarking peer group to inform 2017 compensation decisions are shown below:

Proxy Peer Group
1. Alliant Energy 7. Great Plains Energy 13. SCANA
2. Ameren 8. MDU Resources Group 14. Vectren
3. Avista 9. NiSource 15. WEC Energy
4. Black Hills 10. OGE Energy 16. Westar Energy
5. CMS Energy 11. Pinnacle West Capital
6. Eversource Energy 12. Portland General Electric

As a matter of philosophy, all three components of target total direct compensation are generally targeted at the 50th percentile of industry practice, with deviations by individual executive as described below. If Company performance results are below expectations, actual compensation is expected to be below this targeted level and if Company performance exceeds target, actual compensation is expected to be above this targeted level.

Individual pay adjustments are reviewed annually to see how they position the executive in relation to the 50th percentile of market pay, while also considering the executive’s recent performance and experience level. Despite the median philosophy, the Company may choose to target an executive’s compensation above or below the 50th percentile of market pay when that individual has a role with greater or lesser responsibility than the best comparison job or when our executive’s experience and performance

~~differ from those typically found in the market. In addition to the foregoing market data, the Committee generally also received advice from FW Cook in connection with 2017 compensation decisions.~~

Base Salary

We recognize that it is necessary to provide executives with a fixed amount of regularly paid compensation that ~~is delivered each month and~~ provides a balance to other pay elements that are at risk. ~~As mentioned above, base~~Base salaries are reviewed annually by the Committee based on its median philosophy, internal pay equity considerations and considerations specific to an individual ~~executive considerations~~ such as an executive’s expertise, level of performance achievement, experience in the role and contribution relative to others in the organization.

Base Salary Adjustments for ~~2017~~2019

The Committee reviewed the base salaries of the Named Executive Officers in early ~~2017~~2019 and recommended base salary adjustments to the Board. The Board approved the Committee’s ~~recommendation to increase executive salaries as~~salary recommendations shown in the table below. The adjustments were effective March 1, ~~2017.~~2019. Base salaries for ~~2017~~2019 generally remained at the 50th percentile of market among the comparator group. The annual salary for Ms. Harris ~~is unchanged from 2016, given that her current base salary was slightly higher than~~aligns with the market median. The salary increase percentages approved by the Board for ~~the other Named Executive Officers~~Mr. Doyle and Mr. Secrist were ~~approximately 3%,~~ similar to salary increases for other non-represented employees, ~~except for Mr. Doyle who did not receive an increase~~ and ~~Mr. Secrist who~~Ms. Mellies received an ~~additional~~ adjustment to better align with the market ~~levels.~~level. For Ms. Kipp, who joined the Company as President in August 2019, the Committee recommended and the Board approved a base salary consistent with the market level for her position.

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Name	2016 Base Salary	2017 Base Salary	% Change	Name	2018 Base Salary	2019 Base Salary	% Change
Kimberly J. Harris	$900,000	$900,000	—%	Kimberly J. Harris	$950,000	$1,000,000	5%
Mary E. Kipp				Mary E. Kipp	n/a	860,000	n/a
Daniel A. Doyle	511,396	511,396	—	Daniel A. Doyle	521,000	531,420	2
Steve R. Secrist	388,327	403,861	4	Steve R. Secrist	445,000	462,800	4
Marla D. Mellies	308,755	318,019	3	Marla D. Mellies	360,000	392,400	9
Philip K. Bussey	306,510	312,640	2

~~2017~~2019 Annual Incentive Compensation

All PSE employees, including the Named Executive Officers, are eligible to participate in an annual incentive program referred to as the “Goals and Incentive Plan.” The plan is designed to ~~provide financial incentives for achieving~~incent our employees to achieve desired annual operating results, measured by EBITDA, ~~while also meeting~~and meet the Company’s service quality commitment to customers, a reliability measure (non-storm outage duration—System Average Interruption Disruption Index-- or “SAIDI”) and an employee safety measure. EBITDA was selected as a performance goal because it provides a financial measure of cash flows generated from the Company’s annual operating performance.Target incentive opportunities under the plan are based on a percentage of an employee’s base salary.

For ~~2017,~~2019, the Company’s service quality commitment was measured by performance against ~~nine~~eight Service Quality Indicators (SQIs) covering three broad categories, set forth below. These are the same SQIs for which the Company is accountable to the Washington Commission. ~~Annual incentive funding is decreased if a SQI is not achieved.~~ The Company's annual report to the Washington Commission and our customers describes each SQI, how it is measured, the Company’s required level of achievement, and performance results. The Company’s service quality report cards are available at http://www.PSE.com/PerformanceReportCards.

The SQIs for ~~2017~~2019 were the same as those in ~~2016~~2018 and were as follows:

•Customer Satisfaction (3 SQIs) - Customer satisfaction with the ~~telephone access~~customer care center, ~~and~~ natural gas field services and number of Washington Commission complaints.

•Customer Service ~~(2 SQIs)~~ (1 SQI)- Calls answered “live” ~~and on-time appointments.~~within 60 seconds by customer care center.

~~Safety and Reliability~~•Operations Services (4 SQIs)- Gas emergency response, electric emergency response, non-storm outage frequency, and ~~non-storm outage duration.~~

on-time appointments.

In ~~2017,~~2019, the Company ~~retained~~began measuring SAIDI according to a scale based on improvement compared to a five-year average, with the measure for 2019 being 159 minutes.

The employee safety performance measure in the annual incentive plan funding ~~to promote its~~reflects the Company’s continued commitment to employee safety. The employee safety measure functions similarly to the nine SQIs in determining the funding of the annual incentive plan. That is, if the safety measure is not achieved, annual incentive funding will be decreased by 10%, in the same way as a missed SQI. The safety performance measure contains three targets which must all be satisfied for the safety measure to be treated as met.The three targets for ~~2017~~2019 were:

•All employees attend a monthly safety “meeting in a box” presentation or complete the same content online.The target completion rate is no less than 95%.

•The Company DART (Days Away from Work, days of Restricted Work, or Job Transfer) not to exceed a rate of ~~0.52 in 2017.~~

0.49

•All employees complete ~~an online defensive driving training.~~ two modules of a PSE Athlete training program.The target completion rate is no less than 95%.

Annual incentive funding is decreased if a SQI is not achieved. The employee safety measure and SAIDI function similarly to the eight SQIs in determining the funding of the annual incentive plan. That is, if the safety measure or SAIDI is not achieved, annual incentive funding will be decreased by 10%, in the same way as a missed SQI.

In ~~2017,~~2019, 100% funding for the annual incentive plan required (i) achievement of 10 out of 10 customer service and safety measures (all ~~nine~~eight SQIs, SAIDI and achievement of the safety measure) and (ii) target EBITDA performance. ~~The safety measure and eight out of nine SQI~~All customer service measures were met for ~~2017. For~~2019, but the ~~one SQI~~safety measure ~~below the WUTC~~was not met, and EBITDA finished at 96.4% of target, ~~System Average Interruption Duration Index (SAIDI)~~so funding was less than 100%, the Board considered the measure met for incentive purposes based on PSE's performance and recent changes in the measure by the Washington Commission. For 2018 and future years, Company performance on SAIDI will continue to be measured as ~~part of the annual incentive plan, based on performance targets approved by the Board and will function as one of the 10 measures. All 10 customer service and safety measures were met or deemed met.~~described further below.

~~Funding levels for 2017 at maximum, target, and threshold are shown in the table below:~~

Annual Incentive Performance Payout Scale and Actual Performance
Performance 2017 EBITDA (In Millions) SQI & Safety* Funding Level
Maximum $ 1,733.9
10/10 200 %
Target 1,284.4
10/10 100
Threshold 1,156.0
6/10 30
2017 Actual Performance $ 1,318.3
10/10 113.2 %

~~_______________~~


^*	Combined SQI & Safety results of 6/10 or better and minimum EBITDA of $1,156 million are required for any annual incentive payout funding. SQI/Safety results below 10/10 reduce funding (e.g., 9/10 = 90%, 8/10 = 80%, 7/10 = 70%).

