UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020March 31, 2021
OR
[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from ________ to ________
Commission File NumberExact name of registrant as specified in its charter, state of incorporation,
address of principal executive offices, telephone number		I.R.S.
Employer
Identification
Number
psd-20210331_g1.jpg
1-16305
PUGET ENERGY, INC.
A Washington Corporation
355 110th Ave NE
Bellevue, Washington 98004
(425) 454-6363
91-1969407
psd-20210331_g2.jpg
1-4393
PUGET SOUND ENERGY, INC.
A Washington Corporation
355 110th Ave NE
Bellevue, Washington 98004
(425) 454-6363
91-0374630
Securities Registered pursuant to Section 12(b) of the Securities Exchange Act of 1934
Title of each classTrading Symbol(s)Name of each exchange on which registered
N/AN/AN/A

Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Puget Energy, Inc.Yes/X/No/  / Puget Sound Energy, Inc.Yes/X/No/  /
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Puget Energy, Inc.Yes/X/No/  / Puget Sound Energy, Inc.Yes/X/No/  /
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer", "accelerated filer," a smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Puget Energy, Inc.Large accelerated filer/  /Accelerated filer/  /Non-accelerated filer/X/Smaller reporting company/  /Emerging growth company/  /
Puget Sound Energy, Inc.Large accelerated filer/  /Accelerated filer/  /Non-accelerated filer/X/Smaller reporting company/  /Emerging growth company/  /
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. / /

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Puget Energy, Inc.Yes/  /No/X/Puget Sound Energy, Inc.Yes/  /No/X/
All of the outstanding shares of voting stock of Puget Energy, Inc. are held by Puget Equico LLC, an indirect wholly-owned subsidiary of Puget Holdings LLC.  All of the outstanding shares of voting stock of Puget Sound Energy, Inc. are held by Puget Energy, Inc.


Table of Contents

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 Puget Energy, Inc.
 
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 Puget Sound Energy, Inc.
 
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 Notes
 
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8069

2

DEFINITIONS

ACEAROAffordable Clean EnergyAsset Retirement and Environmental Obligations
ASUAccounting Standards Update
AFUDCAllowance Fund used During Construction
ASCAccounting Standards Codification
AIMCOAlberta Investment Management Corporation
BCIMCBritish Columbia Investment Management Corporation
CACAPCrisis-Affected Customer Assistant Program
CETAClean Energy Transformation Act
CPPClean Power Plan
CRMCost Recovery Mechanism
COVID-19Novel coronavirus pandemic
EBITDAEarnings Before Interest, Tax, Depreciation and Amortization
EPAEIMEnvironmental Protection AgencyEnergy Imbalance Market
ERFExpedited Rate Filing
FASBFinancial Accounting Standards Board
FPCFixed Product Cost
GAAPU.S. Generally Accepted Accounting Principles
GRCGeneral Rate Case
GTZGet to Zero
ICEIntercontinental Exchange
IBEWInternational Brotherhood of Electrical Workers
ISDAInternational Swaps and Derivatives Association
LIBORLondon Interbank Offered Rate
LNGLiquefied Natural Gas
MMBtuOne Million British Thermal Units
MWhMegawatt Hour (one MWh equals one thousand kWh)
NAESBNorth American Energy Standards Board
NPNSNormal Purchase Normal Sale
PCAPower Cost Adjustment
PCORCPower Cost Only Rate Case
PGAPurchased Gas Adjustment
PTCProduction Tax Credit
PSEPuget Sound Energy, Inc.
Puget EnergyPuget Energy, Inc.
Puget HoldingsPuget Holdings LLC
Puget LNGPuget Liquid Natural Gas, LLC
OMERSREPOntario Municipal Employment Retirement SystemResidential Exchange Program
SERPSupplemental Executive Retirement Plan
TCJATax Cuts and Jobs Act
Washington CommissionWashington Utilities and Transportation Commission
WSPPWSPP, Inc.


3

FILING FORMAT
This report on Form 10-Q is a Quarterly Report filed separately by two registrants, Puget Energy, Inc. (Puget Energy) and Puget Sound Energy, Inc. (PSE).  Any references in this report to “the Company” are to Puget Energy and PSE collectively.

FORWARD-LOOKING STATEMENTS
Puget Energy and PSE include the following cautionary statements in this Form 10-Q to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by or on behalf of Puget Energy or PSE.  This report includes forward-looking statements, which are statements of expectations, beliefs, plans, objectives and assumptions of future events or performance.  Words or phrases such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “future,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “should,” “will likely result,” “will continue” or similar expressions are intended to identify certain of these forward-looking statements and may be included in discussion of, among other things, our anticipated operating or financial performance, business plans and prospects, planned capital expenditures and other future expectations. In particular, these include statements relating to future actions, business plans and prospects, future performance expenses, the outcome of contingencies, such as legal proceedings, government regulation and financial results.
Forward-looking statements reflect current expectations and involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed.  There can be no assurance that Puget Energy’s and PSE’s expectations, beliefs or projections will be achieved or accomplished.  
In addition to other factors and matters discussed elsewhere in this report, some important risks that could cause actual results or outcomes for Puget Energy and PSE to differ materially from past results and those discussed in the forward-looking statements include:
●Governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC) and the Washington 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 productsby-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, or enforcement of applicable law by the Internal Revenue Service (IRS) or other taxing jurisdiction; and PSE's ability to recover costs in a timely manner arising from such changes;
●Inability to realize deferred tax assets and use production tax credits (PTCs) due to insufficient future taxable income;
●Accidents or natural disasters, such as hurricanes, windstorms, earthquakes, floods, fires, andextreme weather conditions, landslides, and other acts of God, terrorism, asset-based or cyber-based attacks, significant or sustained civil disturbances or disruptions, 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;
●The impact of widespread health developments, including the recent global coronavirus (COVID–19) pandemic, and responses to such developments (such as voluntary and mandatory quarantines, including government stay at home orders, as well as shut downs and other restrictions on travel, commercial, social and other activities) could materially and adversely affect, among other things, electric and natural gas demand, customers’ ability to pay, supply chains, availability of skilled work-force, contract counterparties, liquidity and financial markets;
●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, or sustained extreme weather events 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 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; absences due to pandemics, accidents, natural disasters or other significant, unforeseeable events; 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.thereunder; and
●Recent laws proposed or passed by various municipalities in PSE's service territory, including Seattle, seek to reduce or eliminate the use of natural gas in various contexts, such as for space, cooking, and water heating in new commercial and multifamily buildings. Such laws may impact operations due to costs and delays from incremental permitting and other requirements that are outside PSE's control.

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.  For further information, see Item 1A, “Risk Factors” in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2019 and the Company’s most recent Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020.

4

PART I                    FINANCIAL INFORMATION

Item 1.                      Financial Statements

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)



Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
March 31,
202020192020201920212020
Operating revenue:Operating revenue:Operating revenue:
ElectricElectric$500,976 $513,926 $1,638,432 $1,823,596 Electric$758,592 $669,090 
Natural gas112,357108,222660,997566,347
Natural GasNatural Gas392,906371,031
OtherOther7,0934,85918,80622,833Other8,5886,009
Total operating revenueTotal operating revenue620,426 627,007 2,318,235 2,412,776 Total operating revenue1,160,086 1,046,130 
Operating expenses:Operating expenses:Operating expenses:
Energy costs:Energy costs:Energy costs:
Purchased electricityPurchased electricity115,631107,035406,860501,738Purchased electricity205,410165,742
Electric generation fuelElectric generation fuel54,28293,642150,880208,442Electric generation fuel60,41863,624
Residential exchangeResidential exchange(16,121)(15,295)(56,922)(56,430)Residential exchange(25,802)(24,634)
Purchased natural gasPurchased natural gas31,22927,778247,362168,281Purchased natural gas155,015154,876
Unrealized (gain) loss on derivative instruments, netUnrealized (gain) loss on derivative instruments, net(39,942)14,716(3,563)29,861Unrealized (gain) loss on derivative instruments, net(23,002)48,541
Utility operations and maintenanceUtility operations and maintenance141,032142,857444,074450,236Utility operations and maintenance160,540154,922
Non-utility expense and otherNon-utility expense and other6,34012,43635,14336,813Non-utility expense and other9,90612,962
Depreciation & amortization161,209138,281462,890483,693
Depreciation & AmortizationDepreciation & Amortization208,431164,816
Conservation amortizationConservation amortization21,29517,73469,00971,049Conservation amortization34,06027,393
Taxes other than income taxesTaxes other than income taxes62,16361,697236,460240,392Taxes other than income taxes110,310105,504
Total operating expensesTotal operating expenses537,118 600,881 1,992,193 2,134,075 Total operating expenses895,286 873,746 
Operating income(loss)83,30826,126326,042278,701
Operating income (loss)Operating income (loss)264,800172,384
Other income (expense):Other income (expense):Other income (expense):
Other incomeOther income13,05015,43943,68544,442Other income13,63014,059
Other expenseOther expense(2,160)(2,023)(12,910)(5,624)Other expense(1,510)(2,282)
Interest charges:Interest charges:Interest charges:
AFUDCAFUDC3,8473,73211,40410,652AFUDC3,5863,643
Interest expenseInterest expense(88,608)(89,029)(284,285)(264,815)Interest expense(89,360)(88,884)
Income (loss) before income taxesIncome (loss) before income taxes9,437(45,755)83,93663,356 Income (loss) before income taxes191,14698,920
Income tax (benefit) expenseIncome tax (benefit) expense(559)(6,312)2,2373,597Income tax (benefit) expense2,1533,984
Net income (loss)Net income (loss)$9,996 $(39,443)$81,699 $59,759 Net income (loss)$188,993 $94,936 

The accompanying notes are an integral part of the financial statements.
5

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)


Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
March 31,
2020201920202019 20212020
Net income (loss)Net income (loss)$9,996 $(39,443)$81,699 $59,759 Net income (loss)$188,993 $94,936 
Other comprehensive income (loss):Other comprehensive income (loss):Other comprehensive income (loss):
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $291, $(297), $2,097 and $(247), respectively1,090(1,114)7,890(931)
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $634 and $1,373, respectivelyNet unrealized gain (loss) from pension and postretirement plans, net of tax of $634 and $1,373, respectively2,3855,170
Other comprehensive income (loss)Other comprehensive income (loss)1,090(1,114)7,890(931)Other comprehensive income (loss)2,3855,170
Comprehensive income (loss)Comprehensive income (loss)$11,086 $(40,557)$89,589 $58,828 Comprehensive income (loss)$191,378 $100,106 

The accompanying notes are an integral part of the financial statements.
6


PUGET ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)



ASSETS
September 30,
2020		December 31, 2019March 31,
2021		December 31, 2020
Utility plant (at original cost, including construction work in progress of $747,255 and $591,199 respectively):
Utility plant (at original cost, including construction work in progress of $749,572 and $712,204 respectively):Utility plant (at original cost, including construction work in progress of $749,572 and $712,204 respectively):
Electric plantElectric plant$9,103,067 $8,811,889 Electric plant$9,288,156 $9,200,231 
Natural gas plantNatural gas plant4,178,643 3,916,040 Natural gas plant4,296,864 4,227,532 
Common plantCommon plant1,097,556 1,096,649 Common plant1,085,442 1,116,524 
Less: Accumulated depreciation and amortizationLess: Accumulated depreciation and amortization(3,569,494)(3,236,240)Less: Accumulated depreciation and amortization(3,736,675)(3,671,094)
Net utility plantNet utility plant10,809,772 10,588,338 Net utility plant10,933,787 10,873,193 
Other property and investments:Other property and investments:Other property and investments:
GoodwillGoodwill1,656,5131,656,513Goodwill1,656,5131,656,513
Other property and investmentsOther property and investments312,353286,975Other property and investments327,674324,184
Total other property and investmentsTotal other property and investments1,968,866 1,943,488 Total other property and investments1,984,187 1,980,697 
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents21,76645,259Cash and cash equivalents36,50752,307
Restricted cashRestricted cash22,76320,887Restricted cash24,44329,544
Accounts receivable, net of allowance for doubtful accounts of $13,889 and $8,294, respectively232,996316,352
Accounts receivable, net of allowance for doubtful accounts of $30,392 and $20,080, respectivelyAccounts receivable, net of allowance for doubtful accounts of $30,392 and $20,080, respectively374,296352,132
Unbilled revenueUnbilled revenue119,960224,657Unbilled revenue219,450221,871
Materials and supplies, at average costMaterials and supplies, at average cost120,049115,684Materials and supplies, at average cost117,891118,333
Fuel and natural gas inventory, at average costFuel and natural gas inventory, at average cost56,11952,083Fuel and natural gas inventory, at average cost38,74348,795
Unrealized gain on derivative instrumentsUnrealized gain on derivative instruments73,67723,626Unrealized gain on derivative instruments47,22133,015
Prepaid expense and otherPrepaid expense and other46,41627,504Prepaid expense and other49,63045,746
Power contract acquisition adjustment gainPower contract acquisition adjustment gain14,2629,067Power contract acquisition adjustment gain15,69414,874
Total current assetsTotal current assets708,008 835,119 Total current assets923,875 916,617 
Other long-term and regulatory assets:Other long-term and regulatory assets:Other long-term and regulatory assets:
Power cost adjustment mechanismPower cost adjustment mechanism65,16941,745Power cost adjustment mechanism71,25782,801
Purchased gas adjustment receivablePurchased gas adjustment receivable101,907132,766Purchased gas adjustment receivable46,78787,655
Regulatory assets related to power contractsRegulatory assets related to power contracts12,10914,146Regulatory assets related to power contracts11,39811,728
Other regulatory assetsOther regulatory assets713,909673,021Other regulatory assets737,377747,651
Unrealized gain on derivative instrumentsUnrealized gain on derivative instruments20,4287,682Unrealized gain on derivative instruments4,9258,805
Power contract acquisition adjustment gainPower contract acquisition adjustment gain84,522147,530Power contract acquisition adjustment gain75,60180,900
Operating lease right-of-use assetOperating lease right-of-use asset175,091183,048Operating lease right-of-use asset194,245172,167
OtherOther90,69192,980Other86,68080,751
Total other long-term and regulatory assetsTotal other long-term and regulatory assets1,263,8261,292,918Total other long-term and regulatory assets1,228,2701,272,458
Total assetsTotal assets$14,750,472 $14,659,863 Total assets$15,070,119 $15,042,965 

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


PUGET ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)



CAPITALIZATION AND LIABILITIES
September 30,
2020		December 31, 2019March 31,
2021		December 31, 2020
CapitalizationCapitalizationCapitalization
Common shareholder’s equity:Common shareholder’s equity:Common shareholder’s equity:
Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstandingCommon stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding$0 $0 Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding$0 $0 
Additional paid-in capitalAdditional paid-in capital3,308,957 3,308,957 Additional paid-in capital3,313,532 3,313,532 
Retained earningsRetained earnings811,778 775,491 Retained earnings1,078,841 912,787 
Accumulated other comprehensive income (loss), net of taxAccumulated other comprehensive income (loss), net of tax(76,259)(84,149)Accumulated other comprehensive income (loss), net of tax(84,052)(86,437)
Total common shareholder’s equityTotal common shareholder’s equity4,044,476 4,000,299 Total common shareholder’s equity4,308,321 4,139,882 
Long-term debt:Long-term debt:Long-term debt:
First mortgage bonds and senior notesFirst mortgage bonds and senior notes4,212,0004,212,000First mortgage bonds and senior notes4,212,0004,212,000
Pollution control bondsPollution control bonds161,860161,860Pollution control bonds161,860161,860
Long-term debtLong-term debt1,757,9001,758,100Long-term debt1,733,5001,724,700
Debt discount issuance costs and otherDebt discount issuance costs and other(208,962)(211,635)Debt discount issuance costs and other(203,026)(206,120)
Total long-term debtTotal long-term debt5,922,7985,920,325Total long-term debt5,904,3345,892,440
Total capitalizationTotal capitalization9,967,274 9,920,624 Total capitalization10,212,655 10,032,322 
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable293,906325,913Accounts payable324,037342,404
Short-term debtShort-term debt221,000176,000Short-term debt191,000373,800
Current maturities of long-term debtCurrent maturities of long-term debt502,412452,412Current maturities of long-term debt526,345526,412
Accrued expenses:Accrued expenses:Accrued expenses:
TaxesTaxes109,44099,979Taxes134,228110,752
Salaries and wagesSalaries and wages40,58950,091Salaries and wages35,29542,530
InterestInterest81,64474,855Interest79,40073,647
Unrealized loss on derivative instrumentsUnrealized loss on derivative instruments25,14613,428Unrealized loss on derivative instruments19,83931,441
Power contract acquisition adjustment lossPower contract acquisition adjustment loss2,1132,418Power contract acquisition adjustment loss2,0362,039
Operating lease liabilitiesOperating lease liabilities19,40015,862Operating lease liabilities19,23819,204
OtherOther75,410107,809Other88,33573,385
Total current liabilitiesTotal current liabilities1,371,060 1,318,767 Total current liabilities1,419,753 1,595,614 
Other long-term and regulatory liabilities:Other long-term and regulatory liabilities:Other long-term and regulatory liabilities:
Deferred income taxesDeferred income taxes848,531824,720Deferred income taxes846,692810,729
Unrealized loss on derivative instrumentsUnrealized loss on derivative instruments28,38912,693Unrealized loss on derivative instruments24,33229,833
Regulatory liabilitiesRegulatory liabilities776,555730,879Regulatory liabilities735,368732,498
Regulatory liability for deferred income taxesRegulatory liability for deferred income taxes922,543946,179Regulatory liability for deferred income taxes924,567953,274
Regulatory liabilities related to power contractsRegulatory liabilities related to power contracts98,784156,597Regulatory liabilities related to power contracts91,29595,774
Power contract acquisition adjustment lossPower contract acquisition adjustment loss9,99611,728Power contract acquisition adjustment loss9,3629,689
Operating lease liabilitiesOperating lease liabilities163,453174,327Operating lease liabilities182,288160,980
Other deferred creditsOther deferred credits563,887563,349Other deferred credits623,807622,252
Total long-term and regulatory liabilitiesTotal long-term and regulatory liabilities3,412,1383,420,472Total long-term and regulatory liabilities3,437,7113,415,029
Commitments and contingencies (Note 8)Commitments and contingencies (Note 8)Commitments and contingencies (Note 8)00
Total capitalization and liabilitiesTotal capitalization and liabilities$14,750,472 $14,659,863 Total capitalization and liabilities$15,070,119 $15,042,965 

The accompanying notes are an integral part of the financial statements.
7

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY
(Dollars in Thousands)
(Unaudited)

Common StockAdditionalAccumulated OtherCommon StockAdditionalAccumulated Other
SharesAmountPaid-in capitalRetained EarningsComprehensive Income (Loss)Total EquitySharesAmountPaid-in capitalRetained EarningsComprehensive Income (Loss)Total Equity
Balance at December 31, 2018200$0 $3,308,957 $629,003 $(77,202)$3,860,758 
Balance at December 31, 2019Balance at December 31, 2019200$0 $3,308,957 $775,491 $(84,149)$4,000,299 
Net income (loss)Net income (loss)———132,154—132,154Net income (loss)———94,936—94,936
Common stock dividend paidCommon stock dividend paid———(35,994)—(35,994)Common stock dividend paid———(22,645)—(22,645)
Other comprehensive income (loss)Other comprehensive income (loss)————9292Other comprehensive income (loss)————5,1705,170
Balance at March 31, 2019200$0 $3,308,957 $725,163 $(77,110)$3,957,010 
Net income (loss)———(32,952)—(32,952)
Common stock dividend paid———(83)—(83)
Other comprehensive income (loss)————9191
Balance at June 30, 2019200$0 $3,308,957 $692,128 $(77,019)$3,924,066 
Net income (loss)———(39,443)— (39,443)
Common stock dividend paid———(679)— (679)
Other comprehensive income (loss)———— (1,114)(1,114)
Balance at September 30, 2019200$0 $3,308,957 $652,006 $(78,133)$3,882,830 
Balance at December 31, 2019200$0 $3,308,957 $775,491 $(84,149)$4,000,299 
Net income (loss)———94,936—94,936
Common stock dividend paid———(22,645)—(22,645)
Other comprehensive income (loss)————5,1705,170
Balance at March 31, 2020Balance at March 31, 2020200$0 $3,308,957 $847,782 $(78,979)$4,077,760 Balance at March 31, 2020200$0 $3,308,957 $847,782 $(78,979)$4,077,760 
Net income (loss)———(23,233)—(23,233)
Common stock dividend paid———(22,419)—(22,419)
Other comprehensive income (loss)————1,6301,630
Balance at June 30, 2020200$0 $3,308,957 $802,130 $(77,349)$4,033,738 
Net income (loss)—— — 9,996 — 9,996 
Common stock dividend paid—— — (348)— (348)
Other comprehensive income (loss)—— — — 1,090 1,090 
Balance at September 30, 20202000$3,308,957 $811,778 $(76,259)$4,044,476 
Balance at December 31, 2020Balance at December 31, 2020200$0 $3,313,532 $912,787 $(86,437)$4,139,882 
Net income (loss)Net income (loss)———188,993—188,993
Common stock dividend paidCommon stock dividend paid———(22,939)—(22,939)
Other comprehensive income (loss)Other comprehensive income (loss)————2,3852,385
Balance at March 31, 2021Balance at March 31, 2021200$0 $3,313,532 $1,078,841 $(84,052)$4,308,321 

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


8


PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,		Three Months Ended
March 31,
2020201920212020
Operating activities:Operating activities:Operating activities:
Net Income (loss)Net Income (loss)$81,699 $59,759 Net Income (loss)$188,993 $94,936 
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:Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortizationDepreciation and amortization462,890483,693 Depreciation and amortization208,431164,816
Conservation amortizationConservation amortization69,00971,049 Conservation amortization34,06027,393
Deferred income taxes and tax credits, netDeferred income taxes and tax credits, net(1,922)(3,559)Deferred income taxes and tax credits, net6,6228,602
Net unrealized (gain) loss on derivative instrumentsNet unrealized (gain) loss on derivative instruments(3,563)29,861 Net unrealized (gain) loss on derivative instruments(23,002)48,541
(Gain) or loss on extinguishment of debt13,5460 
AFUDC - equityAFUDC - equity(17,772)(10,071)AFUDC - equity(5,780)(5,603)
Production tax credit utilizationProduction tax credit utilization(17,558)(35,470)Production tax credit utilization(45,178)(23,543)
Other non-cashOther non-cash5,4661,712 Other non-cash3,518(6,075)
Funding of pension liability(18,000)(18,000)
Regulatory assets and liabilitiesRegulatory assets and liabilities(90,513)(46,993)Regulatory assets and liabilities(14,351)(16,865)
Purchased gas adjustmentPurchased gas adjustment30,859(155,711)Purchased gas adjustment40,86841,429
Other long term assets and liabilitiesOther long term assets and liabilities(17,094)(3,075)Other long term assets and liabilities(5,695)(27,016)
Change in certain current assets and liabilities:Change in certain current assets and liabilities:Change in certain current assets and liabilities:
Accounts receivable and unbilled revenueAccounts receivable and unbilled revenue188,053192,365 Accounts receivable and unbilled revenue(19,743)24,120
Materials and suppliesMaterials and supplies(4,365)(3,963)Materials and supplies4421,072
Fuel and natural gas inventoryFuel and natural gas inventory(4,290)(8,442)Fuel and natural gas inventory10,05214,497
Prepayments and otherPrepayments and other(18,912)(2,283)Prepayments and other(3,884)251
Purchased gas adjustment09,921 
Accounts payableAccounts payable(26,068)(160,792)Accounts payable(14,868)(45,236)
Taxes payableTaxes payable9,461(43,141)Taxes payable23,47621,178
OtherOther(25,086)(2,727)Other(512)(11,126)
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities615,840 354,133 Net cash provided by (used in) operating activities383,449 311,371 
Investing activities:Investing activities:Investing activities:
Construction expenditures - excluding equity AFUDCConstruction expenditures - excluding equity AFUDC(678,085)(709,139)Construction expenditures - excluding equity AFUDC(213,781)(223,707)
OtherOther(925)(5,914)Other362(233)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(679,010)(715,053)Net cash provided by (used in) investing activities(213,419)(223,940)
Financing activities:Financing activities:Financing activities:
Change in short-term debt, netChange in short-term debt, net45,000(310,297)Change in short-term debt, net(182,800)(100,000)
Dividends paidDividends paid(45,412)(36,756)Dividends paid(22,939)(22,645)
Proceeds from long-term debt and bonds issuedProceeds from long-term debt and bonds issued644,690682,151 Proceeds from long-term debt and bonds issued8,8007,400
Redemption of bonds and notesRedemption of bonds and notes(450,000)0 Redemption of bonds and notes(66)0
Repayment of term loan and revolving credit(150,200)0 
OtherOther(2,525)10,386 Other6,0743,670
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities41,553345,484Net cash provided by (used in) financing activities(190,931)(111,575)
Net increase (decrease) in cash, cash equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and restricted cash(21,617)(15,436)Net increase (decrease) in cash, cash equivalents, and restricted cash(20,901)(24,144)
Cash, cash equivalents, and restricted cash at beginning of periodCash, cash equivalents, and restricted cash at beginning of period66,14655,562 Cash, cash equivalents, and restricted cash at beginning of period81,85166,146
Cash, cash equivalents, and restricted cash at end of periodCash, cash equivalents, and restricted cash at end of period$44,529 $40,126 Cash, cash equivalents, and restricted cash at end of period$60,950 $42,002 
Supplemental cash flow information:Supplemental cash flow information:Supplemental cash flow information:
Cash payments for interest (net of capitalized interest)Cash payments for interest (net of capitalized interest)$245,183 $236,718 Cash payments for interest (net of capitalized interest)$77,160 $78,636 
Cash payments (refunds) for income taxes3,820 8,990 
Non-cash financing and investing activities:Non-cash financing and investing activities:Non-cash financing and investing activities:
Accounts payable for capital expenditures eliminated from cash flowsAccounts payable for capital expenditures eliminated from cash flows$67,321 $65,023 Accounts payable for capital expenditures eliminated from cash flows$54,805 $56,699 
Reclassification of Colstrip from utility plant to a regulatory asset (Note 8)0 (47,534)

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


9


PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)


Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
March 31,
202020192020201920212020
Operating revenue:Operating revenue:Operating revenue:
ElectricElectric$500,976 $513,926 $1,638,432 $1,823,596 Electric$758,592 $669,090 
Natural gas112,357108,222 660,997566,347 
Natural GasNatural Gas392,906371,031
OtherOther7,0934,859 18,80622,833 Other8,5886,009
Total operating revenueTotal operating revenue620,426627,007 2,318,2352,412,776 Total operating revenue1,160,0861,046,130
Operating expenses:Operating expenses:Operating expenses:
Energy costs:Energy costs:Energy costs:
Purchased electricityPurchased electricity115,631107,035 406,860501,738 Purchased electricity205,410165,742
Electric generation fuelElectric generation fuel54,28293,642 150,880208,442 Electric generation fuel60,41863,624
Residential exchangeResidential exchange(16,121)(15,295)(56,922)(56,430)Residential exchange(25,802)(24,634)
Purchased natural gasPurchased natural gas31,22927,778 247,362168,281 Purchased natural gas155,015154,876
Unrealized (gain) loss on derivative instruments, netUnrealized (gain) loss on derivative instruments, net(39,942)14,716 (3,563)29,861 Unrealized (gain) loss on derivative instruments, net(23,002)48,541
Utility operations and maintenanceUtility operations and maintenance141,032142,857 444,074450,236 Utility operations and maintenance160,540154,922
Non-utility expense and otherNon-utility expense and other5,51011,869 33,29334,924 Non-utility expense and other9,41812,735
Depreciation & amortization161,155138,253 462,742483,623 
Depreciation & AmortizationDepreciation & Amortization208,362164,771
Conservation amortizationConservation amortization21,29517,734 69,00971,049 Conservation amortization34,06027,393
Taxes other than income taxesTaxes other than income taxes62,16361,697 236,460240,392 Taxes other than income taxes110,310105,504
Total operating expensesTotal operating expenses536,234600,2861,990,1952,132,116Total operating expenses894,729873,474
Operating income(loss)84,19226,721 328,040280,660 
Operating income (loss)Operating income (loss)265,357172,656
Other income (expense):Other income (expense):Other income (expense):
Other incomeOther income10,42412,373 34,56935,334 Other income11,03411,283
Other expenseOther expense(2,160)(2,023)(12,910)(5,624)Other expense(1,510)(2,282)
Interest charges:Interest charges:Interest charges:
AFUDCAFUDC3,8473,732 11,40410,652 AFUDC3,5863,643
Interest expenseInterest expense(61,592)(61,145)(184,770)(181,230)Interest expense(62,371)(60,714)
Income (loss) before income taxesIncome (loss) before income taxes34,711(20,342)176,333139,792Income (loss) before income taxes216,096124,586
Income tax (benefit) expenseIncome tax (benefit) expense1,649(5,085)16,91316,072 Income tax (benefit) expense16,62613,265
Net income (loss)Net income (loss)$33,062 $(15,257)$159,420 $123,720 Net income (loss)$199,470 $111,321 