~~The Committee can adjust EBITDA used in the annual incentive calculation to exclude nonrecurring items that are outside the normal course of business for the year, but made no adjustments.~~ Individual awards may be adjusted upward or downward based on an evaluation of an executive officer’s performance against individual and team goals that align with the corporate goals described below.

~~2017~~2019 Corporate Goals

In ~~2017,~~2019, the Company continued using the Integrated Strategic Plan (ISP) to summarize for employees the direction and overall goals of the Company. The plan has five objectives which capture our ~~2017~~2019 corporate goals and which have been

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communicated to our employees. Each employee, including the Named Executive Officers, has specific individual and team goals linked to driving strategies that meet one or more of the following ISP objectives:

•Safety - Our ~~Safety Objective~~safety objective is our foundation: If ~~Nobody Gets Hurt Today,~~nobody gets hurt today, we will feel safe and secure and be able to perform at our best.

•People - When we’re ~~Safe,~~safe, we can achieve our ~~People Objective~~people objective of being a ~~Great Place~~great place to ~~Work,~~work, with engaged employees who live our values, embrace an ownership culture and are motivated to drive results for our company and our customers.

•Process and Tools - Engaged employees take us to our ~~Process~~process and ~~Tools Objective~~tools objective where results start with achieving ~~Operational Excellence,~~operational excellence, with continuous improvement of our internal processes and tools so that we can increase efficiency, eliminate waste, improve reliability and enhance customer service.

•Customer- We now have the fundamentals to achieve our ~~Customer Objective~~customer objective of delivering greater value and being our ~~Customer’s Energy Partner~~customer’s energy partner of ~~Choice~~choice in a competitive marketplace.

•Financial - Being our customer’s energy partner of choice takes us to our ~~Financial Objective~~financial objective of increasing our ~~Financial Strength,~~financial strength, allowing us to sustain further improvement.

~~2017~~2019 Annual Incentive Plan Results

~~Achievement~~For 2019, achievement of the corporate goals ~~for 2017~~under the annual incentive plan was at ~~102.6%~~96.4% of target for EBITDA, and ~~deemed fully~~9/10 measures met for SQI, safety, and ~~safety~~SAIDI achievement. PSE EBITDA was ~~$1,318.3~~$1,293.2 million, and SQI, SAIDI and safety achievement was 109 out of 10, leading to a funding level for ~~2017~~2019 of ~~113.2%~~74.0% for the annual incentive ~~plan.~~plan for the named executive officers.

Funding levels for 2019 at maximum, target, and threshold are shown in the table below:


Annual Incentive Performance Payout Scale and Actual Performance
Performance Measure (Dollars in Millions)	2019 EBITDA				SQI, SAIDI& Safety*	Funding Level
Maximum		$	1,810.4	10/10	200%
Target		1,341.0		10/10	100
Threshold		1,206.9		6/10	30
2019 Actual Performance		$	1,293.2	9/10	74.0%

_______________

* Combined SQI, SAIDI & Safety results of 6/10 or better and minimum EBITDA of $1,206.9 million are required for any annual incentive pay out funding

SQI Safety results below 10/10 reduce funding (e.g., 9/10=90%, 8/10=80%, 7/10=70%)

For ~~2017,~~2019, individual target incentive levels for the annual incentive plan varied by executive officer as a percentage of ~~2017~~2019 base salary as shown in the table below, based on the executive’s level of responsibility within the Company and informed by market data. Target annual incentive opportunities as a percentage of base salary for the Named Executive Officers ~~remained~~were unchanged

from ~~2016~~2018 levels, except for ~~Mr. Doyle's~~Ms. Kipp who joined the Company in 2019 and whose target ~~which~~annual incentive opportunity was ~~increased to 55%~~set at 90% of base salary. No bonus is earned unless at least threshold EBITDA and SQI goals are achieved. The achievement of threshold performance results in a 30% of target bonus payout. The maximum incentive payable for exceptional performance in this plan is ~~twice the~~two times each Named Executive Officer's target incentive.

An executive’s individual award amount can be increased or decreased based on an assessment by the CEO (or the Board in the case of the CEO) of the executive’s individual and team performance results. After considering performance on individual and team goals, adjustments were made by the CEO for individual performance of certain Named Executive Officers below CEO in ~~2016. In recognition of the achievement of individual goals and the Company's financial performance, the Committee similarly recommended an award adjustment for the CEO in 2017.~~2019. The adjustments for individual performance are noted in the "Bonus" column on the Summary Compensation table and did not materially change the amounts resulting from ~~2017~~2019 achievement of the corporate goals. The Board approved the incentive amounts shown below, which will be paid in March ~~2018:~~2020:

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Name	Target Incentive (% of Base Salary)	2017 Actual Incentive Paid		2017 Actual Incentive (% of Base Salary)		Name		Target Incentive (% of Base Salary)	2019 Actual Incentive Paid			2019 Actual Incentive (% of Base Salary)
Kimberly J. Harris	100%	$	1,069,740	119	%	Kimberly J. Harris		100%	$	740,000		74%
Mary E. Kipp						Mary E. Kipp		90*	190,920			67*
Daniel A. Doyle	55	286,556		56		Daniel A. Doyle	65				255,613		48
Steve R. Secrist	45	205,727		51		Steve R. Secrist	65				222,607		48
Marla D. Mellies	45	161,999		51		Marla D. Mellies	65				226,493		58
Philip K. Bussey	45	159,259		51

_____________

* Target incentive of 90% of base salary, prorated and payable based on 4 months of service in 2019; actual % of base shown as annual value.

Long-Term Incentive Compensation

Long-term incentive compensation opportunities are designed to bealign the interests of executives with those of our investors, provide competitive ~~with market practices,~~pay opportunities, support a customer-focused utility, reward long-term performance and promote retention. Long-term incentive plan (LTI Plan) awards are denominated in units and are settled in cash if at least threshold performance measures are met. Performance measures ~~are~~have typically been based on two financial goals, ~~total return (Total Return)~~each weighted equally and ~~ROE, each~~ measured over a three-year performance ~~cycle.~~ cycle:

•Total return (Total Return) and

•ROE

The 2019-2021 grant cycle was focused exclusively on the ROE metric, as described below. Total Return reflects the change in the value of the Company during the performance cycle plus any distributions made to investors. ROE reflects the income earned on our equity investment. Achievement of each performance measure during the performance cycle is evaluated independently of the other.

The Committee recommends for Board approval a targeted LTI grant value for each executive, which is expressed as a percentage of base salary. The recommended and targeted LTI grant value is determined by evaluating LTI grant values provided to similarly situated executives at comparable companies (using the previously discussed survey and peer group data) as well as other relevant executive-specific factors. The Company generally does not consider previously granted awards or the level of accrued value from prior or other programs when making new LTI Plan grants.

The target LTI grant value is then converted into a target number of units, allocated equally among the two financial goals, based on the unit value on the grant date. The initial per-unit value is measured at the Puget Holdings level and is calculated annually by an independent auditing ~~firm.~~firm or based on market transactions. The number of units ultimately earned may range from 0% to 200% of target depending on performance, with the payout being made in cash based on the number of units earned and the per-unit value at the end of the performance period. Executives generally must be employed on the payment date to receive a cash payment under the LTI Plan, except in the event of retirement, disability or death.

The Committee recommends for Board approval the number of LTI Plan units granted to each executive by evaluating long-term incentive grant values provided to similarly situated executives at comparable companies (using the previously discussed survey and peer group data) as well as other relevant executive-specific factors. The Committee generally does not consider previously granted awards or the level of accrued value from prior or other programs when making new LTI Plan grants.

Half of the target units are earned based on Total Return and the other half are earned based on ROE, each over a 3-year performance period. These metrics and weightings have remained unchanged since the 2012 - 2014 grant cycle.

~~2017-2019~~2019-2021 Long-Term Incentive Plan Target Awards ~~and Performance Goals~~

Consistent with prior years, target LTI Plan awards for the ~~2017-2019~~2019-2021 performance cycle were calculated based on a percentage of an executive's annual base salary, taking into account the executive's level of responsibility within the Company and the corresponding market data. For Ms. Kipp, a target LTI Plan level of 220% of base salary for the 2019-2021 performance cycle was approved by the Board to provide immediate alignment with PSE and other executives. Target LTI Plan award amounts for the ~~2017-2019~~2019-2021 performance cycle ~~were 265% of base salary for Ms. Harris and 95% for Mr. Doyle, Mr. Secrist, Ms. Mellies and Mr. Bussey, which~~are shown in the following table.