The accompanying notes are an integral part of the financial statements.
910


PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)


Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
March 31,
2020201920202019 20212020
Net income (loss)Net income (loss)$33,062 $(15,257)$159,420 $123,720 Net income (loss)$199,470 $111,321 
Other comprehensive income(loss):Other comprehensive income(loss):Other comprehensive income(loss):
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $853, $357, $3,925 and $1,692, respectively3,1951,34014,7656,362
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $1,185 and $2,047, respectivelyNet unrealized gain (loss) from pension and postretirement plans, net of tax of $1,185 and $2,047, respectively4,4587,710
Amortization of treasury interest rate swaps to earnings, net of tax of $26, $27, $77 and $78 respectively9797289289
Amortization of treasury interest rate swaps to earnings, net of tax of $26 and $26, respectivelyAmortization of treasury interest rate swaps to earnings, net of tax of $26 and $26, respectively9696
Other comprehensive income (loss)Other comprehensive income (loss)3,292 1,437 15,0546,651 Other comprehensive income (loss)4,5547,806
Comprehensive income (loss)Comprehensive income (loss)$36,354 $(13,820)$174,474 $130,371 Comprehensive income (loss)$204,024 $119,127 

The accompanying notes are an integral part of the financial statements.
1011

PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)



ASSETS
September 30,
2020		December 31, 2019March 31,
2021		December 31, 2020
Utility plant (at original cost, including construction work in progress of $747,255 and $591,199 respectively):
Utility plant (at original cost, including construction work in progress of $749,572 and $712,204, respectively):Utility plant (at original cost, including construction work in progress of $749,572 and $712,204, respectively):
Electric plantElectric plant$10,944,553 $10,671,328 Electric plant$11,116,750 $11,035,402 
Natural Gas plantNatural Gas plant4,738,358 4,478,048 Natural Gas plant4,855,247 4,786,419 
Common plantCommon plant1,121,488 1,121,568 Common plant1,107,719 1,139,120 
Less: Accumulated depreciation and amortizationLess: Accumulated depreciation and amortization(5,994,627)(5,682,606)Less: Accumulated depreciation and amortization(6,145,929)(6,087,748)
Net utility plantNet utility plant10,809,772 10,588,338 Net utility plant10,933,787 10,873,193 
Other property and investments:Other property and investments:Other property and investments:
Other property and investmentsOther property and investments83,268 81,112 Other property and investments83,620 83,855 
Total other property and investmentsTotal other property and investments83,268 81,112 Total other property and investments83,620 83,855 
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents21,028 44,004 Cash and cash equivalents36,051 51,177 
Restricted cashRestricted cash22,763 20,887 Restricted cash24,443 29,544 
Accounts receivable, net of allowance for doubtful accounts of $13,889 and $8,294, respectively237,969 319,229 
Accounts receivable, net of allowance for doubtful accounts of $30,392 and $20,080, respectivelyAccounts receivable, net of allowance for doubtful accounts of $30,392 and $20,080, respectively376,228 355,850 
Unbilled revenueUnbilled revenue119,960 224,657 Unbilled revenue219,450 221,871 
Materials and supplies, at average costMaterials and supplies, at average cost120,049 115,684 Materials and supplies, at average cost117,891 118,333 
Fuel and natural gas inventory, at average costFuel and natural gas inventory, at average cost55,108 50,818 Fuel and natural gas inventory, at average cost37,479 47,531 
Unrealized gain on derivative instrumentsUnrealized gain on derivative instruments73,677 23,626 Unrealized gain on derivative instruments47,221 33,015 
Prepaid expense and otherPrepaid expense and other46,416 27,504 Prepaid expense and other49,630 45,746 
Total current assetsTotal current assets696,970 826,409 Total current assets908,393 903,067 
Other long-term and regulatory assets:Other long-term and regulatory assets:Other long-term and regulatory assets:
Power cost adjustment mechanismPower cost adjustment mechanism65,169 41,745 Power cost adjustment mechanism71,257 82,801 
Purchased gas adjustment receivablePurchased gas adjustment receivable101,907 132,766 Purchased gas adjustment receivable46,787 87,655 
Other regulatory assetsOther regulatory assets713,909 673,021 Other regulatory assets737,377 747,651 
Unrealized gain on derivative instrumentsUnrealized gain on derivative instruments20,428 7,682 Unrealized gain on derivative instruments4,925 8,805 
Operating lease right-of-use assetOperating lease right-of-use asset175,091 183,048 Operating lease right-of-use asset194,245 172,167 
OtherOther89,037 90,924 Other85,294 79,231 
Total other long-term and regulatory assetsTotal other long-term and regulatory assets1,165,541 1,129,186 Total other long-term and regulatory assets1,139,885 1,178,310 
Total assetsTotal assets$12,755,551 $12,625,045 Total assets$13,065,685 $13,038,425 

The accompanying notes are an integral part of the financial statements.
1112


PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)


CAPITALIZATION AND LIABILITIES

September 30,
2020		December 31, 2019March 31,
2021		December 31, 2020
Capitalization:Capitalization:Capitalization:
Common shareholder’s equity:Common shareholder’s equity:Common shareholder’s equity:
Common stock $0.01 par value – 150,000,000 shares authorized, 85,903,791 shares outstanding$859 $859 
Common stock $0.01 par value, 150,000,000 shares authorized, 85,903,791 shares outstandingCommon stock $0.01 par value, 150,000,000 shares authorized, 85,903,791 shares outstanding$859 $859 
Additional paid-in capitalAdditional paid-in capital3,485,105 3,485,105 Additional paid-in capital3,485,105 3,485,105 
Retained earningsRetained earnings785,062 751,193 Retained earnings1,023,818 876,401 
Accumulated other comprehensive income (loss), net of taxAccumulated other comprehensive income (loss), net of tax(173,423)(188,477)Accumulated other comprehensive income (loss), net of tax(176,402)(180,956)
Total common shareholder’s equityTotal common shareholder’s equity4,097,603 4,048,680 Total common shareholder’s equity4,333,380 4,181,409 
Long-term debt:Long-term debt:Long-term debt:
First mortgage bonds and senior notesFirst mortgage bonds and senior notes4,212,000 4,212,000 First mortgage bonds and senior notes4,212,000 4,212,000 
Pollution control bondsPollution control bonds161,860 161,860 Pollution control bonds161,860 161,860 
Debt discount, issuance costs and otherDebt discount, issuance costs and other(36,296)(37,718)Debt discount, issuance costs and other(35,337)(35,816)
Total long-term debtTotal long-term debt4,337,564 4,336,142 Total long-term debt4,338,523 4,338,044 
Total capitalizationTotal capitalization8,435,167 8,384,822 Total capitalization8,671,903 8,519,453 
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable308,935 325,980 Accounts payable324,152 342,504 
Short-term debtShort-term debt221,000 176,000 Short-term debt191,000 373,800 
Current maturities of long-term debtCurrent maturities of long-term debt2,412 2,412 Current maturities of long-term debt2,345 2,412 
Accrued expenses:Accrued expenses:Accrued expenses:
TaxesTaxes109,519 99,977 Taxes130,781 107,254 
Salaries and wagesSalaries and wages40,589 50,091 Salaries and wages35,295 42,530 
InterestInterest57,757 48,917 Interest58,002 48,189 
Unrealized loss on derivative instrumentsUnrealized loss on derivative instruments25,146 13,428 Unrealized loss on derivative instruments19,839 31,441 
Operating lease liabilitiesOperating lease liabilities19,400 15,862 Operating lease liabilities19,238 19,204 
OtherOther75,410 107,809 Other88,335 73,385 
Total current liabilitiesTotal current liabilities860,168 840,476 Total current liabilities868,987 1,040,719 
Other long-term and regulatory liabilities:Other long-term and regulatory liabilities:Other long-term and regulatory liabilities:
Deferred income taxesDeferred income taxes1,012,098 977,163 Deferred income taxes1,038,347 987,382 
Unrealized loss on derivative instrumentsUnrealized loss on derivative instruments28,389 12,693 Unrealized loss on derivative instruments24,332 29,833 
Regulatory liabilitiesRegulatory liabilities775,544 729,614 Regulatory liabilities734,104 731,234 
Regulatory liabilities for deferred income taxRegulatory liabilities for deferred income tax923,262 946,936 Regulatory liabilities for deferred income tax925,277 953,987 
Operating lease liabilitiesOperating lease liabilities163,453 174,327 Operating lease liabilities182,288 160,980 
Other deferred creditsOther deferred credits557,470 559,014 Other deferred credits620,447 614,837 
Total long-term and regulatory liabilitiesTotal long-term and regulatory liabilities3,460,216 3,399,747 Total long-term and regulatory liabilities3,524,795 3,478,253 
Commitments and contingencies (Note 8)Commitments and contingencies (Note 8)Commitments and contingencies (Note 8)00
Total capitalization and liabilitiesTotal capitalization and liabilities$12,755,551 $12,625,045 Total capitalization and liabilities$13,065,685 $13,038,425 


The accompanying notes are an integral part of the financial statements.
1213

 PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY
(Dollars in Thousands)
(Unaudited)

Common StockAdditionalAccumulated OtherCommon StockAdditionalAccumulated Other
SharesAmountPaid-in capitalRetained EarningsComprehensive Income (Loss)Total EquitySharesAmountPaid-in capitalRetained EarningsComprehensive Income (Loss)Total Equity
Balance at December 31, 201885,903,791$859 $3,275,105 $622,844 $(190,884)$3,707,924 
Net income (loss)—— — 147,302 — 147,302 
Common stock dividend paid—— — (64,604)— (64,604)
Capital Contribution—— — — — 0 
Other comprehensive income (loss)—— — — 2,606 2,606 
Balance at March 31, 201985,903,791$859 $3,275,105 $705,542 $(188,278)$3,793,228 
Net income (loss)—— — (8,325)— (8,325)
Common stock dividend paid—— — (19,384)— (19,384)
Capital Contribution—— — — — — 
Other comprehensive income (loss)—— — — 2,608 2,608 
Balance at June 30, 201985,903,791$859 $3,275,105 $677,833 $(185,670)$3,768,127 
Net income (loss)—— — (15,257)— (15,257)
Common stock dividend paid—— — (29,874)— (29,874)
Capital Contribution—— 210,000 — — 210,000 
Other comprehensive income (loss)—— — — 1,437 1,437 
Balance at September 30, 201985,903,791$859 $3,485,105 $632,702 $(184,233)$3,934,433 
Balance at December 31, 2019Balance at December 31, 201985,903,791$859 $3,485,105 $751,193 $(188,477)$4,048,680 Balance at December 31, 201985,903,791$859 $3,485,105 $751,193 $(188,477)$4,048,680 
Net income (loss)—— — 111,321 — 111,321 
Common stock dividend paid—— — (53,794)— (53,794)
Other comprehensive income (loss)—— — — 7,806 7,806 
Balance at March 31, 202085,903,791$859 $3,485,105 $808,720 $(180,671)$4,114,013 
Net income (loss)—— — 15,037 — 15,037 
Common stock dividend paid—— — (46,015)— (46,015)
Other comprehensive income (loss)—— — — 3,956 3,956 
Balance at June 30, 202085,903,791 $859 $3,485,105 $777,742 $(176,715)$4,086,991 
Net income (loss)Net income (loss)—— — 33,062 — 33,062 Net income (loss)—— — 111,321 — 111,321 
Common stock dividend paidCommon stock dividend paid—— — (25,742)— (25,742)Common stock dividend paid—— — (53,794)— (53,794)
Other comprehensive income (loss)Other comprehensive income (loss)—— — — 3,292 3,292 Other comprehensive income (loss)—— — — 7,806 7,806 
Balance at September 30, 202085,903,791$859 $3,485,105 $785,062 $(173,423)$4,097,603 
Balance at March 31, 2020Balance at March 31, 202085,903,791$859 $3,485,105 $808,720 $(180,671)$4,114,013 
Balance at December 31, 2020Balance at December 31, 202085,903,791$859 $3,485,105 $876,401 $(180,956)$4,181,409 
Net income (loss)Net income (loss)—— — 199,470 — 199,470 
Common stock dividend paidCommon stock dividend paid—— — (52,053)— (52,053)
Other comprehensive income (loss)Other comprehensive income (loss)—— — — 4,554 4,554 
Balance at March 31, 2021Balance at March 31, 202185,903,791$859 $3,485,105 $1,023,818 $(176,402)$4,333,380 