Name						Target Long Term Incentive (% of Base Salary)
Kimberly J. Harris						265%
Mary E. Kipp						220
Daniel A. Doyle						95
Steve R. Secrist						95
Marla D. Mellies						95

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These percentages were unchanged from amounts established for the ~~2016-2018~~2018-2020 performance cycle, ~~except for~~with the exception of Ms. ~~Harris. The Board approved an increase~~Kipp who joined the Company in ~~Ms. Harris’ target award from 220% to 265% to provide a target award that was market competitive.~~2019. The total number of target LTI Plan units granted to a Named Executive Officer for the ~~2017-2019~~2019-2021 performance cycle is equal to the applicable percentage of salary (converted to dollars) divided by the per unit value at the beginning of the performance cycle, including for Ms. Kipp, which was ~~$52.37.~~$81.86. Details of the number of units granted and expected values at target, threshold and maximum performance levels can be found in the ~~“2017~~“2019 Grants of Plan-Based Awards” table below. Target Total Return is set annually by the Board prior to the grant date, and was set at 9.8% for the 2017-2019 performance cycle. Target ROE remains based on the ROE target in the Board’s approved budget for each year. Prior outstanding ~~LTIP~~LTI Plan grants continue to have the performance targets and payout scales in effect at the time of grant.

~~The table below shows~~In connection with Mr. Kipp’s appointment as President in 2019 and anticipated appointment as CEO in 2020, in July 2019, the ~~percentage~~Board, upon the recommendation of ~~LTI Plan target awards under~~ the ~~Total Return component that could be earned based on three-year performance during~~Committee, also approved Ms. Kipp’s participation in the 2017-2019 performance ~~cycle. Payout percentages will be linearly interpolated if~~cycle at a target amount of 110% of 2019 base salary and in the 2018-2020 performance ~~falls between the values shown below:~~cycle at a target amount of 165% of 2019 base salary. Ms. Kipp’s target amounts reflected her reduced participation in these performance cycles that began prior to her commencement of employment and are intended to incentivize performance in such performance cycles following commencement of employment



~~Annualized Three-Year Total Return Compared to Target~~		~~Plan Funding for Total Return (% of Target Units)~~
~~117.5% of Target or More~~		~~200.0%~~
~~115% of Target~~		~~185.5~~
~~110% of Target~~		~~157.0~~
~~105% of Target~~		~~128.5~~
~~100% of Total Return Target~~		~~100.0~~
~~95% of Target~~		~~88.6~~
~~90% of Target~~		~~77.1~~
~~89.1% of Target~~		~~75.0~~
~~85% of Target~~		~~59.0~~
~~80% of Target~~		~~39.5~~
~~75% of Target~~		~~20.0~~
~~<75% of Target~~		—

The table below shows the percentage of LTI Plan target awards under the ROE component that could be earned based on average performance during the three-year performance period. Payout percentages will be interpolated if performance falls between the values shown below:



~~ROE Compared to Target~~		~~Plan Funding~~
~~117.5% of Target or More~~		~~200.0%~~
~~115% of Target~~		~~185.5~~
~~110% of Target~~		~~157.0~~
~~105% of Target~~		~~128.5~~
~~Target ROE~~		~~100.0~~
~~95% of Target~~		~~84.0~~
~~90% of Target~~		~~68.0~~
~~85% of Target~~		~~52.0~~
~~80% of Target~~		~~36.0~~
~~75% of Target~~		~~20.0~~
~~<75% of Target~~		—

~~Performance Scales for the 2016-2018 LTI Plan Grant~~

The table below shows the percentage of LTI Plan target awards under the Total Return component that could be earned based on three-year performance during the 2016-2018 performance cycle. Payout percentages will be linearly interpolated if performance falls between the values shown below:



~~Annualized Three-Year Total Return Compared to Target~~		~~Plan Funding for Total Return (% of Target Units)~~
~~117.5% of Target or More~~		~~200.0%~~
~~115% of Target~~		~~185.5~~
~~110% of Target~~		~~157.0~~
~~105% of Target~~		~~128.5~~
~~100% of Total Return Target~~		~~100.0~~
~~95% of Target~~		~~92.9~~
~~90% of Target~~		~~85.7~~
~~85% of Target~~		~~78.6~~
~~82.5% of Target~~		~~75.0~~
~~80% of Target~~		~~56.7~~
~~75% of Target~~		~~20.0~~
~~<75% of Target~~		—



~~ROE Compared to Target~~		~~Plan Funding~~
~~117.5% of Target or More~~		~~200.0%~~
~~115% of Target~~		~~185.5~~
~~110% of Target~~		~~157.0~~
~~105% of Target~~		~~128.5~~
~~Target ROE~~		~~100.0~~
~~95% of Target~~		~~84.0~~
~~90% of Target~~		~~68.0~~
~~85% of Target~~		~~52.0~~
~~80% of Target~~		~~36.0~~
~~75% of Target~~		~~20.0~~
~~<75% of Target~~		—

~~Performance Scales for the 2015-2017 LTI Plan Grant~~

The table below shows the percentage of LTI Plan target awards under the Total Return component that could be earned based on three-year performance during the 2015-2017 performance cycle. Payout percentages will be linearly interpolated if performance falls between the values shown below:



~~Annualized Three-Year Total Return Compared to Target~~		~~Plan Funding for Total Return (% of Target Units)~~
~~117.5% of Target or More~~		~~200.0%~~
~~115% of Target~~		~~185.5~~
~~110% of Target~~		~~157.0~~
~~105% of Target~~		~~128.5~~
~~100% of Total Return Target~~		~~100.0~~
~~95% of Target~~		~~89.6~~
~~90% of Target~~		~~79.2~~
~~88% of Target~~		~~75.0~~
~~85% of Target~~		~~62.3~~
~~80% of Target~~		~~41.2~~
~~75% of Target~~		~~20.0~~
~~<75% of Target~~		—



~~ROE Compared to Target~~		~~Plan Funding~~
~~117.5% of Target or More~~		~~200.0%~~
~~115% of Target~~		~~185.5~~
~~110% of Target~~		~~157.0~~
~~105% of Target~~		~~128.5~~
~~Target ROE~~		~~100.0~~
~~95% of Target~~		~~84.0~~
~~90% of Target~~		~~68.0~~
~~85% of Target~~		~~52.0~~
~~80% of Target~~		~~36.0~~
~~75% of Target~~		~~20.0~~
~~<75% of Target~~		—

Long-Term Incentive Plan Performance ~~2015-2017~~2017-2019 Performance Cycle Results and Payouts

The ~~2015-2017~~2017-2019 performance cycle has now ended. Amounts payable as a result of award vesting are shown in the following table:

•Performance on Total Return in ~~2017~~2019 was ~~29.1%~~-1.2%, which was significantly ~~higher~~lower than ~~target, reflecting an increase~~Total Return growth in ~~valuation due to market transactions during 2017.~~2018.

•Performance on the Total Return component for the three-year performance cycle was a compounded annual rate of ~~14.93%~~19.9%, above target and at the maximum of the funding scale. The Total Return Component funded at 200% of target units.

•Performance on the ROE component of the grant was an average of ~~102.2%~~110.7% of target. The ROE component funded at 160.7% of target ~~for funding at 112.8%~~units.

Name

Target Incentive

(% of Base Salary)¹

Total Return Component

Units Granted/Paid

ROE Component

Units Granted/Paid

2017-2019

Actual LTIP Paid²

Kimberly J. Harris

200%

22,770.5/45,541

22,770.5/36,592.2

6,642,111

Mary E. Kipp

110

5,778.2/11,556.3

5,778.2/9,285.5

1,685,478

Daniel A. Doyle

4,638.5/9,277

4,638.5/7,454.1

1,353,042

Steve R. Secrist

3,663.0/7,326

3,663.0/5,886.4

1,068,490

Marla D. Mellies

2,884.5/5,769

2,884.5/4,635.4

841,403

______________

¹Target LTI Plan incentive is a percentage of 2017 base salary when the grants were made in 2017 with a unit price of $52.37, except that Ms. Kipp’s target is a percentage of 2019 base salary equal to 50% of target ~~units.~~LTI % of 220% with a per unit price of $81.86.

Name
Target Incentive
(% of Base Salary)¹

Total Return Component
Units Granted/Paid

ROE Component
Units Granted/Paid

2015-2017
Actual LTIP Paid²
Kimberly J. Harris 200% 20,211/40,422 20,211/22,798 $ 4,274,305
Daniel A. Doyle 95% 5,296/10,592 5,296/5,973.9 1,120,020
Steve R. Secrist 95% 3,871.5/7,743 3,871.5/4,367.1 818,760
Marla D. Mellies 95% 3,197.5/6,395 3,197.5/3,606.8 676,220
Philip K. Bussey 95% 3,174.5/6,349 3,174.5/3,580.8 671,356

~~______________~~


¹	~~Target LTI Plan incentive is a percentage of 2015 base salary when the grants were made in 2015.~~


²	~~2015-2017 actual LTI Plan amount payable is equal to the unit price $67.61~~²2017-2019 actual LTI Plan amount payable is equal to the unit price of $80.87 multiplied by earned ~~Total Return and ROE component units.~~

~~Long-Term Incentive Plan Performance for Outstanding Cycles~~

The table below summarizes the status of the two other outstanding performance cycles from the initial grant date to December 31, 2017, with the projected payout assuming this same performance for the full three-year cycle under the applicable payout scales for Total Return and ~~ROE:~~ROE component units.

Performance Cycle
Cycle
Progress
Total Return Performance
Payout
(% of Target)
ROE Performance (% of Target)
Payout
(% of Target)
Total Projected Payout (based on performance as of 12/31/2017)
2016-2018 67% Complete 15.3% 200% 102.2% 118.4% 159.4%
2017-2019 33% Complete 15.2% 200% 102.7% 115.1% 157.6%

Retirement Plans ~~- SERP~~–– Executive Retirement Plans and Retirement Plan

The Company maintains ~~the SERP~~executive retirement plans to attract and retain executives by providing a benefit that is coordinated with the tax-qualified Retirement Plan for Employees of Puget Sound Energy, Inc. (Retirement Plan). Without the addition of the ~~SERP,~~executive retirement plans, these executives would receive lower percentages of replacement income during retirement than other employees. All the Named Executive Officers participate in executive retirement plans—Ms. Harris, Mr. Doyle, Mr. Secrist and Ms. Mellies in the ~~SERP.~~SERP and Ms. Kipp in the Officer Restoration Benefit, as part of the Deferred Compensation Plan for Key Employees. Additional information regarding the SERP, Officer Restoration Benefit and the Retirement Plan is shown in the ~~“2017~~“2019 Pension Benefits” table.

145

Deferred Compensation Plan

The Named Executive Officers are eligible to participate in the Deferred Compensation Plan for Key Employees (Deferred Compensation Plan). The Deferred Compensation Plan provides eligible executives an opportunity to defer up to 100% of base salary, annual incentive bonuses and earned LTI Plan awards, plus receive additional Company contributions made by PSE into an account that has three investment tracking fund choices. The funds mirror performance in major asset classes of bonds, stocks, and an interest crediting fund that changes rates quarterly. The Deferred Compensation Plan is intended to allow the executives to defer current income, without being limited by the Internal Revenue Code contribution limitations for 401(k) plans and therefore have a deferral opportunity similar to other employees as a percentage of eligible compensation. The Company contributions are also intended to restore benefits not available to executives under PSE’s tax-qualified plans due to Internal Revenue Code limitations on compensation and benefits applicable to those plans. Additional information regarding the Deferred Compensation Plan is shown in the ~~“2017~~“2019 Nonqualified Deferred Compensation” table.

Post-Termination Benefits

Effective March 30, 2009, the Company entered into Executive Employment Agreements with the Named Executive Officers ~~except Mr. Doyle (who was not then employed by~~at the ~~Company)~~time, including Ms. Harris and ~~Mr. Secrist (who was not then an officer).~~Ms. Mellies. The Executive Employment Agreements provide for an employment period of two years following a change in control and provide severance benefits in the event of a qualifying termination of employment within two years of a change in control. Since 2009, the Company has ceased entering into these agreements with new executive ~~officers. Mr. Bussey was an officer of PSE at March 30, 2009, but left PSE~~officers and, during 2019 only the agreements for Ms. Harris and Ms. Mellies remained in ~~May 2009 and upon his rehire in March 2012 does not have an employment~~effect. The agreement with ~~the Company.~~Ms. Harris terminated upon her retirement on January 2, 2020.

The Committee periodically reviews existing change in control and severance arrangements for the peer group companies. Based on this information, the Committee believes that the current arrangements generally provide benefits that are similar to those of the comparator group for longer tenured executives, but is not extending them to newly hired executives.

The “Potential Payments Upon Termination or Change in Control” section describes the current post-termination arrangements with the Named Executive Officers as well as other plans and arrangements that would provide benefits on termination of employment or a change in control, and the estimated potential incremental payments upon a termination of employment or change in control based on an assumed termination or change in control date of December 31, ~~2017.~~2019.

Other Compensation

~~In addition to base salary and annual and long-term incentive award opportunities, the~~The Company also provides the Named Executive Officers with benefits and limited perquisites. The Company may provide payments upon hiring a new executive to help offset the executive’s relocation expenses, a practice needed to attract qualified candidates from other areas of the country. In connection with Ms. Kipp’s commencement of employment, she received a hiring bonus in the amount of $800,000. Ms. Kipp is required to reimburse the Company for this bonus if she resigns or terminates for cause (as defined in her employment offer letter) within twelve months of payment. Ms. Kipp is also eligible to receive an additional bonus of $1,500,000 in the event the previously announced acquisition of El Paso by the Infrastructure Investments Fund, an investment vehicle advised by J.P. Morgan Incentive Management Inc. is completed in 2020.

The current executives participate in the same group health and welfare plans as other employees. Company vice presidents and above, including the Named Executive Officers, are eligible for additional disability and life insurance benefits. The executives are also eligible to receive reimbursement for financial planning, tax preparation and legal services ~~and business club memberships~~ up to an annual limit. The reimbursement for financial planning, tax preparation and legal services is provided to allow executives to concentrate on their business responsibilities. Business club memberships are provided to allow access for business meetings and business events at club facilities and executives are required to reimburse the Company for personal use of club facilities. These perquisites generally do not make up a significant portion of executive compensation and did not exceed $10,000 in total for each Named Executive Officer in ~~2017.~~2019. Executives are taxed on the value of the perquisites received, with no corresponding gross-up by the Company.

Relationship among Compensation Elements

A number of compensation elements increase in absolute dollar value as a result of increases to other elements. Base salary increases translate into higher dollar value opportunities for both annual and long-term incentives, because each plan operates with a target award set as a percentage of base salary. Base salary increases also increase the level of retirement benefits, as do actual annual incentive plan payments. Some key compensation elements are excluded from consideration when determining other elements of pay. Retirement benefits exclude LTI Plan payments in the calculation of qualified retirement (pension and 401(k)) and SERP benefits.

Impact of Tax and Accounting Treatment of Compensation

The accounting treatment of compensation generally has not been a significant factor in determining the amounts of compensation for our executive officers. However, the Company considers the accounting impact of various program designs

146

to balance the potential cost to the Company with the benefit/value to the executive. ~~With the~~As a result of changes in federal tax law ~~enacted~~effective in 2018, the Company ~~will become~~is now subject to IRS section 162(m) ~~limitations on company deductions for~~. Section 162(m) limits the tax deductibility of compensation paid to certain executive ~~pay. Based on current understanding of~~officers, including the Named Executive Officers, to $1 million per year. Notwithstanding the new tax law, the Company does not expect to make changes in its executive compensation program designs.