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


13
14

PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,		Three Months Ended
 March 31,
2020201920212020
Operating activities:Operating activities:Operating activities:
Net Income (loss)Net Income (loss)$159,420 $123,720 Net Income (loss)$199,470 $111,321 
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:Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortizationDepreciation and amortization462,742 483,623 Depreciation and amortization208,362 164,771 
Conservation amortizationConservation amortization69,009 71,049 Conservation amortization34,060 27,393 
Deferred income taxes and tax credits, netDeferred income taxes and tax credits, net7,259 (1,600)Deferred income taxes and tax credits, net21,044 12,215 
Net unrealized (gain) loss on derivative instrumentsNet unrealized (gain) loss on derivative instruments(3,563)29,861 Net unrealized (gain) loss on derivative instruments(23,002)48,541 
AFUDC - equityAFUDC - equity(17,772)(10,071)AFUDC - equity(5,780)(5,603)
Production tax credit utilizationProduction tax credit utilization(17,558)(35,470)Production tax credit utilization(45,178)(23,543)
Other non-cashOther non-cash(2,441)(6,167)Other non-cash885 (8,711)
Funding of pension liability(18,000)(18,000)
Regulatory assets and liabilitiesRegulatory assets and liabilities(90,513)(46,993)Regulatory assets and liabilities(14,351)(16,865)
Purchased gas adjustmentPurchased gas adjustment30,859 (155,711)Purchased gas adjustment40,868 41,429 
Other long term assets and liabilitiesOther long term assets and liabilities(8,391)4,972 Other long term assets and liabilities(3,077)(23,801)
Change in certain current assets and liabilities:Change in certain current assets and liabilities:Change in certain current assets and liabilities:
Accounts receivable and unbilled revenueAccounts receivable and unbilled revenue185,957 196,877 Accounts receivable and unbilled revenue(17,957)25,892 
Materials and suppliesMaterials and supplies(4,365)(3,963)Materials and supplies442 1,072 
Fuel and natural gas inventoryFuel and natural gas inventory(4,290)(8,442)Fuel and natural gas inventory10,052 14,497 
Prepayments and otherPrepayments and other(18,912)(2,283)Prepayments and other(3,884)251 
Purchased gas adjustment0 9,921 
Accounts payableAccounts payable(26,038)(160,850)Accounts payable(14,853)(36,201)
Taxes payableTaxes payable9,542 (40,178)Taxes payable23,527 26,850 
OtherOther(22,628)794 Other3,549 (7,607)
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities690,317 431,089 Net cash provided by (used in) operating activities414,177 351,901 
Investing activities:Investing activities:Investing activities:
Construction expenditures - excluding equity AFUDCConstruction expenditures - excluding equity AFUDC(641,862)(680,118)Construction expenditures - excluding equity AFUDC(205,927)(225,612)
OtherOther(925)(5,916)Other362 (233)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(642,787)(686,034)Net cash provided by (used in) investing activities(205,565)(225,845)
Financing activities:Financing activities:Financing activities:
Change in short-term debt, netChange in short-term debt, net45,000 (310,297)Change in short-term debt, net(182,800)(100,000)
Dividends paidDividends paid(125,551)(113,862)Dividends paid(52,053)(53,794)
Proceeds from long-term debt and bonds issued0 443,151 
Investment from parent0 210,000 
Redemption of bonds and notesRedemption of bonds and notes(66)0 
OtherOther11,921 11,048 Other6,080 3,668 
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(68,630)240,040 Net cash provided by (used in) financing activities(228,839)(150,126)
Net increase (decrease) in cash, cash equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and restricted cash(21,100)(14,905)Net increase (decrease) in cash, cash equivalents, and restricted cash(20,227)(24,070)
Cash, cash equivalents, and restricted cash at beginning of periodCash, cash equivalents, and restricted cash at beginning of period64,891 53,493 Cash, cash equivalents, and restricted cash at beginning of period80,721 64,891 
Cash, cash equivalents, and restricted cash at end of periodCash, cash equivalents, and restricted cash at end of period$43,791 $38,588 Cash, cash equivalents, and restricted cash at end of period$60,494 $40,821 
Supplemental cash flow information:Supplemental cash flow information:Supplemental cash flow information:
Cash payments for interest (net of capitalized interest)Cash payments for interest (net of capitalized interest)$161,083 $152,571 Cash payments for interest (net of capitalized interest)$47,749 $47,115 
Cash payments (refunds) for income taxes9,259 16,540 
Non-cash financing and investing activities:Non-cash financing and investing activities:Non-cash financing and investing activities:
Accounts payable for capital expenditures eliminated from cash flowsAccounts payable for capital expenditures eliminated from cash flows$67,321 $65,023 Accounts payable for capital expenditures eliminated from cash flows$54,805 $56,699 
Reclassification of Colstrip from utility plant to a regulatory asset (Note 8)0 (47,534)

The accompanying notes are an integral part of the financial statements.
1415

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


(1)Summary of Consolidation and Significant Accounting Policy

Basis of Presentation
Puget Energy is an energy services holding company that owns PSE.Puget Sound Energy. PSE is a public utility incorporated in the state of Washington that furnishes electric and natural gas services in a territory covering approximately 6,000 square miles, primarily in the Puget Sound region. Puget Energy also has a wholly-owned non-regulated subsidiary, Puget LNG, LLC, (Puget LNG) which has the sole purpose of owning, developing and financing the non-regulated activity of the Tacoma liquefied natural gas (LNG)LNG facility, currently under construction. PSE and Puget LNG are considered related parties with similar ownership by Puget Energy. Therefore, capital and operating costs that are incurred by PSE and allocated to Puget LNG are related party transactions by nature.
In 2009, Puget Holdings LLC (Puget Holdings), owned by a consortium of long-term infrastructure investors, completed its merger with Puget Energy (the merger). As a result of the merger, all of Puget Energy’s common stock is indirectly owned by Puget Holdings. The acquisition of Puget Energy was accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)FASB ASC 805, “Business Combinations”, as of the date of the merger. ASC 805 requires the acquirer to recognize and measure identifiable assets acquired and liabilities assumed at fair value as of the merger date.
The consolidated financial statements of Puget Energy reflect the accounts of Puget Energy and its subsidiaries. PSE’s consolidated financial statements include the accounts of PSE and its subsidiary. Puget Energy and PSE are collectively referred to herein as “the Company”. The consolidated financial statements are presented after elimination of all significant intercompany items and transactions. PSE’s consolidated financial statements continue to be accounted for on a historical basis and do not include any ASC 805, “Business Combinations” purchase accounting adjustments. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Allowance for Credit Losses
On January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13 Financial Instruments – Credit Losses (ASC 326) which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables, loan receivables, and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. The only financial assets within the scope of ASU 2016-13 for the Company are trade receivables.
The Company adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company did not record an adjustment to retained earnings as of January 1, 2020, for the cumulative effect of adopting ASU 2016-13, as the impact was immaterial.
Management measures expected credit losses on trade receivables on a collective basis by receivable type, which include electric retail receivables, gas retail receivables, and electric wholesale receivables. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
15

The allowance increased during 2020 due to both an increase in the provision combined with a reduction in receivables charged-off during the period. T
he Ratepayer Assistance and Preservation of Essential Services proclamation issued by the governor in April 2020 included a moratorium on disconnecting customers, which resulted in a cessation of account receivable write-offs for non-payment.
The following table presents the activity in the allowance for credit losses for accounts receivable for the ninethree months ended September 30,March 31, 2021 and 2020:
Puget Energy and
Puget Sound Energy
(Dollars in Thousands)September 30,
2020
Allowance for credit losses:
Beginning balance$8,294 
Provision for credit loss expense14,660 
Receivables charged-off(9,065)
Total ending allowance balance$13,889 
Puget Energy and
Puget Sound Energy		Three Months Ended
March 31,
(Dollars in Thousands)20212020
Allowance for credit losses:
Beginning balance$20,080 $8,294 
Provision for credit loss expense12,452 4,894 
Receivables charged-off(2,140)(3,374)
Total ending allowance balance$30,392 $9,814 


16

Tacoma LNG Facility
In August 2015, PSE filed a proposal with the Washington Commission to develop an LNGa liquified natural gas (LNG) facility at the Port of Tacoma. Currently under construction at the Port of Tacoma, the facility is expected to be operational in 2021. The Tacoma LNG facility is designed to provide peak-shaving services to PSE’s natural gas customers. By storing surplus natural gas, PSE is able to meet the requirements of peak consumption. LNG will also provide fuel to transportation customers, particularly in the marine market. On January 24, 2018, Puget Sound Clean Air Agency (PSCAA) determined a Supplemental Environmental Impact Statement (SEIS) was necessary in order to rule on the air quality permit for the facility. As a result of requiring a SEIS, the Company's construction schedule was impacted. PSE received the SEIS which concluded the LNG facility would result in a net decrease in greenhouse gas (GHG)GHG emissions providing, in part, that the natural gas for the facility was sourced from British Columbia or Alberta. On December 10, 2019, the PSCAA approved the Notice of Construction permit, a decision which has been appealed to the Washington Pollution Control Hearings Board by each of the Puyallup Tribe of Indians and nonprofit law firm Earthjustice. A meeting with the Washington Pollution Control Hearings Board occurred in April 2021 and a decision is forthcoming. The facility achieved mechanical completion in February 2021, however, it remains nonoperational as additional construction and testing are completed.
If delayed, the construction schedule and costs may be adversely impacted. Pursuant to an order by the Washington Utilities and Transportation Commission (Washington Commission), PSE will be allocated approximately 43.0% of common capital and operating costs, consistent with the regulated portion of the Tacoma LNG facility. The remaining 57.0% of common capital and operating costs of the Tacoma LNG facility will be allocated to Puget LNG. Per this allocation of costs, $221.2$239.4 million and $199.9$231.6 million of construction work in progress related to Puget LNG's portion of the Tacoma LNG facility is reported in the Puget Energy "Other property and investments" line item as of September 30, 2020,March 31, 2021 and December 31, 2019,2020, respectively. Additionally, $0.5$0.2 million and $1.0$0.3 million of operating costs are reported in the Puget Energy "Non-utility expense and other" financial statement line item for the ninethree months ended September 30, 2020:,March 31, 2021, and September 30, 2019,March 31, 2020, respectively. Additionally, $196.7$216.5 million and $162.8$207.7 million of construction work in progress related to PSE’s portion of the Tacoma LNG facility is reported in the PSE “Utility plant - Natural gas plant” financial statement line item as of September 30, 2020,March 31, 2021 and December 31, 2019,2020, respectively, as PSE is a regulated entity.

Variable Interest Entities
On April 12, 2017, PSE entered into a power purchase agreement (PPA) with Skookumchuck Wind Energy Project, LLC (Skookumchuck) pursuant to which Skookumchuck would develop a wind generation facility and, once completed, sell bundled energy and associated attributes, namely renewable energy certificates (RECs) to PSE over a term of 20 years. Skookumchuck commenced commercial operation in November 2020. PSE has no equity investment in Skookumchuck but is Skookumchuck’s only customer. Based on the terms of the contract, PSE will receive all of the output of the facility, subject to curtailment rights. PSE has concluded that Skookumchuck is a variable interest entity (VIE) and that PSE is not the primary beneficiary of this VIE since it does not control the commercial and operating activities of the facility. Additionally, PSE does not have the obligation to absorb losses or receive benefits. Therefore, PSE will not consolidate the VIE. Purchased energy of $5.7 million was recognized in purchased electricity on the Company's consolidated statements of income and $3.6 million is included in accounts payable on the Company's consolidated balance sheet for the quarter ended March 31, 2021.

(2)  New Accounting Pronouncements

Credit Losses
In 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The amendments in the update change how entities account for credit losses on receivables and certain other assets. The guidance requires use of a current expected loss model, which may result in earlier recognition of credit losses than under previous accounting standards. ASU 2016-13 is effective for interim and annual periods beginning on or after December 15, 2019. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance and net investments in leases recognized by a lessor in accordance with Topic 842.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020, are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Upon implementation as of January 1, 2020, the impact was immaterial and the Company did not record a transition adjustment to retained earnings.

16

Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement". The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this update as of January 1, 2020, and it impacted Note 5, "Fair Value Measurements". As the amendment contemplates changes in disclosures only, it has no material impact on the Company's results of operations, cash flows, or consolidated balance sheets.

Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Issued March 2020): ASU 2020-04 provides temporary optional expedients and exceptions to the current guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from London Interbank Offered Rate (LIBOR)LIBOR and other interbank offered rates to alternative reference rates. The Company has term loans, credit agreements, and promissory notes that reference LIBOR. As of September 30, 2020,March 31, 2021, the Company has not utilized any of the expedients discussed within this ASU, however, it continues to assess other agreements to determine if LIBOR is included and if the expedients would be utilized through the allowed period of December 2022.

Accounting Standards Issued but Not Yet Adopted
17
Retirement Benefits
In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans". This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans through added, removed, and clarified requirements of relevant disclosures.
The amendments in this update are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Accordingly, the Company will implement this update as of December 31, 2020 on a retrospective basis to all periods presented. The Company is in the process of evaluating potential impacts of these amendments to the required annual retirement benefits disclosures.

(3) Revenue

The following table presents disaggregated revenue from contracts with customers, and other revenue by major source:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy
(Dollars in Thousands)(Dollars in Thousands)Three Months Ended September 30,Nine Months Ended September 30,(Dollars in Thousands)Three Months Ended
March 31,
Revenue from contracts with customers:Revenue from contracts with customers:2020201920202019Revenue from contracts with customers:20212020
Electric retailElectric retail$458,573 $450,109 $1,499,378 $1,550,517 Electric retail$664,102 $607,693 
Natural gas retailNatural gas retail103,486 101,395 637,239 569,177 Natural gas retail387,863 365,637 
OtherOther46,111 72,691 125,227 245,285 Other56,129 43,774 
Total revenue from contracts with customersTotal revenue from contracts with customers608,170 624,195 2,261,844 2,364,979 Total revenue from contracts with customers1,108,094 1,017,104 
Alternative revenue programsAlternative revenue programs2,189 874 23,089 (20,006)Alternative revenue programs(1,928)1,150 
Other non-customer revenueOther non-customer revenue10,067 1,938 33,302 67,803 Other non-customer revenue53,920 27,876 
Total operating revenueTotal operating revenue$620,426 $627,007 $2,318,235 $2,412,776 Total operating revenue$1,160,086 $1,046,130 

Revenue at PSE is recognized when performance obligations under the terms of a contract or tariff with our customers are satisfied. Performance obligations are satisfied generally through performance of PSE's obligation over time or with transfer of control of electric power, natural gas, and other revenue from contracts with customers. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods and services.

17

Electric and Natural Gas Retail Revenue
Electric and natural gas retail revenue consists of tariff-based sales of electricity and natural gas to PSE's customers. For tariff contracts, PSE has elected the portfolio approach practical expedient model to apply the revenue from contracts with customers to groups of contracts. The Company determined that the portfolio approach will not differ from considering each contract or performance obligation separately. Electric and natural gas tariff contracts include the performance obligation of standing ready to perform electric and natural gas services. The electricity and natural gas the customer chooses to consume is considered an option and is recognized over time using the output method when the customer simultaneously consumes the electricity or natural gas. PSE has elected the right to invoice practical expedient for unbilled retail revenue. The obligation of standing ready to perform electric service and the consumption of electricity and natural gas at market value implies a right to consideration for performance completed to date. The Company believes that tariff prices approved by the Washington Commission represent stand-alone selling prices for the performance obligations under ASC 606. PSE collects Washington State excise taxes (which are a component of general retail customer rates) and municipal taxes and presents the taxes on a gross basis, as PSE is the taxpayer for those excise and municipal taxes.

Other Revenue from Contracts with Customers
Other revenue from contracts with customers is primarily comprised of electric transmission, natural gas transportation, biogas, and wholesale revenue sold on an intra-month basis.

Electric Transmission and Natural Gas Transportation Revenue
Transmission and transportation tariff contracts include the performance obligation to transmit and transport electricity or natural gas. Transfer of control and recognition of revenue occurs over time as the customer simultaneously receives the transmission and transportation services. Measurement of satisfaction of this performance obligation is determined using the output method. Similar to retail revenue, the Company utilizes the right to invoice practical expedient as PSE’s right to consideration is tied directly to the value of power and natural gas transmitted and transported each month. The price is based on the tariff rates that were approved by the Washington Commission or the FERC and, therefore, corresponds directly to the value to the customer for performance completed to date.

18

Biogas
Biogas is a renewable natural gas fuel that PSE purchases and sells along with the renewable green attributes derived from the renewable natural gas. Biogas contracts include the performance obligations of biogas and renewable credit delivery upon PSE receiving produced biogas from its supplier. Transfer of control and recognition of revenue occurs at a point in time as biogas is considered a storable commodity and may not be consumed as it is delivered.