Risk Assessment

A portion of each executive’s total direct compensation is variable, at risk and tied to the Company’s financial and operational performance to motivate and reward executives for the achievement of Company goals. The Company’s variable pay program helps focus executives on interests important to the Company and its investors and customers and creates a record of their results. In structuring its incentive programs, the Company also strives to balance and moderate risk to the Company from such programs: individual award opportunities are defined and subject to limits, goal funding is based on collective company performance, annual incentive awards are balanced by long-term incentive awards that measure performance over three years, performance targets are based on management’s operating plan (which includes providing good customer service), and all incentive awards to individual executives are subject to discretionary review by management, the Committee and/or the Board. As a result, the Committee and the Board believe that the programs’ design do not have risks that are reasonably likely to have a material

adverse effect on the Company and also provide appropriate incentive opportunities for executives to achieve Company goals that support the interests of our investors and customers.

Compensation and Leadership Development Committee Report

The Board delegates responsibility to the Compensation and Leadership Development Committee to establish and oversee the Company’s executive compensation program. Each member of the Committee served during all of ~~2017,~~2019, except as noted below.

The Committee members listed below have reviewed and discussed the “Compensation Discussion and Analysis” with the Company’s management. Based on this review and discussion, the Committee recommended to the Board, and the Board has approved, that the “Compensation Discussion and Analysis” be included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2019, for filing with the SEC.

Compensation and Leadership

Development Committee of

Puget Energy, Inc.

Puget Sound Energy, Inc.

~~Christopher Trumpy, Chair~~Steven Zucchet, chair, joined Committee May 1, 2019

Scott Armstrong ~~(served beginning March 1, 2017)~~

~~Christopher Leslie~~

~~Etienne Middleton~~Barbara Gordon

Mary McWilliams

Christopher Trumpy

Martijn Verwoest, joined Committee May 1, 2019

147

Summary Compensation Table

The following information is provided for the year ended December 31, ~~2017~~2019, (and for prior years where applicable) with respect to the Named Executive Officers during ~~2017.~~2019. The positions listed below are at Puget Energy and PSE, except that Ms. Mellies ~~and Mr. Bussey are executives~~is an executive of PSE only. Positions listed are those held by the Named Executive Officers as of December 31, ~~2017.~~2019. Salary and incentive compensation includes amounts deferred at the executive’s election.

Name and Principal Position Year Salary
Bonus¹
Stock Awards Option Awards
Non-Equity Incentive Plan Compensation²
Change in Pension Value and Nonqualified Deferred Compensation Earnings³
All Other Compensation⁴
Total
Kimberly J. Harris 2017 $ 900,000
$ 50,940
$ 5,293,105
$ 1,523,783
$ 20,338
$ 7,788,166
President and Chief 2016 $ 900,000
$ 269,595
$ —
$ —
$ 2,615,706
$ 650,281
$ 20,338
$ 4,455,920
Executive Officer⁵
2015 900,000
—
—
—
2,245,875
157,077
25,032
3,327,984
Daniel A. Doyle 2017 $ 511,396
$ 1,406,575
$ 483,109
$ 56,801
$ 2,457,881
Senior Vice President, 2016 $ 508,322
$ 18,299
$ —
$ —
$ 742,885
$ 370,670
$ 49,836
$ 1,690,012
Chief Financial Officer⁶
2015 493,488
—
—
—
609,770
360,012
51,487
1,514,757
Steve R. Secrist 2017 $ 400,690
$ 1,024,487
$ 576,802
$ 46,033
$ 2,048,012
Senior Vice President, 2016 $ 383,085
$ 50,510
$ —
$ —
$ 549,678
$ 268,972
$ 41,344
$ 1,293,589
General Counsel, Chief Ethics & Compliance Officer⁷
2015 360,721
—
—
—
297,862
95,399
23,861
777,843
Marla D. Mellies 2017 $ 316,128
$ 838,219
$ 478,905
$ 34,531
$ 1,667,783
Senior Vice President, 2016 $ 306,901
$ 20,588
$ —
$ —
$ 447,014
$ 279,975
$ 30,414
$ 1,084,892
Chief Administrative Officer⁸
2015 297,651
—
—
—
387,201
143,686
30,941
859,479
Philip K. Bussey 2017 $ 311,388
$ 830,615
$ 465,653
$ 26,989
$ 1,634,645
Senior Vice President, Chief Customer Officer⁹
2016 $ 304,668
$ 12,186
$ —
$ —
$ 448,226
$ 305,837
$ 25,503
$ 1,096,420
2015 296,367
—
—
—
378,286
408,937
23,792
1,107,382


Name and Principal Position	Year	Salary		Bonus¹		Stock Awards		Option Awards		Non-Equity Incentive Plan Compensation²		Change in Pension Value and Nonqualified Deferred Compensation³		All Other Compensation⁴		Total
Kimberly J. Harris	2019	$	989,799	$	—	$	—	$	—	$	7,382,111	$	3,373,594	$	28,864	$	11,774,368
President and Chief	2018	939,823		45,220		—		—		6,593,310		445,343		20,888		8,044,584
Executive Officer⁵	2017	900,001		50,940		—		—		5,293,105		1,523,783		20,338		7,788,167
Mary E. Kipp, President⁶	2019	252,540		—		—		—		1,876,398		—		813,893		2,942,831
Daniel A. Doyle	2019	521,399		—		—		—		1,608,655		964,614		63,555		3,158,223
Senior Vice President	2018	519,039		—		—		—		1,718,288		489,180		60,657		2,787,164
Chief Financial Officer⁷	2017	511,396		—		—		—		1,406,575		483,109		56,801		2,457,881
Steve R. Secrist	2019	459,165		—		—		—		1,291,097		786,634		53,517		2,590,413
Senior Vice President	2018	436,600		—		—		—		1,335,367		273,059		46,850		2,091,876
General Counsel, Chief Ethics & Compliance Officer⁸	2017	400,690		—		—		—		1,024,487		576,802		46,033		2,048,012
Marla D. Mellies	2019	382,671		37,749		—		—		1,030,148		866,607		44,728		2,361,903
Senior Vice President	2018	351,428		33,415		—		—		1,065,467		378,398		38,778		1,867,486
Chief Administrative Officer⁹	2017	316,128		—		—		—		838,219		478,905		34,531		1,667,783

_______________

For 2017, reflects individual performance above target as described in the "Compensation Discussion and Analysis," section titled "2017 Annual Incentive Plan Results" in the amount of: Ms. Harris, $50,940. For 2016, also included additional incentive paid based on review of 2015 results for SQIs in the amount of: Ms. Harris, $85,995; Mr. Doyle, $18,299; Mr. Secrist, $14,862; Ms. Mellies, $13,503; Mr. Bussey, $12,186 and includes adjustments to reflect individual performance above target in the amount of: Ms. Harris, $183,600; Mr. Secrist, $35,648; Ms. Mellies, $7,085.

For 2017, reflects annual cash incentive compensation paid under the 2017 Goals and Incentive Plan and cash incentive compensation paid under the LTI Plan for the 2015-2017 performance cycle. Cash incentive amounts were paid in early 2018 or deferred at the executive's election. The 2017 Goals and Incentive Plan and the LTI Plan are described in further detail under “Compensation Discussion and Analysis,” including the individual amounts paid to each Named Executive Officer in early 2018.

Reflects the aggregate increase in the actuarial present value of the executive’s accumulated benefit under all pension plans during the year. The amounts are determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements and include amounts which the executive may not currently be entitled to receive because such amounts are not vested. In 2017, updated interest rates and mortality assumptions have generally increased the actuarial value of the underlying retirement benefits relative to assumptions for 2016. Information regarding these pension plans is set forth in further detail under “2017 Pension Benefits.” The change in pension value amounts for 2017 are: Ms. Harris, $1,520,618; Mr. Doyle, $483,109; Mr. Secrist, $576,802, Ms. Mellies, $478,462; and Mr. Bussey, $465,653. Also included in this column are the portions of Deferred Compensation Plan earnings that are considered above market. These amounts for 2017 are: Ms. Harris, $3,165; Mr. Doyle, $0; Mr. Secrist, $0; Ms. Mellies, $443; and Mr. Bussey, $0. See the “2017 Nonqualified Deferred Compensation” table for all Deferred Compensation Plan earnings.


⁴	~~All Other Compensation for 2017 is shown in detail in the table below.~~


⁵	~~Ms. Harris was promoted to President and CEO from President on March 1, 2011.~~


⁶	~~Mr. Doyle joined PSE and Puget Energy as Senior Vice President and Chief Financial Officer on November 28, 2011.~~


⁷	~~Mr. Secrist has worked at PSE since May 1989.~~


⁸	~~Ms. Mellies has worked at PSE since October 2005.~~


⁹	~~Mr. Bussey rejoined PSE as Senior Vice President and Chief Customer Officer on March 19, 2012 and retired effective January 8, 2018.~~

^1.For 2019, reflects individual performance above target as described in the "Compensation Discussion and Analysis," section titled "2019 Annual Incentive Plan Results" in the amount of: $37,749 for Ms. Mellies.

^2.For 2019, reflects annual cash incentive compensation paid under the 2019 Goals and Incentive Plan and cash incentive compensation paid under the LTI Plan for the 2017-2019 performance cycle. Cash incentive amounts were paid in early 2020 or deferred at the executive's election. The 2019 Goals and Incentive Plan and the LTI Plan are described in further detail under “Compensation Discussion and Analysis,” including the individual amounts paid to each Named Executive Officer in early 2020.

^3.Reflects the aggregate increase in the actuarial present value of the executive’s accumulated benefit under all pension plans during the year. The amounts are determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements and include amounts which the executive may not currently be entitled to receive because such amounts are not vested. In 2019, updated interest rates relative to those used for 2018 have generally resulted in larger increases in value than in prior years. Information regarding these pension plans is set forth in further detail under “2019 Pension Benefits.” The change in pension value amounts for 2019 are: Ms. Harris, $3,371,078; Ms. Kipp, $0; Mr. Doyle, $964,614; Mr. Secrist, $786,634, and Ms. Mellies, $866,255. Also included in this column are the portions of Deferred Compensation Plan earnings that are considered above market. These amounts for 2019 are: Ms. Harris, $2,516, Ms. Kipp, $0, Mr. Doyle, $0; Mr. Secrist, $0; and Ms. Mellies, $352. See the “2019 Nonqualified Deferred Compensation” table for all Deferred Compensation Plan earnings.

^4.All Other Compensation for 2019 is shown in detail in the table below.

^5.Ms. Harris was promoted to President and CEO from President on March 1, 2011, became CEO effective August 31, 2019, and retired on January 3, 2020.

^6.Ms. Kipp joined PSE and Puget Energy as President on August 31, 2019, and became President and CEO on January 3, 2020, with the retirement of Ms. Harris.

^7.Mr. Doyle joined PSE and Puget Energy as Senior Vice President and Chief Financial Officer on November 28, 2011.

^8.Mr. Secrist has worked at PSE since May 1989.

^9.Ms. Mellies has worked at PSE since October 2005.

148

Detail of All Other Compensation


Name	Perquisites and Other Personal Benefits¹		Registrant Contributions to Defined Contribution and Deferred Compensation Plans²		Other³		Name	Perquisites and Other Personal Benefits¹					Registrant Contributions to Defined Contribution and Deferred Compensation Plans²			Other³
Kimberly J. Harris	$	—	$	14,650	$	5,688	Kimberly J. Harris		$	5,000	$	15,416		$	8,448
Mary E. Kipp							Mary E. Kipp		5,000		6,773			802,121
Daniel A. Doyle	2,500		48,516		5,785		Daniel A. Doyle		2,500		53,851			7,204
Steve R. Secrist	1,300		40,416		4,317		Steve R. Secrist		1,370		46,822			5,325
Marla D. Mellies	1,263		29,981		3,287		Marla D. Mellies		493		39,097			5,138
Philip K. Bussey	1,440		18,850		6,699

_______________


¹	Reimbursement for financial planning, tax planning, and/or legal planning, with the initial plan up to a maximum of $5,000, and then annual reimbursement up to a maximum of $5,000 for Ms. Harris and $2,500 for the other Named Executive Officers.

Includes Company contributions during 2017 to PSE’s Investment Plan (a tax qualified 401(k) plan) and the Deferred Compensation Plan. Company 401(k) contributions are as follows: Ms. Harris, $14,650; Mr. Doyle, $18,850; Mr. Secrist $18,850 ; Ms. Mellies, $18,850; and Mr. Bussey, $18,850 Company contributions to the Deferred Compensation Plan are as follows: Ms. Harris, $0; Mr. Doyle, $29,666; Mr. Secrist, $21,566; Ms. Mellies, $11,131; and Mr. Bussey, $0.


³	~~Reflects the value of imputed income for life insurance and Company paid premiums on supplemental disability insurance.~~

^1.Reimbursement for financial planning, tax planning, and/or legal planning, with the initial plan up to a maximum of $5,000, and then annual reimbursement up to a maximum of $5,000 for Ms. Harris and Ms. Kipp and $2,500 for the other Named Executive Officers.

~~2017~~^2.Includes Company contributions during 2019 to PSE’s Investment Plan (a tax qualified 401(k) plan) and the Deferred Compensation Plan. Company 401(k) contributions are as follows: Ms. Harris, $15,416; Ms. Kipp, $6,773; Mr. Doyle, $19,550; Mr. Secrist $19,550; and Ms. Mellies, $19,550. Company contributions to the Deferred Compensation Plan are as follows: Ms. Harris, $0; Ms. Kipp, $0; Mr. Doyle, $34,301; Mr. Secrist, $27,272; and Ms. Mellies, $19,547.

^3.Reflects the value of imputed income for life insurance and Company paid premiums on supplemental disability insurance for all Named Executive Officers. For Ms. Kipp also includes a signing bonus of $800,000 as described in the Compensation Discussion and Analysis, “Other Compensation.”

2019 Grants of Plan-Based Awards

The following table presents information regarding ~~2017~~2019 grants of non-equity annual incentive awards and LTI Plan awards, including, as applicable, the range of potential payouts for the awards.


		Estimated Future Payouts under Non-Equity Incentive Plan Awards									Estimated Future Payouts under Non-Equity Incentive Plan Awards
Name	Grant Date	Number Of Units Granted	Threshold		Target		Maximum		Name	Grant Date	Number Of Units Granted			Threshold				Target				Maximum
Kimberly J. Harris									Kimberly J. Harris
Annual Incentive¹	1/1/2017		$	270,000	$	900,000	$	1,800,000	Annual Incentive¹	1/1/2019		$	300,000			$	1,000,000			$	2,000,000
LTI Plan 2017-2019²	3/2/2017	45,451	590,120		3,156,902		6,614,375
LTI Plan 2019-2021²									LTI Plan 2019-2021²	2/21/2019	32,372	640,189				3,200,943				6,401,887
Mary E. Kipp									Mary E. Kipp
Annual Incentive¹									Annual Incentive¹	8/31/2019		$	77,400			$	258,000			$	516,000
LTI Plan 2019-2021³									LTI Plan 2019-2021³		23,113	457,075				2,285,377				4,570,754
LTI Plan 2018-2020³									LTI Plan 2018-2020³		17,334	321,893				1,609,465				3,218,930
LTIP Plan 2017-2019³									LTIP Plan 2017-2019³		11,556	201,498				1,007,490				2,014,981
Daniel A. Doyle									Daniel A. Doyle
Annual Incentive¹	1/1/2017		$	84,380	$	281,268	$	562,536	Annual Incentive¹	1/1/2019		$	103,627			$	345,423			$	690,846
LTI Plan 2017-2019²	3/2/2017	9,277	120,211		643,082		1,347,391
LTI Plan 2019-2021²									LTI Plan 2019-2021²	2/21/2019	6,167	121,959				609,793				1,219,586
Steve R. Secrist									Steve R. Secrist
Annual Incentive¹	1/1/2017		$	54,521	$	181,737	$	363,475	Annual Incentive¹	1/1/2019				$	90,246			$	300,820			$	601,640
LTI Plan 2017-2019²	3/2/2017	7,326	94,930		507,838		1,064,028
LTI Plan 2019-2021²									LTI Plan 2019-2021²	2/21/2019	5,371	106,217				531,084				1,062,169
Marla D. Mellies									Marla D. Mellies
Annual Incentive¹	1/1/2017		$	42,933	$	143,109	$	286,217	Annual Incentive¹	1/1/2019				$	76,518			$	255,060			$	510,120
LTI Plan 2017-2019²	3/2/2017	5,769	74,755		399,907		837,890
Philip K. Bussey
Annual Incentive¹	1/1/2017		$	41,379	$	137,930	$	275,859
LTI Plan 2017-2019²	3/2/2017	5,671	73,485		393,114		823,656
LTI Plan 2019-2021²									LTI Plan 2019-2021²	2/21/2019	4,554	90,060				450,300				900,599