Wholesale
Wholesale revenue at PSE includes sales of electric power and non-core natural gas to other utilities or marketers. Wholesale revenue contracts include the performance obligation of physical electric power or natural gas. There are typically no added fixed or variable amounts on top of the established rate for power or natural gas and contracts always have a stated, fixed quantity of power or natural gas delivered. Transfer of control and recognition of revenue occurs at a point in time when the customer takes physical possession of electric power or natural gas. Non-core gas consists of natural gas supply in excess of natural gas used for generation, sold to third parties to mitigate the costs of firm transportation and storage capacity for its core natural gas customers. PSE reports non-core gas sold net of costs as PSE does not take control of the natural gas but is merely an agent within the market that connects a seller to a purchaser.

Other Revenue
In accordance with ASC 606, PSE separately presents revenue not collected from contracts with customers that falls under other accounting guidance.

Transaction Price Allocated to Remaining Performance Obligations
In December 2020, PLNG entered into a contract with one customer where PLNG is selling LNG over a 10-year delivery period beginning no later than 2024. The contract requires the customer to purchase a minimum annual quantity even if the customer does not take delivery. The price of the LNG includes a fixed charge, a fuel charge that includes both a market index and fixed margin component and other variable consideration. The fixed transaction price is allocated to the remaining performance obligations which is determined by the fixed charge components multiplied by the outstanding minimum annual quantity. Based on management’s best estimate of commencement, the Company expects to recognize this revenue over the following time periods:

Puget Energy
(Dollars in Thousands)20242025202620272028ThereafterTotal
Remaining Performance Obligations$15,359 $19,710 $19,454 $19,454 $19,454 $102,135 $195,566 

The Company has elected the optional exemption in ASC 606, under which the Company does not disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. The primary sources of variability are (a) fluctuating market index prices of natural gas used to determine aspects of variable pricing and (b) variation in volumes that may be delivered to the customer. Both sources of variability are expected to be resolved at or shortly before delivery of each unit of LNG or natural gas. As each unit of LNG or natural gas represents a separate performance obligation, future volumes are wholly unsatisfied.

19

(4) Accounting for Derivative Instruments and Hedging Activities

PSE employs various energy portfolio optimization strategies but is not in the business of assuming risk for the purpose of realizing speculative trading revenue. The nature of serving regulated electric customers with its portfolio of owned and contracted electric generation resources exposes PSE and its customers to some volumetric and commodity price risks within the sharing mechanism of the power cost adjustment (PCA). Therefore, wholesale market transactions and PSE's related hedging strategies are focused on reducing costs and risks where feasible,feasible; thus, reducing volatility of costs in the portfolio. In
18

order to manage its exposure to the variability in future cash flows for forecasted energy transactions, PSE utilizes a programmatic hedging strategy which extends out three years. PSE's hedging strategy includes a risk-responsive component for the core natural gas portfolio, which utilizes quantitative risk-based measures with defined objectives to balance both portfolio risk and hedge costs.
PSE's energy risk portfolio management function monitors and manages these risks using analytical models and tools. In order to manage risks effectively, PSE enters into forward physical electric and natural gas purchase and sale agreements, fixed-for-floating swap contracts, and commodity call/put options. Currently, the Company does not apply cash flow hedge accounting and therefore records all mark-to-market gains or losses through earnings.
The Company manages its interest rate risk through the issuance of mostly fixed-rate debt with varied maturities. The Company utilizes internal cash from operations, borrowings under its commercial paper program and its credit facilities to meet short-term funding needs. The Company may enter into swap instruments or other financial hedge instruments to manage the interest rate risk associated with these debts.

The following table presents the volumes, fair values and classification of the Company's derivative instruments recorded on the balance sheets:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy
September 30, 2020December 31, 2019March 31, 2021December 31, 2020
(Dollars in Thousands)(Dollars in Thousands)Volumes
Assets1
Liabilities2
Volumes
Assets1
Liabilities2
(Dollars in Thousands)Volumes
Assets1
Liabilities2
Volumes
Assets1
Liabilities2
Electric portfolio derivativesElectric portfolio derivatives*$48,876 $42,884 *$19,933 $17,504 Electric portfolio derivatives*$32,366 $33,743 *$22,544 $46,922 
Natural gas derivatives (MMBtus)3
Natural gas derivatives (MMBtus)3
284.9 million45,229 10,651 315.5 million11,375 8,617 
Natural gas derivatives (MMBtus)3
33119,780 10,428 32019,276 14,352 
Total derivative contractsTotal derivative contracts$94,105 $53,535 $31,308 $26,121 Total derivative contracts$52,146 $44,171 $41,820 $61,274 
CurrentCurrent$73,677 $25,146 $23,626 $13,428 Current$47,221 $19,839 $33,015 $31,441 
Long-termLong-term20,428 28,389 7,682 12,693 Long-term4,925 24,332 8,805 29,833 
Total derivative contractsTotal derivative contracts$94,105 $53,535 $31,308 $26,121 Total derivative contracts$52,146 $44,171 $41,820 $61,274 
_______________
1 Balance sheet classification: Current and Long-term Unrealized gain on derivative instruments.
2 Balance sheet classification: Current and Long-term Unrealized loss on derivative instruments.
3 All fair value adjustments on derivatives relating to the natural gas business have been deferred in accordance with ASC 980, “Regulated Operations,” due to the purchased gas adjustment (PGA) mechanism. The net derivative asset or liability and offsetting regulatory liability or asset are related to contracts used to economically hedge the cost of physical gas purchased to serve natural gas customers.
* Electric portfolio derivatives consist of electric generation fuel of 212.3221.4 million One Million British Thermal Units (MMBtu) and purchased electricity of
7.84.4 million Megawatt Hours (MWhs) at September 30, 2020,March 31, 2021, and 229.3212.2 million MMBtus and 10.46.6 million MWhs at December 31, 2019.2020.

It is the Company's policy to record all derivative transactions on a gross basis at the contract level without offsetting assets or liabilities. The Company generally enters into transactions using the following master agreements: WSPP, Inc. (WSPP) agreements, which standardize physical power contracts; International Swaps and Derivatives Association (ISDA) agreements, which standardize financial natural gas and electric contracts; and North American Energy Standards Board (NAESB) agreements, which standardize physical natural gas contracts. The Company believes that such agreements reduce credit risk exposure because such agreements provide for the netting and offsetting of monthly payments as well as the right of set-off in the event of counterparty default. The set-off provision can be used as a final settlement of accounts which extinguishes the mutual debts owed between the parties in exchange for a new net amount. For further details regarding the fair value of derivative instruments, see Note 5, "Fair Value Measurements," to the consolidated financial statements included in Item 1 of this report.
1920

The following tables present the potential effect of netting arrangements, including rights of set-off associated with the Company's derivative assets and liabilities:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy
At September 30, 2020At March 31, 2021
Gross Amount Recognized in the Statement of Financial Position1
Gross Amounts Offset in the Statement of Financial PositionNet of Amounts Presented in the Statement of Financial PositionGross Amounts Not Offset in the Statement of Financial Position
Gross Amount Recognized in the Statement of Financial Position1
Gross Amounts Offset in the Statement of Financial PositionNet of Amounts Presented in the Statement of Financial PositionGross Amounts Not Offset in the Statement of Financial Position

(Dollars in Thousands)
(Dollars in Thousands)		Commodity ContractsCash Collateral Received/PostedNet Amount
(Dollars in Thousands)		Commodity ContractsCash Collateral Received/PostedNet Amount
Assets:Assets:Assets:
Energy derivative contractsEnergy derivative contracts$94,105 $0 $94,105 $(37,723)$0 $56,382 Energy derivative contracts$52,146 $0 $52,146 $(21,105)$0 $31,041 
Liabilities:Liabilities:Liabilities:
Energy derivative contractsEnergy derivative contracts$53,535 $0 $53,535 $(37,723)$(1,614)$14,198 Energy derivative contracts$44,171 $0 $44,171 $(21,105)$(143)$22,923 

Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		At December 31, 2019Puget Energy and
Puget Sound Energy		At December 31, 2020
Gross Amount Recognized in the Statement of Financial Position1
Gross Amounts Offset in the Statement of Financial PositionNet of Amounts Presented in the Statement of Financial PositionGross Amounts Not Offset in the Statement of Financial Position
Gross Amount Recognized in the Statement of Financial Position1
Gross Amounts Offset in the Statement of Financial PositionNet of Amounts Presented in the Statement of Financial PositionGross Amounts Not Offset in the Statement of Financial Position
(Dollars in Thousands)(Dollars in Thousands)Commodity ContractsCash Collateral Received/PostedNet Amount(Dollars in Thousands)Commodity ContractsCash Collateral Received/PostedNet Amount
Assets:Assets:Assets:
Energy derivative contractsEnergy derivative contracts$31,308 $0 $31,308 $(14,922)$0 $16,386 Energy derivative contracts$41,820 $0 $41,820 $(21,696)$0 $20,124 
Liabilities:Liabilities:Liabilities:
Energy derivative contractsEnergy derivative contracts$26,121 $0 $26,121 $(14,922)$2,000 $13,199 Energy derivative contracts$61,274 $0 $61,274 $(21,696)$(9,343)$30,235 
_______________
1 All derivative contract deals are executed under ISDA, NAESB and WSPP master netting agreements with right of set-off.

2021

The following table presents the effect and classification of the realized and unrealized gains (losses) of the Company's derivatives recorded on the statements of income:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Three Months Ended
September 30,		Nine Months Ended
September 30,		Puget Energy and
Puget Sound Energy		Three Months Ended
March 31,
(Dollars in Thousands)(Dollars in Thousands)Classification2020201920202019(Dollars in Thousands)Classification20212020
Gas for Power Derivatives:Gas for Power Derivatives:Gas for Power Derivatives:
UnrealizedUnrealizedUnrealized gain (loss) on derivative instruments, net$29,940 $8,143 $24,950 $5,914 UnrealizedUnrealized gain (loss) on derivative instruments, net$1,628 $(9,755)
RealizedRealizedElectric generation fuel358 (7,514)911 4,481 RealizedElectric generation fuel8,313 1,296 
Power Derivatives:Power Derivatives:Power Derivatives:
UnrealizedUnrealizedUnrealized gain (loss) on derivative instruments, net10,002 (22,859)(21,386)(35,775)UnrealizedUnrealized gain (loss) on derivative instruments, net21,374 (38,786)
RealizedRealizedPurchased electricity3,579 (335)(8,584)40,918 RealizedPurchased electricity(13,303)(5,935)
Total gain (loss) recognized in income on derivativesTotal gain (loss) recognized in income on derivatives$43,879 $(22,565)$(4,109)$15,538 Total gain (loss) recognized in income on derivatives$18,012 $(53,180)

The Company is exposed to credit risk primarily through buying and selling electricity and natural gas to serve its customers. Credit risk is the potential loss resulting from a counterparty's non-performance under an agreement. The Company manages credit risk with policies and procedures for, among other things, counterparty credit analysis, exposure measurement, and exposure monitoring and mitigation.
The Company monitors counterparties for significant swings in credit default swap rates, credit rating changes by external rating agencies, ownership changes or financial distress. Where deemed appropriate, the Company may request collateral or other security from its counterparties to mitigate potential credit default losses. Criteria employed in this decision include, among other things, the perceived creditworthiness of the counterparty and the expected credit exposure.
It is possible that volatility in energy commodity prices could cause the Company to have material credit risk exposure with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, the Company could suffer a material financial loss. However, as of September 30, 2020,March 31, 2021, approximately 98.8%99.2% of the Company's energy portfolio exposure, excluding normal purchase normal sale (NPNS) transactions, is with counterparties that are rated investment grade by rating agencies and 1.2%0.8% are either rated below investment grade or not rated by rating agencies. The Company assesses credit risk internally for counterparties that are not rated by the major rating agencies.
The Company computes credit reserves at a master agreement level by counterparty. The Company considers external credit ratings and market factors in the determination of reserves, such as credit default swaps and bond spreads. The Company recognizes that external ratings may not always reflect how a market participant perceives a counterparty's risk of default. The Company uses both default factors published by Standard & Poor's and factors derived through analysis of market risk, which reflect the application of an industry standard recovery rate. The Company selects a default factor by counterparty at an aggregate master agreement level based on a weighted average default tenor for that counterparty's deals. The default tenor is determined by weighting the fair value and contract tenors for all deals for each counterparty to derive an average value. The default factor used is dependent upon whether the counterparty is in a net asset or a net liability position after applying the master agreement levels.
The Company applies the counterparty's default factor to compute credit reserves for counterparties that are in a net asset position. The Company calculates a non-performance risk on its derivative liabilities by using its estimated incremental borrowing rate over the risk-free rate. Credit reserves are netted against the unrealized gain (loss) positions. The majority of the Company's derivative contracts are with financial institutions and other utilities operating within the Western Electricity Coordinating Council. PSE also transacts power futures contracts on the Intercontinental Exchange (ICE), and natural gas contracts on the ICE NGX exchange platform. Execution of contracts on ICE requires the daily posting of margin calls as collateral through a futures and clearing agent. As of September 30, 2020,March 31, 2021, PSE had cash posted as collateral of $12.4$3.2 million related to contracts executed on the ICE platform. Also, as of September 30, 2020,March 31, 2021, PSE had $3.0$12.0 million in cash posted as collateral and a $1.0 million in a letter of credit posted as a condition of transacting on the ICE NGX platform. PSE did not trigger any collateral requirements with any of its counterparties nor were any of PSE's counterparties required to post collateral resulting from credit rating downgrades during the ninethree months ended September 30, 2020.March 31, 2021.
2122

The following table presents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position and the amount of additional collateral the Company could be required to post:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy
(Dollars in Thousands)(Dollars in Thousands)At September 30, 2020At December 31, 2019(Dollars in Thousands)At March 31, 2021At December 31, 2020
Fair Value1
PostedContingent
Fair Value1
PostedContingent
Fair Value1
PostedContingent
Fair Value1
PostedContingent
Contingent FeatureContingent FeatureLiabilityCollateralCollateralLiabilityCollateralCollateralContingent FeatureLiabilityCollateralCollateralLiabilityCollateralCollateral
Credit rating2
Credit rating2
$23,792 $0 $23,792 $6,110 $— $6,110 
Credit rating2
$21,991 $0 $21,991 $26,966 $0 $26,966 
Requested credit for adequate assuranceRequested credit for adequate assurance5,116 0 0 5,253 0 0 Requested credit for adequate assurance7,330 0 0 6,576 0 0 
Forward value of contract3
Forward value of contract3
1,614 15,325 N/A0 14,827 N/A
Forward value of contract3
143 11,990 N/A9,343 20,903 N/A
TotalTotal$30,522 $15,325 $23,792 $11,363 $14,827 $6,110 Total$29,464 $11,990 $21,991 $42,885 $20,903 $26,966 
_______________
1 Represents the derivative fair value of contracts with contingent features for counterparties in net derivative liability positions. Excludes NPNS, accounts
payable and accounts receivable.
2 Failure by PSE to maintain an investment grade credit rating from each of the major credit rating agencies provides counterparties a contractual right to
demand collateral.
3. Collateral requirements may vary, based on changes in the forward value of underlying transactions relative to contractually defined collateral thresholds.


(5) Fair Value Measurements

ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy categorizes the inputs into three levels with the highest priority given to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority given to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Level 1 primarily consists of financial instruments such as exchange-traded derivatives and listed equities. Equity securities that are also classified as cash equivalents are considered Level 1 if there are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. Instruments in this category include non-exchange-traded derivatives such as over-the-counter forwards and options.

Level 3 - Pricing inputs include significant inputs that have little or no observability as of the reporting date. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value.

Financial assets and liabilities measured at fair value are classified in their entirety in the appropriate fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy. The Company primarily determines fair value measurements classified as Level 2 or Level 3 using a combination of the income and market valuation approaches. The process of determining the fair values is the responsibility of the derivative accounting department which reports to the Controller and Principal Accounting Officer. Inputs used to estimate the fair value of forwards, swaps and options include market-price curves, contract terms and prices, credit-risk adjustments, and discount factors. Additionally, for options, the Black-Scholes option valuation model and implied market volatility curves are used. Inputs used to estimate fair value in industry-standard models are categorized as Level 2 inputs as substantially all assumptions and inputs are observable in active markets throughout the full term of the instruments. On a daily basis, the Company obtains quoted forward prices for the electric and natural gas markets from an independent external pricing service.
The Company considers its electric and natural gas contracts as Level 2 derivative instruments as such contracts are commonly traded as over-the-counter forwards with indirectly observable price quotes. However, certain energy derivative instruments with maturity dates falling outside the range of observable price quotes are classified as Level 3 in the fair value
22

hierarchy. Management's assessment is based on the trading activity in real-time and forward electric and natural gas markets.
23

Each quarter, the Company confirms the validity of pricing-service quoted prices used to value Level 2 commodity contracts with the actual prices of commodity contracts entered into during the most recent quarter.

Assets and Liabilities with Estimated Fair Value
The carrying values of cash and cash equivalents, restricted cash, and short-term debt as reported on the balance sheet are reasonable estimates of their fair value due to the short-term nature of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value of other investments totaling $52.4of $52.0 million and $52.7 million at September 30, 2020,March 31, 2021 and $51.5 million at December 31, 2019,2020 respectively, are included in "Other property and investments" on the balance sheet. These values are also reasonable estimates of their fair value and classified as Level 2 in the fair value hierarchy as they are valued based on market rates for similar transactions.
The fair value of the long-term notes was estimated using the discounted cash flow method with the U.S. Treasury yields and the Company's credit spreads as inputs, interpolating to the maturity date of each issue. The carrying values and estimated fair values were as follows:
Puget EnergyPuget EnergyAt September 30, 2020At December 31, 2019Puget EnergyMarch 31, 2021December 31, 2020
(Dollars in Thousands)(Dollars in Thousands)LevelCarrying
Value		Fair
Value		Carrying
Value		Fair
Value		(Dollars in Thousands)LevelCarrying
Value		Fair
Value		Carrying
Value		Fair
Value
Liabilities:Liabilities:Liabilities:
Long-term debt (fixed-rate), net of discount1
Long-term debt (fixed-rate), net of discount1
2$5,664,898 $7,758,559 $5,512,225 $7,004,316 
Long-term debt (fixed-rate), net of discount1
2$5,670,834 $7,063,347 $5,667,740 $7,755,946 
Long-term debt (variable-rate)Long-term debt (variable-rate)2257,900 257,900 408,100 408,100 Long-term debt (variable-rate)2233,500 233,500 224,700 224,700 
Total liabilitiesTotal liabilities$5,922,798 $8,016,459 $5,920,325 $7,412,416 Total liabilities$5,904,334 $7,296,847 $5,892,440 $7,980,646 

Puget Sound EnergyPuget Sound EnergyAt September 30, 2020At December 31, 2019Puget Sound EnergyMarch 31, 2021December 31, 2020
(Dollars in Thousands)(Dollars in Thousands)LevelCarrying
Value		Fair
Value		Carrying
Value		Fair
Value		(Dollars in Thousands)LevelCarrying
Value		Fair
Value		Carrying
Value		Fair
Value
Liabilities:Liabilities:Liabilities:
Long-term debt (fixed-rate), net of discount2
Long-term debt (fixed-rate), net of discount2
2$4,337,564 $6,127,167 $4,336,142 $5,571,818 
Long-term debt (fixed-rate), net of discount2
2$4,338,523 $5,446,409 $4,338,044 $6,086,358 
Total liabilitiesTotal liabilities$4,337,564 $6,127,167 $4,336,142 $5,571,818 Total liabilities$4,338,523 $5,446,409 $4,338,044 $6,086,358 
_______________
1 The carrying value includes debt issuances costs of $23.1$21.9 million and $24.1$22.7 million for September 30, 2020,March 31, 2021 and December 31, 2019,2020, respectively, which are not included in fair value.
2 The carrying value includes debt issuances costs of $23.3$22.6 million and $24.4$22.9 million for September 30, 2020,March 31, 2021 and December 31, 2019,2020, respectively, which are not included in fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company's financial assets and liabilities by level, within the fair value hierarchy, that were accounted for at fair value on a recurring basis:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Fair Value
At September 30, 2020		Fair Value
At December 31, 2019		Puget Energy and
Puget Sound Energy		Fair Value
At March 31. 2021		Fair Value
At December 31, 2020
(Dollars in Thousands)(Dollars in Thousands)Level 2Level 3TotalLevel 2Level 3Total(Dollars in Thousands)Level 2Level 3TotalLevel 2Level 3Total
Assets:Assets:      Assets:      
Electric derivative instrumentsElectric derivative instruments$47,959 $917 $48,876 $19,282 $651 $19,933 Electric derivative instruments$31,980 $386 $32,366 $21,947 $597 $22,544 
Natural gas derivative instrumentsNatural gas derivative instruments44,966 263 45,229 9,852 1,523 11,375 Natural gas derivative instruments19,677 103 19,780 19,139 137 19,276 
Total assetsTotal assets$92,925 $1,180 $94,105 $29,134 $2,174 $31,308 Total assets$51,657 $489 $52,146 $41,086 $734 $41,820 
Liabilities:Liabilities:      Liabilities:      
Electric derivative instrumentsElectric derivative instruments$19,720 $23,164 $42,884 $13,474 $4,030 $17,504 Electric derivative instruments$12,187 $21,556 $33,743 $22,607 $24,315 $46,922 
Natural gas derivative instrumentsNatural gas derivative instruments9,912 739 10,651 8,376 241 8,617 Natural gas derivative instruments8,491 1,937 10,428 13,080 1,272 14,352 
Total liabilitiesTotal liabilities$29,632 $23,903 $53,535 $21,850 $4,271 $26,121 Total liabilities$20,678 $23,493 $44,171 $35,687 $25,587 $61,274 


2324

The following tables presenttable presents the Company's reconciliation of the changes in the fair value of Level 3 derivatives in the fair value hierarchy:
Puget Energy and
Puget Sound Energy		Three Months Ended
September 30,
(Dollars in Thousands)20202019
Level 3 Roll-Forward Net Asset/(Liability)ElectricNatural GasTotalElectricNatural GasTotal
Balance at beginning of period$(28,609)$342 $(28,267)$(2,446)$2,398 $(48)
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings1
5,516 0 5,516 (4,611)0 (4,611)
Included in regulatory assets / liabilities0 (471)(471)0 206 206 
Settlements846 (347)499 2,529 (1,167)1,362 
Transferred into Level 30 0 0 0 0 0 
Transferred out of Level 30 0 0 0 0 0 
Balance at end of period$(22,247)$(476)$(22,723)$(4,528)$1,437 $(3,091)



Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Nine Months Ended
September 30,		Puget Energy and
Puget Sound Energy		Three Months Ended
March 31,
(Dollars in Thousands)(Dollars in Thousands)20202019(Dollars in Thousands)20212020
Level 3 Roll-Forward Net Asset/(Liability)Level 3 Roll-Forward Net Asset/(Liability)ElectricNatural GasTotalElectricNatural GasTotalLevel 3 Roll-Forward Net Asset/(Liability)ElectricNatural GasTotalElectricNatural GasTotal
Balance at beginning of periodBalance at beginning of period$(3,378)$1,282 $(2,096)$1,362 $1,673 $3,035 Balance at beginning of period$(23,718)$(1,135)$(24,853)$(3,379)$1,282 $(2,097)
Changes during period:Changes during period:Changes during period:
Realized and unrealized energy derivatives:Realized and unrealized energy derivatives:Realized and unrealized energy derivatives:
Included in earnings2
(21,321)0 (21,321)1,524 0 1,524 
Included in earnings1
Included in earnings1
820 0 820 (24,552)0 (24,552)
Included in regulatory assets / liabilitiesIncluded in regulatory assets / liabilities0 (187)(187)0 2,485 2,485 Included in regulatory assets / liabilities0 (888)(888)0 323 323 
SettlementsSettlements2,452 (1,571)881 (10,380)(3,885)(14,265)Settlements1,728 189 1,917 1,626 (513)1,113 
Transferred into Level 3Transferred into Level 30 0 0 4,390 (400)3,990 Transferred into Level 30 0 0 0 0 0 
Transferred out of Level 3Transferred out of Level 30 0 0 (1,424)1,564 140 Transferred out of Level 30 0 0 0 0 0 
Balance at end of periodBalance at end of period$(22,247)$(476)$(22,723)$(4,528)$1,437 $(3,091)Balance at end of period$(21,170)$(1,834)$(23,004)$(26,305)$1,092 $(25,213)
_______________
1.1 Income Statement locations: Unrealized (gain) loss on derivative instruments, net. Amounts include unrealized gains (losses) on derivatives still held in position as of the reporting date for electric derivatives of $4.8$0.8 million and $(4.5) million0 for three months ended September 30,March 31, 2021 and 2020, and 2019, respectively.
2.Income Statement locations: Unrealized (gain) loss on derivative instruments, net. Amounts include unrealized gains (losses) on derivatives still held in position as of the reporting date for electric derivatives of $(19.0) million and $(4.4) million for nine months ended September 30, 2020 and 2019, respectively.

Realized gains and losses on energy derivatives for Level 3 recurring items are included in energy costs in the Company's consolidated statements of income under purchased electricity, electric generation fuel or purchased natural gas when settled. Unrealized gains and losses on energy derivatives for Level 3 recurring items are included in net unrealized (gain) loss on derivative instruments in the Company's consolidated statements of income.
The Company does not use internally developed models to make adjustments to significant unobservable pricing inputs. The only significant unobservable input into the fair value measurement of the Company's Level 3 assets and liabilities is the forward price for electric and natural gas contracts. The weighted average price is calculated as the total market value divided by the total volume of the Company's Level 3 electric and gas commodity contracts, respectively, as of the reporting date.
24

The following table presents the forward price ranges for the Company's Level 3 commodity contracts as of September 30, 2020:March 31, 2021
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Fair ValueRangePuget Energy and
Puget Sound Energy		Fair ValueRange
(Dollars in Thousands)(Dollars in Thousands)
Assets1
Liabilities1
Valuation TechniqueUnobservable InputLowHighWeighted Average(Dollars in Thousands)
Assets1
Liabilities1
Valuation TechniqueUnobservable InputLowHighWeighted Average
ElectricElectric$917 $23,164 Discounted cash flowPower prices (per MWh)$23.80 $46.25 $32.85 Electric$386$21,556Discounted cash flowPower prices (per MWh)$22.87 $44.21 $32.56 
Natural gasNatural gas$263 $739 Discounted cash flowNatural gas prices (per MMBtu)$1.56 $3.61 $2.50 Natural gas$103$1,937Discounted cash flowNatural gas prices (per MMBtu)$2.10 $3.57 $2.70 
_______________
1 The valuation techniques, unobservable inputs and ranges are the same for asset and liability positions.

25

The following table presents the forward price ranges for the Company's Level 3 commodity contracts as of December 31, 2019:2020:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Fair ValueRangePuget Energy and
Puget Sound Energy		Fair ValueRange
(Dollars in Thousands)(Dollars in Thousands)
Assets1
Liabilities1
Valuation TechniqueUnobservable InputLowHighWeighted Average(Dollars in Thousands)
Assets1
Liabilities1
Valuation TechniqueUnobservable InputLowHighWeighted Average
ElectricElectric$651 $4,030 Discounted cash flowPower prices (per MWh)$9.00 $43.85 $33.99 Electric$597$24,315Discounted cash flowPower prices (per MWh)$22.82 $41.66 $31.54 
Natural gasNatural gas$1,523 $241 Discounted cash flowNatural gas prices (per MMBtu)$1.25 $3.18 $2.47 Natural gas$137$1,272Discounted cash flowNatural gas prices (per MMBtu)$1.89 $3.42 $2.47 
___________
1 The valuation techniques, unobservable inputs and ranges are the same for asset and liability positions.

The significant unobservable inputs listed above would have a direct impact on the fair values of the above instruments if they were adjusted. Consequently, significant increases or decreases in the forward prices of electricity or natural gas in isolation would result in a significantly higher or lower fair value for Level 3 assets and liabilities. Generally, interrelationships exist between market prices of natural gas and power. As such, an increase in natural gas pricing would potentially have a similar impact on forward power markets. As of September 30, 2020,March 31, 2021, and December 31, 2019,2020, a hypothetical 10.0%10% increase or decrease in market prices of natural gas and electricity would change the fair value of the Company's derivative portfolio, classified as Level 3 within the fair value hierarchy, by $6.0$4.9 million and $2.5$5.5 million, respectively.