		Page
Definitions		4
Forward-Looking Statements		5
Part I
1. ~~Business~~	7
1. ~~General~~Business		7
General		9
Regulation and Rates		9
Electric Utility Operating Statistics		1213
Electric Supply		1415
Natural Gas Utility Operating Statistics		1819
Natural Gas Supply for Natural Gas Customers		202 1
Energy Efficiency		2223
Environment		2223
Recent and Future Environmental Law and Regulation		2324
Executive Officers of the Registrants		2527
1A. Risk Factors		2527
1B. Unresolved Staff Comments		3034
2. Properties		3034
3. Legal Proceedings		3034
4. Mine Safety Disclosures		3034

Part II
5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		31 34
6. Selected Financial Data		32 35
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		333 6
7A. Quantitative and Qualitative Disclosures about Market Risk		6360
8. Financial Statements and Supplementary Data		6663
Report of Management and Statement of Responsibility		6764
Report of Independent Registered Public Accounting Firm – Puget Energy		6865
Report of Independent Registered Public Accounting Firm – Puget Sound Energy		7067
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		~~132~~134
9A. Controls and Procedures		~~132~~134
9B. Other Information		~~133~~135

Part III
10. Directors, Executive Officers and Corporate Governance		~~134~~136
11. Executive Compensation		~~136~~139
12. Security Ownership of Certain Beneficial Owners and Management and Related		160
Shareholder Matters
13. Certain Relationships and Related Transactions, and Director Independence		161
14. Principal Accountant Fees and Services		162

Part IV
15. Exhibits and Financial Statement Schedules		~~163~~16 3
16. Form 10-K Summary		163
Exhibit Index		164
Signatures		170



AFUDC		Allowance for Funds Used During Construction
AOCI		Accumulated Other Comprehensive Income
ARO		Asset Retirement and Environmental Obligations
aMW		Average Megawatt
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
BPA		Bonneville Power Administration
Colstrip		Colstrip, Montana coal-fired steam electric generation facility
Dth		Dekatherm (one Dth is equal to one MMBtu)
EBITDA		Earnings Before Interest, Tax, Depreciation and Amortization
EPA		Environmental Protection Agency
ERF		Expedited Rate Filing
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
GAAP		Generally Accepted Accounting Principles
GHG		Greenhouse Gases
GRC		General Rate Case
IRP		Integrated Resource Plan
IRS		Internal Revenue Service
ISDA		International Swaps and Derivatives Association
~~JPUD~~kW		~~Jefferson County Public Utility District~~
kW	Kilowatt (one kW equals one thousand watts)
kWh		Kilowatt Hour (one kWh equals one thousand watt hours)
LIBOR		London Interbank Offered Rate
LNG		Liquefied Natural Gas
LTI Plan		Long-Term Incentive Plan
MMBtus		One Million British Thermal Units
MW		Megawatt (one MW equals one thousand kW)
MWh		Megawatt Hour (one MWh equals one thousand kWh)
NAESB		North American Energy Standards Board
NOAA		National Oceanic and Atmospheric Administration
NPNS		Normal Purchase Normal Sale
NWP		Northwest Pipeline, LLC
NYSE		New York Stock Exchange
OCI		Other Comprehensive Income
PCA		Power Cost Adjustment
PCORC		Power Cost Only Rate Case
PGA		Purchased Gas Adjustment
PSE		Puget Sound Energy, Inc.
PTC		Production Tax Credit
PUDs		Washington Public Utility Districts
Puget Energy		Puget Energy, Inc.
Puget Equico		Puget Equico, LLC
Puget Holdings		Puget Holdings, LLC
REC		Renewable Energy Credit
REP		Residential Exchange Program
SEC		United States Securities and Exchange Commission
SERP		Supplemental Executive Retirement Plan
TCJA		Tax Cuts and Jobs Act
Washington Commission		Washington Utilities and Transportation Commission
WSPP		WSPP, Inc.


Utility Plant Additions/Retirements 5-Year Total	2015 - 2019
(Dollars in Thousands)	Electric		Natural Gas		Common
Additions	$	1,804,920	$	1,083,353	$	763,244
Retirements	(826,478)		(112,983)		(204,220)
Net Utility Plant	$	978,442	$	970,370	$	559,024



Utility Plant Additions/Retirements 5-Year Total	2013-2017
(Dollars in Thousands)	Electric			Natural Gas			Common
Additions	$	2,148,599		$	868,919		$	499,934
Retirements	(537,049		)	(125,042		)	(257,473		)
Net Utility Plant	$	1,611,550		$	743,877		$	242,461


	Peak Power Resources At December 31,						Energy Production At December 31,
`													`	Peak Power Resources At December 31,							Energy Production At December 31,
	2017			2016			2017			2016				2019			2018			2019		2018
	MW	%		MW	%		MWh	%		MWh	%			MW	%	MW	%	MWh	%	MWh	%
Purchased resources:													Purchased resources:
Columbia River PUD contracts	711	15.0	%	708	14.6	%	3,355,134	13.3	%	3,371,827	13.7	%
Columbia River PUD contracts¹													Columbia River PUD contracts¹	687	14.5%	674	14.3%	2,642,177	10.2%	3,468,702	13.7%
Other hydroelectric	72	1.5		79	1.6		281,619	1.1		365,670	1.5		Other hydroelectric	72	1.5	72	1.5	272,653	1.0	315,948	1.2
Other producers	284	6.0		387	8.0		3,679,623	14.6		2,999,171	12.1		Other producers	285	6.0	284	6.2	3,276,502	12.7	3,406,627	13.6
Wind	56	1.2		56	1.2		119,690	0.5		138,148	0.6		Wind	56	1.2	56	1.2	123,368	0.5	131,270	0.5
Short-term wholesale energy purchases	N/A	—		N/A	—		7,049,060	27.8		6,154,767	25.0		Short-term wholesale energy purchases	N/A	—	N/A	N/A	6,144,663	23.7	6,822,927	26.9
Total purchased	1,123	23.7	%	1,230	25.4	%	14,485,126	57.3	%	13,029,583	52.9	%	Total purchased	1,100	23.2%	1,086	23.2%	12,459,363	48.1%	14,145,474	55.9%
Company-controlled resources:													Company-controlled resources:
Hydroelectric	254	5.4	%	254	5.2	%	864,821	3.4	%	933,522	3.8	%	Hydroelectric	250	5.3%	250	5.3%	712,727	2.8%	914,540	3.6%
Coal	677	14.3		677	14.0		4,463,705	17.6		4,529,179	18.4
Coal³													Coal³	677	14.3	677	14.4	4,347,639	16.8	4,184,950	16.5
Natural gas/oil	1,908	40.3		1,908	39.4		3,822,462	15.1		4,152,205	16.9		Natural gas/oil	1,931	40.8	1,908	40.6	6,692,188	25.9	4,152,359	16.4
Wind	773	16.3		773	16.0		1,674,790	6.6		1,962,702	8.0		Wind	773	16.3	773	16.5	1,667,489	6.4	1,932,378	7.6
Other¹	2	—		2	—		—	—		—	—
Other²													Other²	2	—	2	—	—	—	—	—
Total company-controlled	3,614	76.3	%	3,614	74.6	%	10,825,778	42.7	%	11,577,608	47.1	%	Total company-controlled	3,633	76.8%	3,610	76.8%	13,420,043	51.9%	11,184,227	44.1%
Total resources	4,737	100.0	%	4,844	100.0	%	25,310,904	100.0	%	24,607,191	100.0	%	Total resources	4,733	100.0%	4,696	100.0%	25,879,406	100.0%	25,329,701	100.0%



/X/			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



/ /			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Commission File Number	Exact name of registrant as specified in its charter, state of incorporation, address of principal executive offices, zip code telephone number	I.R.S. Employer Identification Number