Long-Lived Assets Measured at Fair Value on a Nonrecurring Basis
Puget Energy records the fair value of its intangible assets in accordance with ASC 360, “Property, Plant, and Equipment,” (ASC 360). The fair value assigned to the power contracts was determined using an income approach comparing the contract rate to the market rate for power over the remaining period of the contracts incorporating non-performance risk. Management also incorporated certain assumptions related to quantities and market presentation that it believes market participants would make in the valuation. The fair value of the power contracts is amortized as the contracts settle.
ASC 360 requires long-lived assets to be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. One such triggering event is a significant decrease in the forward market prices of power.
AtAs of March 31, 2020,2021, Puget Energy completed valuation and impairment testing of its power purchase contracts classified as intangible assets.assets and determined that no impairment was needed.. These intangible assets exist as a result of the merger in 2009, at which time the consolidated assets and liabilities were revalued in accordance with ASC 805, "Business Combinations". Differences between the fair market value and the carrying value of assets held at PSE were recorded at PE. The Rocky Reach contract was determined to be impaired due to a decrease in forward prices for this contract of 7.6% from December 31, 2019, causing an impairment of $52.6 million. While this impairment of the intangible asset held at Puget Energy is the result of a decline in forward prices and the corresponding valuation impact, the underlying power purchase contract is included within rates at PSE.
25

The following table presents the impairment recorded to the Company's intangible asset contracts in 2020, with corresponding reductions to the regulatory liability:

Puget EnergyPuget EnergyPuget Energy
(Dollars in Thousands)(Dollars in Thousands)(Dollars in Thousands)
Valuation DateValuation DateContract NameCarrying ValueFair ValueWrite DownValuation DateContract NameCarrying ValueFair ValueWrite Down
March 31, 2020March 31, 2020Rocky Reach$147,168 $94,603 $52,565 March 31, 2020Rocky Reach$147,168$94,603$52,565

26


The valuations were measured using a discounted cash flow, income-based valuation methodology. Significant inputs included forward electricity prices and power contract pricing which provided future net cash flow estimates classified as Level 3 within the fair value hierarchy. The unobservable input averages disclosed below represent the arithmetic average of the inputs and are not weighted by volume. A less significant input is the discount rate reflective of a market participant's cost of capital used in the valuation.
The following table presents the significant unobservable inputs used in estimating the impaired long-term power purchase
contracts' fair value:

Puget EnergyPuget EnergyPuget Energy
Valuation DateValuation DateUnobservable InputLowHighAverageValuation DateUnobservable InputLowHighAverage
March 31, 2020March 31, 2020Power prices (per MWh)$10.23 $29.05 $21.27 March 31, 2020Power prices (per MWh)$10.23$29.05$20.88
Power contract costs per quarter (in thousands)$6,308 $7,085 $6,468 Power contract costs per quarter (in thousands)$6,308$7,085$6,468
December 31, 2019Power prices (per MWh)$11.75 $31.44 $22.53 
Power contract costs per quarter (in thousands)$6,237 $7,087 $6,421 



(6) Retirement Benefits

PSE has a defined benefit pension plan (Qualified Pension Benefits) covering a substantial majority of PSE employees.  Pension benefits earned are a function of age, salary, years of service and, in the case of employees in the cash balance formula plan, the applicable annual interest crediting rates.  Starting January 1, 2014, all the United Association of Plumbers and Pipefitters (UA) represented employees receive annual pay contributions of 4.0% of eligible pay each year in the cash balance formula plan of the defined benefit pension. Non-representedStarting January 1, 2014, for non-represented employees, and December 12, 2014, for employees represented by the International Brotherhood of Electrical Workers Union (IBEW), participants receive annual employer contributions of 4.0% of eligible pay each year in the cash balance formula of the defined benefit pension or 401k plan account. Those employees receiving contributions in the cash balance formula plan also receive interest credits, which are at least 1.0% per quarter. When an employee with a vested cash balance formula benefit leaves PSE, they will have annuity and lump sum options for distribution. PSE also has a non-qualified Supplemental Executive Retirement Plan (SERP) for certain key senior management employees that closed to new participants in 2019. PSE has an officer restoration benefit for new officers who join PSE or are promoted beginning in 2019, such that company contributions under PSE’s applicable tax-qualified plan, which otherwise would have been earned if not for IRS limitations, are credited to an account with the Deferred Compensation Plan.
In addition to providing pension benefits, PSE provides legacy group health care and life insurance benefits (Other Benefits)(Plan) for certain retired employees.  These benefits are provided principally through an insurance company.  The insurance premiums, paid primarily by retirees, are based on the benefits provided during the prior year. On June 11, 2019, the Welfare Benefits Committee approved the termination of the Plan effective December 31, 2019, and the creation of a Retiree Health Reimbursement Account (HRA) Plan effective January 1, 2020. No eligible individual may become a participant or covered dependent in the Plan on or after January 1, 2020, and no benefits will be payable under insurance contracts or the Plan on or after January 1, 2020. Effective January 1, 2020, assets in the 401(h) account will be allocated to the Retiree HRA instead of the Plan to cover the Company's portion of premiums for health benefits for retiree and their beneficiaries.
Puget Energy's retirement plans were remeasured as a result of the merger in 2009, which represents the difference between Puget Energy and PSE's retirement plans.
26

In 2017, the FASB issued ASU 2017-07, requiring that an employer report the service cost component in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Pursuant to the standard, the Company has retrospectively included in the consolidated statements of income: (i) the components of service cost within utility operations and maintenance for PSE and within non-utility expense and other for Puget Energy, and (ii) all non-service cost components in other income.
27

The following tables summarize the Company’s net periodic benefit cost for the three and nine months ended September 30, 2020March 31, 2021 and 2019:2020:
Puget EnergyQualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits
Three Months Ended September 30,
(Dollars in Thousands)202020192020201920202019
Components of net periodic benefit cost:
Service cost$6,084 $6,418 $176 $256 $47 $13 
Interest cost6,295 7,252 362 578 92 84 
Expected return on plan assets(12,476)(12,439)0 0 (97)(100)
Amortization of prior service cost(393)(495)87 83 0 0 
Amortization of net loss (gain)2,040 362 512 341 (20)(156)
Net periodic benefit cost$1,550 $1,098 $1,137 $1,258 $22 $(159)

Puget EnergyPuget EnergyQualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits		Puget EnergyQualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits
Nine Months Ended September 30,Three Months Ended March 31,
(Dollars in Thousands)(Dollars in Thousands)202020192020201920202019(Dollars in Thousands)202120202021202020212020
Components of net periodic benefit cost:Components of net periodic benefit cost:Components of net periodic benefit cost:
Service costService cost$18,253 $16,992 $580 $768 $142 $46 Service cost$6,711 $5,997 $115 $228 $41 $49 
Interest costInterest cost18,885 21,685 1,102 1,735 276 308 Interest cost5,578 6,298 293 378 77 91 
Expected return on plan assetsExpected return on plan assets(37,427)(37,686)0 0 (292)(295)Expected return on plan assets(12,081)(12,502)0 0 (91)(97)
Amortization of prior service costAmortization of prior service cost(1,180)(1,485)262 249 0 0 Amortization of prior service cost(476)(495)87 87 2 0 
Amortization of net loss (gain)Amortization of net loss (gain)6,120 863 1,610 1,024 (61)(281)Amortization of net loss (gain)2,830 1,981 587 586 (10)(22)
Net periodic benefit costNet periodic benefit cost$4,651 $369 $3,554 $3,776 $65 $(222)Net periodic benefit cost$2,562 $1,279 $1,082 $1,279 $19 $21 


Puget Sound EnergyPuget Sound EnergyQualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits		Puget Sound EnergyQualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits
Puget Sound EnergyQualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits
Three Months Ended September 30,Three Months Ended March 31,
(Dollars in Thousands)(Dollars in Thousands)202020192020201920202019(Dollars in Thousands)202120202021202020212020
Components of net periodic benefit cost:Components of net periodic benefit cost:Components of net periodic benefit cost:
Service costService cost$6,084 $6,418 $176 $256 $47 $13 Service cost$6,711 $5,997 $115 $228 $41 $49 
Interest costInterest cost6,295 7,252 362 578 92 84 Interest cost5,578 6,298 293 378 77 91 
Expected return on plan assetsExpected return on plan assets(12,478)(12,443)0 0 (97)(100)Expected return on plan assets(12,081)(12,504)0 0 (91)(97)
Amortization of prior service costAmortization of prior service cost(393)(393)87 83 0 0 Amortization of prior service cost(378)(393)87 87 2 0 
Amortization of net loss (gain)Amortization of net loss (gain)4,761 3,328 575 433 (34)(202)Amortization of net loss (gain)5,311 4,656 635 659 (15)(36)
Net periodic benefit costNet periodic benefit cost$4,269 $4,162 $1,200 $1,350 $8 $(205)Net periodic benefit cost$5,141 $4,054 $1,130 $1,352 $14 $7 

2728


Puget Sound EnergyQualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits
Nine Months Ended September 30,
(Dollars in Thousands)202020192020201920202019
Components of net periodic benefit cost:
Service cost$18,253 $16,992 $580 $768 $142 $46 
Interest cost18,885 21,685 1,102 1,735 276 308 
Expected return on plan assets(37,433)(37,700)0 0 (292)(295)
Amortization of prior service cost(1,180)(1,180)262 250 0 0 
Amortization of net loss (gain)14,283 9,657 1,810 1,300 (103)(421)
Net periodic benefit cost$12,808 $9,454 $3,754 $4,053 $23 $(362)


The following table summarizes the Company’s change in benefit obligation for the periods ended September 30, 2020March 31, 2021 and December 31, 2019:2020:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Qualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits		Puget Energy and
Puget Sound Energy		Qualified
Pension Benefits		SERP
Pension Benefits		Other
Benefits
Nine Months EndedYear EndedNine Months EndedYear EndedNine Months EndedYear EndedThree Months EndedYear EndedThree Months EndedYear EndedThree Months EndedYear Ended
(Dollars in Thousands)(Dollars in Thousands)September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019		(Dollars in Thousands)March 31,
2021		December 31,
2020		March 31,
2021		December 31,
2020		March 31,
2021		December 31,
2020
Change in benefit obligation:Change in benefit obligation:Change in benefit obligation:
Benefit obligation at beginning of periodBenefit obligation at beginning of period$774,305 $677,643 $63,000 $55,708 $11,627 $10,636 Benefit obligation at beginning of period$849,383 $774,305 $46,742 $63,000 $12,114 $11,627 
AmendmentsAmendments0 0 0 0 0 9,049 Amendments0 0 0 0 0 44 
Service costService cost18,253 22,656 580 1,023 142 61 Service cost6,711 24,337 115 756 41 190 
Interest costInterest cost18,885 28,913 1,102 2,314 276 410 Interest cost5,578 25,180 293 1,464 77 368 
Curtailment Loss / (Gain)Curtailment Loss / (Gain)0 0 0 0 0 (7,486)Curtailment Loss / (Gain)0 0 0 0 0 0 
Actuarial loss (gain)Actuarial loss (gain)1,134 84,272 (478)6,756 34 (287)Actuarial loss (gain)0 69,413 0 3,663 0 604 
Benefits paidBenefits paid(35,984)(36,740)(18,140)(2,801)(740)(982)Benefits paid(11,625)(42,775)(496)(22,141)(237)(906)
Medicare part D subsidy receivedMedicare part D subsidy received0 0 0 0 187 226 Medicare part D subsidy received0 0 0 0 196 187 
Administrative ExpenseAdministrative Expense0 (2,439)0 0 0 0 Administrative Expense0 (1,077)0 0 0 0 
Benefit obligation at end of periodBenefit obligation at end of period$776,593 $774,305 $46,064 $63,000 $11,526 $11,627 Benefit obligation at end of period$850,047 $849,383 $46,654 $46,742 $12,191 $12,114 

The aggregate expected contributions by the Company to fund the qualified pension plan, SERP and the other postretirement plans for the year ending December 31, 2020,2021, are expected to be at least $18.0 million, $26.1$6.8 million and $0.3 million, respectively. During the ninethree months ended September 30,March 31, 2021, the Company contributed $0.5 million to fund the SERP. During the three months ended March 31, 2020, the Company contributed $18.0 million and $18.1$13.6 million to fund the qualified pension plan and SERP, respectively. During the nine months ended September 30, 2019, the Company contributed $18.0 million and $2.3 million to fund the qualified pension plan and SERP, respectively.SERP. The Company contributed an immaterial amount to fund the other postretirement plans.

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(7) Regulation and Rates

Power Cost Only Rate Case
On December 9, 2020, PSE filed its 2020 power cost only rate case (PCORC). The filing proposed an increase of $78.5 million (or an average of approximately 3.7%) in the Company's overall power supply costs with an anticipated effective date in June 2021. On February 2, 2021, PSE supplemented the PCORC to update its power costs, leading to a requested increase from $78.5 million to $88.0 million (or an average of approximately 4.1%).
On March 2, 2021, the parties to the PCORC reached a multiparty settlement in principle, with Public Counsel not joining the settlement, but also not opposing. The settlement agreement and supporting testimony was filed with the Washington Commission on April 2, 2021, who held hearings on the matter on April 22, 2021. The settlement resulted in an estimated revenue increase of $65.3 million or 3.1% and, pending approval by the Washington Commission, is expected to be effective June 2021.