1-16305	PUGET ENERGY, INC. A Washington Corporation ~~10885~~355 110th Ave NE 4^th ~~Street, Suite 1200~~ Bellevue, Washington ~~98004-5591~~98004 (425) 454-6363	91-1969407



1-4393	PUGET SOUND ENERGY, INC. A Washington Corporation ~~10885~~355 110th Ave NE 4^th ~~Street, Suite 1200~~ Bellevue, Washington ~~98004-5591~~98004 (425) 454-6363	91-0374630



•		Governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC) and the Washington Utilities and Transportation Commission (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), 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, including as a result of the Tax Cuts and Jobs Act (TCJA), or enforcement of applicable law by the Internal Revenue ~~Service~~Services (IRS) or other taxing jurisdiction and PSE's ability to recover costs in a timely manner arising from such changes;
•		~~Changes in tax law as a result of the Tax Cuts and Jobs Act legislation and uncertain interpretations related thereto;~~
•	Inability to realize deferred tax assets and use ~~Production Tax Credits~~production tax credits (PTCs) due to insufficient future taxable income;
•		Accidents or natural disasters, such as hurricanes, windstorms, earthquakes, floods, fires and landslides, and other acts of God, terrorism, asset-based or cyber-based attacks, ~~flu~~ 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 and impose extraordinary costs;
•		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;
•		Changes in climate or weather conditions in the Pacific Northwest, which could have effects on customer usage and PSE's revenue and expenses;



•			Regional or national weather, 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 the 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 the Pacific Northwest, 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;
•			Employee workforce factors, including strikes, work stoppages, availability of qualified employees or the loss of a key executive;
•			The ability to obtain insurance coverage, the availability of insurance for certain specific losses, and the cost of such insurance;
•			The ability to maintain effective internal controls over financial reporting and operational processes;
•			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; and
•			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.


¹	~~At December 31, 2017 and 2016, approximately 398,518 and 392,806 customers purchased both electricity and natural gas from PSE, respectively.~~


Utility Plant Balance	December 31, 2019
(Dollars in Thousands)	Electric					Natural Gas				Common
Distribution	$	4,187,582	39.2%	$	3,998,120	89.3%	$	—	—%
Generation	3,740,762		35.1	2,731		0.1	—		—
Transmission	1,571,186		14.7	—		—	—		—
General Plant & Other	1,171,798		11.0	477,197		10.7	1,121,568		100
Total	$	10,671,328	100.0%	$	4,478,048	100.0%	$	1,121,568	100%



Utility Plant Balance	December 31, 2017
(Dollars in Thousands)	Electric				Natural Gas				Common
Distribution	$	3,757,600	36.7	%	$	3,532,397	91.0	%	$	—	—	%
Generation	3,948,102		38.6		5,956		0.2		—		—
Transmission	1,471,337		14.4		—		—		—		—
General Plant & Other	1,055,732		10.3		344,380		8.8		843,145		100.0
Total	$	10,232,771	100.0	%	$	3,882,733	100.0	%	$	843,145	100.0	%


			Company’s Annual Share (Approximate)
Project	Contract Expiration Year	License Expiration Year	Percent of Output		MW Capacity
Chelan County PUD:
Rock Island Project	2031	2029	25.0	%	156
Rocky Reach Project	2031	2052	25.0		325
Douglas County PUD:
Wells Project	2028	2052	27.1		228
Grant County PUD:
Priest Rapids Development	2052	2052	0.6		6
Wanapum Development	2052	2052	0.6		7
Total					722



			Company’s Annual Share (Approximate)
Project	Contract Expiration Year	License Expiration Year	Percent of Output		MW Capacity
Chelan County PUD:
Rock Island Project	2031	2029	25.0	%	156
Rocky Reach Project	2031	2052	25.0	%	325
Douglas County PUD:
Wells Project¹	2028	2052	29.9	%	251
Grant County PUD:
Priest Rapids Development	2052	2052	0.6	%	6
Wanapum Development	2052	2052	0.6	%	7
Total					745


²	~~National Oceanic and Atmospheric Administration (NOAA).~~


³	~~Average megawatt (aMW) usage by customers divided by their maximum usage.~~


¹	~~It is estimated that the Glacier Battery Storage has delivered approximately 746.5 and 250.0 MWh as of December 31, 2017 and 2016, respectively.~~


¹	~~Net Maximum Capacity is the capacity a unit can sustain over a specified period of time when not restricted by ambient conditions or deratings, less the losses associated with auxiliary loads.~~


2	~~In July 2016, PSE reached a settlement with the Sierra Club to retire Colstrip Units 1 and 2 no later than July 1, 2022.~~


3	~~The FERC license authorizes the full 54.4 MW; however, the project's water right issued by the State Department of Ecology limits flow to 2,500 cubic feet and therefore output to 47.7MW.~~


¹	~~In March 2017, PSE entered a new PPA with Douglas County PUD for Wells Project output that begins upon expiration of the existing contract on August 31, 2018 and continues through September 30, 2028.~~


Puget Energy
Summary of Operations	Year Ended December 31,
(Dollars in Thousands)	2019		2018		2017		2016		2015
Operating revenue	$	3,401,130	$	3,346,496	$	3,460,276	$	3,164,301	$	3,092,700
Operating income	519,008		554,058		739,106		765,474		671,925
Net income	210,708		235,622		175,194		312,899		241,179

Total assets at year-end	$	14,659,863	$	14,098,861	$	13,690,789	$	13,266,380	$	12,814,254
Long-term debt	5,920,325		5,672,491		5,207,929		5,104,073		5,077,518
Junior subordinated notes	—		—		250,000		250,000		250,000
Finance lease obligations	1,480		1,315		1,129		645		378
Operating lease obligations	190,189		—		—		—		—


¹	Equity adjustments are related to removing the impacts of accumulated other comprehensive income (AOCI), subsidiary retained earnings, retained earnings of derivative instruments, and decoupling 24-month revenue reserve.


²	~~The authorized regulated return on equity rate changed to 9.5% effective December 19, 2017, per the approved GRC.~~


¹	The increase in revenue is net of reductions from excess earnings of $11.9 million for electric and $2.2 million for natural gas effective May1, 2017, and $11.9 million for electric and $5.5 million for natural gas effective May 1, 2016.



Effective Date Accrued Through		Deferrals not Included in Annual Rate Increases (Dollars in Millions)
Natural Gas:
2016		$47.4
2015		28.7



Annual Power Cost Variability	Company’s Share		Customers' Share
+/- $20 million	100	%	—	%
+/- $20 million - $40 million	50		50
+/- $40 million - $120 million	10		90
+/- $120 + million	5		95


Effective Date	Average Percentage Increase (Decrease) in Rates from prior year	Total credit to be passed back to eligible customers (Dollars in Millions)
January 1, 2020	(0.04)%	$(37.8)
January 1, 2019	0.1	(38.7)
May 1, 2018	0.4	(40.1)
January 1, 2018	0.2	(48.2)
January 1, 2017	0.3	(51.7)


¹	~~Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity, production tax credits and miscellaneous non-cash items.~~


²	~~Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayments, purchased gas adjustments, accounts payable and accrued expenses.~~


³	~~Other non-current assets and liabilities include funding of pension liability.~~


¹	Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity, production tax credits and other miscellaneous non-cash items.



Equity Value Sensitivity Table
(Dollars in Billions)
Weighted-Average Cost of Capital Rate	Long-Term Growth Rate
	2.8		%	2.9		%	3.0		%	3.1		%	3.2		%	��	3.3		%
6.2%	$	3.7		$	4.0		$	4.3		$	4.6		$	4.9			$	5.3
5.9	4.5			4.9			5.2			5.6			6.0				6.5
5.7	5.6			6.0			6.4			6.9			7.4				7.9


Puget Energy and Puget Sound Energy	Change in Assumption	Impact on Projected Benefit Obligation Increase /(Decrease)
(Dollars in Thousands)		Pension Benefits		SERP		Other Benefits
Increase in discount rate	50 basis points	$	(44,028)	$	(1,440)	$	(528)
Decrease in discount rate	50 basis points	48,863		1,536		576