General Rate Case
PSE filed a general rate case (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 traditional areas of focus (revenue requirements, cost allocation, rate design and cost of capital), the 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
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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 testimony,filing in the GRC, which provided certain updates toas discussed in the original filing, but did not impact the requested overall electric and natural gas rate increases, return on equity or overall rate of return as originally filed. On January 15, 2020, PSE filed rebuttal testimony whichthat 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 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.
On July 8, 2020, the Washington Commission issued its order on PSE’s GRC. The ruling provided for a weighted cost of capital of 7.39% or 6.8% after-tax, and a capital structure of 48.5% in common equity with a return on equity of 9.4%. The order also resulted in a combined net increase to electric of $29.5 million, or 1.6%, and to natural gas of $36.5 million, or 4.0%. However, the Washington Commission extended the amortization of certain regulatory assets, PSE’s electric decoupling deferral, and PSE’s PGA deferral to mitigate the impact of the rate increase in response to the economic instability created by the COVID-19 pandemic, which reduced the electric revenue increase to approximately $0.9 million, or 0.05%, and the natural gas increase to $1.3 million, or 0.15%. The Washington Commission also determined that the Company’s proposed attrition adjustment of $23.9 million for electric and $16.2 million for natural gas was not in the public interest at this time. The order also effectively ends the deferral of depreciation expense associated with PSE’s advanced metering infrastructure (AMI) investment while allowing the deferral on the return on AMI investments through December 31, 2019. Additional AMI investments will be evaluated in future proceedings for deferrals of return until the AMI project is complete. On July 17, 2020, PSE filed a motion for clarification with the Washington Commission seeking clarification on several items. On July 31, 2020, the Washington Commission issued an order granting PSE’s motion for clarification. The ruling adjusted certain items from the final order issued on July 8, 2020, which led to a combined net increase to electric of $59.6 million, or 2.9%, an increase of $30.1 million above the $29.5 million granted in the final order. The order also led to a combined net increase to natural gas of $42.9 million, or 5.6%, an increase of $6.4 million above the $36.5 million granted in the final order. The Washington Commission maintained adjustments which mitigated the impacts of the rate increases in response to the economic instability created by the COVID-19 pandemic, which reduced the electric revenue increase to approximately $27.7 million, or 1.3%, and the natural gas increase to $0.2 million, or 0.02%.
On August 6, 2020, PSE filed a petition for judicial review with the Superior Court of the State of Washington for King County (Superior Court) challenging the portion of the final order that requires PSE to pass back to customers the reversal of plant-related excess deferred income taxes in a manner that may deviate from the IRSInternal Revenue Service (IRS) normalization and consistency rules. On August 7, 2020, PSE filed a motion to stay with the Superior Court related to the portions of the final order under judicial review. On September 14, 2020, the Superior Court denied PSE's motion to stay. PSE reviewed the original Washington Commission order including the ramifications of certain tax issues and will filerequested a Private Letter Ruling (PLR) with the IRS onregarding this matter. PSE will continue to utilize the average rate assumption method (ARAM) in the turnaround of certain accelerated tax depreciation benefits on PSE assets. There is approximately $25.6 million in annual revenue requirement related to the 2019 GRC which PSE has requested it be allowed to track in order to allow the Washington Commission to decide if it is appropriate for PSE to recover, pending the outcome of the IRS ruling.
On September 23, 2020, PSE filed a compliance filing.filing with the Washington Commission. The natural gas tariffs became effective October 1, 2020 and the electric tariffs on October 15, 2020. On October 7, 2020, PSE, the Washington Commission and interveners agreed to dismiss the petition for judicial review. The agreement is based on a commitment from the Washington Commission that if the IRS ruling finds that the Washington Commission’s methodology for reversing plant-related excess deferred income taxes is impermissible, the Washington Commission will open a proceeding to review and enact the changes required by the IRS ruling. There is approximately $25.6 million in annual revenue requirement related to the 2019 GRC which PSE has requested it be allowed to track in order to allow the Washington Commission to decide if it is appropriate for PSE to recover, pending the outcome of the IRS ruling.

Expedited Rate Filing
On November 7, 2018, PSE filed an ERF with the Washington Commission. The filing requested to change rates associated with PSE’s delivery and fixed production costs. It did not include variable power costs, purchased gas costs or natural gas pipeline replacement program costs, which are recovered in separate mechanisms. The filing was based on historical test year costs and rate base, and followed the reporting requirements of a Commission Basis Report, as defined by
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the Washington Administrative Code, but used end of period rate base and certain annualizing adjustments. It did not include any forward-looking or pro-forma adjustments. Included in the filing was a reduction to the overall authorized rate of return from 7.6% to 7.49% to recognize a reduction in debt costs associated with recent debt activity. PSE requested an overall increase in electric rates of $18.9 million annually, which is a 0.9% increase, and an overall increase in natural gas rates of $21.7 million annually, which is a 2.7% increase.
On January 22, 2019, all parties in the proceeding reached an agreement on settlement terms that resolved all issues in the filing. The settlement agreement was filed on January 30, 2019. The parties agreed to a $21.5 million rate increase for natural
30

gas and no rate increase for electric which became effective March 1, 2019. As is discussed below, these rates include the offsetting effect of passing back to customers plant related excess deferred income taxes that resulted from the TCJA, using the ARAMaverage rate assumption method (ARAM) amounts to arrive at the settlement rate changes.
The settlement agreement provides for the pass back of plant related excess deferred income taxes that resulted from the TCJA using the ARAM methodology based on 2018 amounts beginning March 1, 2019, in the amount of $6.1 million for natural gas customers and $25.9 million for electric customers. The settlement agreement left the determination for the regulatory treatment of the remaining items related to the TCJA, listed below, to PSE’s then-next GRC, that was filed June 20, 2019:2019, and discussed above:
1)excess deferred taxes for non-plant-related book/tax differences for periods prior to March 1, 2019,2019;
2)the deferred balance associated with the over-collection of income tax expense for the period January 1 through April 30, 2018, (the time period that encompasses the effective date of the TCJA to May 1, 2018, the effective date of the TCJA rate change); and
3)the turnaround of plant related excess deferred income taxes using the ARAM method for the period from January 2018 through February 2019, the rate effective date for the ERF.
The settlement agreement provides that PSE may defer the depreciation expense associated with PSE’s ongoing investment in its AMI investment and may defer the return on the AMI investment that was included in the test year of the filing. As noted above, the 2019 GRC effectively ends all deferrals of AMI depreciation expense and deferrals of return on additional AMI investments will be evaluated in future proceedings. The rate of return adopted in the settlement for reporting and deferral purposes is 7.49%. On February 21, 2019, the Washington Commission approved the settlement with one condition: PSE passed back the deferred balance associated with the tax over-collection of $34.6 million for the period from January 1, 2018, through April 30, 2018, over a one-year period which ended May 1, 2020.

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 requested deferral accounting treatment resulted in the tax rate change being captured in the deferred income tax balance with an offset to the regulatory liability for deferred income taxes for GAAP purposes.  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 35.0% to 21.0%. The overall impact of the rate change, based on the annual period from May 2018 through April 2019, is a revenue decrease of $72.9 million, or 3.4% for electric and $23.6 million, or 2.7% for natural gas and became effective May 1, 2018, by operation of law.
The March 30, 2018, rate change filing did not address excess deferred taxes or the deferred balance associated with the over-collection of income tax expense of $34.6 million for the period January 1 through April 30, 2018, (the time period that encompasses the effective date of the TCJA through May 1, 2018, the effective date of the rate change). The $34.6 million tax over-collection decreased PSE's revenue and increased the regulatory liability for a refund to customers.
As a result ofWhile the Washington Commission's final ordersettlement agreement in the ERF provides for the pass back of plant related excess deferred income taxes that resulted from the TCJA using the ARAM methodology based on 2018 amounts through the PSE Schedule 141X tariff, the ongoing treatment of excess deferred taxes associated with non-plant-related book/tax differences and the treatment of the excess deferred taxes associated with plant related book/tax differences from January 1, 2018, through February 28, 2019, was left to be addressed in PSE’s GRC, which was filed on June 20, 2019. The Washington Commission also required in the ERF order that PSE pass back the deferred balance associated with the tax over-collection for the period from January 1, 2018, through April 30, 2018, as discussed above, over a one-year period which began May 1, 2019. Per PSE’s Schedule 141Y tariff, following the May 2019 through April 2020 refund period, if the residual balance of credit owed to customers will be greater than $0.1 million, PSE would submit a filing no later than July 31, 2020 with a proposal of passing back the residual balance effective September 1, 2020 through August 31, 2021. As this balance was greater than $0.1 million, PSE filed tariff revisions on July 20, 2020 and the Washington Commission approved the filing on August 27, 2020. Finally, the GRC final order determined that PSE is required to pass back 2019 and 2020 protected excess deferred tax reversals totaling $70.8 million over the 12 months following the rate effective period. As noted above,period through PSE’s Schedule 141X tariff. The GRC final order also determined that PSE filed a motion for clarification with the Washington Commission seeking clarification on several items including administration of theis required to pass back ofunprotected excess deferred tax reversals. On July 31, 2020, PSE received an order grantingbalances totaling $38.9 million over 36 months following the rate effective period through PSE’s motion for clarification which adjusted certain items withinSchedule 141Z tariff. Further details of the final order, including treatment of protected excess deferred taxes. PSE reviewedoutcome associated with PSE’s tax deferral filing are discussed in the original Washington Commission order including the ramifications of certain tax issuesERF and will file a PLR with
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the IRS on the matter. PSE filed a compliance filing on September 23, 2020. The natural gas tariffs became effective October 1, 2020 and electric tariffs on October 15, 2020.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 2013, the Washington Commission has allowed PSE to record a monthly adjustment to its electric and natural gas
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operating revenues related to electric transmission and distribution, natural gas operations and general administrative costs from most residential, commercial and industrial customers to mitigate the effects of abnormal weather, conservation impacts and changes in usage patterns per customer. As a result, these electric and natural gas revenues are recovered on a per customer basis regardless of actual consumption levels. PSE's energy supply costs, which are part of the PCA and PGA mechanisms, are not included in the decoupling mechanism. The revenue recorded under the decoupling mechanisms will be affected by customer growth and not actual consumption. 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.
On December 5, 2017, the Washington Commission approved PSE’s request within the 2017 GRC to extend the decoupling mechanism with several changes to the methodology that took effect on December 19, 2017. Electric and natural gas delivery revenues continue to be recovered on a per customer basis and electric fixed production energy costs are now decoupled and recovered on the basis of a fixed monthly amount. The allowed decoupling revenue for electric and natural gas customers will no longer increase annually each January 1 as occurred prior to December 19, 2017. Approved revenue per customer costs can only be changed in a GRC or ERF. Approved electric fixed production energy costs can alsoonly be changed in a GRC or a power cost only rate case. Other changes to the decoupling methodology approved by the Washington Commission include regrouping of electric and natural gas non-residential customers and the exclusion of certain electric schedules from the decoupling mechanism going forward. The rate test, which limits the amount of revenues PSE can collect in its annual filings, increased from 3.0% to 5.0% for natural gas customers but will remain at 3.0% for electric customers. The decoupling mechanism will be reviewed again in PSE’s first rate case filed in or after 2021, or in a separate proceeding, if appropriate. PSE’s decoupling mechanism over- and under- collections will still be collectible or refundable after this effective date even if the decoupling mechanism is not extended.
On February 21, 2019, the Washington Commission approved the multi-party settlement agreement which was filed within PSE’s ERF filing. As part of this settlement agreement, electric and natural gas allowed delivery revenue per customer was updated to reflect changes in the approved revenue requirement. For electric, there were no changes to the annual allowed fixed power cost revenue. The changes took effect on March 1, 2019.
On July 8, 2020, the Washington Commission issued the final order via docketsin Dockets UE-190529 and UG-190530, which instructed PSE to extend the collection of amortization balances for electric decoupling delivery and fixed power cost sections originally filed through the annual May 2020 decoupling filing.The extension requires PSE to move amortization balances for electric decoupling as of August 31, 2020 of about $16.0 million for electric delivery and fixed power cost decoupling to be collected from customers for a two-year period, instead of the originally approved one-year period. Additionally, through approving the electric cost of service, the final order approved the re-allocation of decoupling balances from Schedule 40 to the remaining electric decoupling groups.
On December 23, 2020, the Washington Commission approved PSE’s filing to update Schedule 142 decoupling amortization rates, with an effective date of January 1, 2021, by zeroing out rates still effective past October 15, 2020 on tariff sheet Schedule 142-H, which was replaced by rates on tariff sheet Schedule 142-I effective October 15, 2020.As part of this filing, PSE will true up the over-collection amounts for the period of October 15, 2020 through December 31, 2020 in PSE’s annual May 2021 decoupling filing.
On September 30, 2020,March 31, 2021, PSE performed an analysis to determine if electric and natural gas decoupling revenue deferrals would be collected from customers within 24 months of the annual period, per ASC 980.  If not, for GAAP purposes only, PSE would need to record a reserve against the decoupling revenue and a corresponding regulatory asset balance.  Once the reserve is probable of collection within 24 months from the end of the annual period, the reserve can be recognized as decoupling revenue. The analysis indicated that $4.1$0.9 million of electric deferred revenue will not be collected within 24 months of the annual period; therefore a reserve adjustment was booked to 20202021 electric decoupling revenue. Natural gas deferred revenue will be collected within 24 months of the annual period; therefore, 0 reserve adjustment was booked to 20202021 natural gas decoupling revenue.

Power Cost Adjustment Mechanism
PSE currently has a PCA mechanism that provides for the deferral of power costs that vary from the “power cost baseline” level of power costs. The “power cost baseline” levels are set, in part, based on normalized assumptions about weather and hydroelectric conditions.  Excess power costs or savings are apportioned between PSE and its customers pursuant to the graduated scale set forth in the PCA mechanism and will trigger a surcharge or refund when the cumulative deferral trigger is reached.
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Effective January 1, 2017, the following graduated scale is used in the PCA mechanism:


Company’s ShareCustomers' Share

Company’s ShareCustomers' Share
Annual Power Cost VariabilityAnnual Power Cost VariabilityOverUnderOverUnderAnnual Power Cost VariabilityOverUnderOverUnder
Over or Under Collected by up to $17 millionOver or Under Collected by up to $17 million100 %100 %— %— %Over or Under Collected by up to $17 million100 %100 %0 %0 %
Over or Under Collected by between $17 million - $40 millionOver or Under Collected by between $17 million - $40 million35 50 

65 50 Over or Under Collected by between $17 million - $40 million35 50 

65 50 
Over or Under Collected beyond $40 + millionOver or Under Collected beyond $40 + million10 10 

90 90 Over or Under Collected beyond $40 + million10 10 

90 90 

For the ninethree months ended September 30, 2020,March 31, 2021, in its PCA mechanism, PSE under recovered its allowable costs by $51.5$11.4 million of which $21.9 million0 was apportioned to customers and $1.6$0.3 million of interest was accrued on the deferred customer balance. This compares to an under recovery of allowable costs of $48.9$25.1 million for the ninethree months ended September 30, 2019,March 31, 2020, of which $19.5$4.0 million was apportioned to customers and accrued $0.3$0.5 million of interest on the total deferred customer balance.

Power Cost Adjustment Clause Filing
On July 1, 2019, PSE updated its Schedule 95 rates in the Power Cost Adjustment Clause tariff to reflect the transition fee as required by Section 12 of the Microsoft Special Contract. Additionally, Schedule 95 rates also include portions of fixed power cost adjustments per the allowed decoupling rate re-allocation effective April 1, 2019, resulting from Microsoft becoming a transportation customer as well as small variable power cost adjustments.
On July 8, 2020, the Washington Commission issued the final order in Dockets UE-190529 and UG-190530, which instructed PSE to remove Schedule 95 collection on decoupling allowed rates for Microsoft Special Contracts, which will be included in allowed rates under the Decoupling Schedule 142 effective October 15, 2020.
PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2019. The surcharging of deferrals can be triggered by the Company when the balance in the deferral account is a credit of $20.0 million or more. Due to concerns about the economic impact of the COVID-19 pandemic on customers, PSE voluntarily, with Washington Commission Staff support, delayed filing an increase to its Schedule 95 rates in its annual PCA report filing in Docket UE-200398, which was approved on July 30, 2020. Subsequently, PSE filed to recover the deferred balance in Docket UE-200893, effective December 1, 2020, and the Washington Commission approved PSE’s request on November 24, 2020. During 2019, actual power costs were higher than baseline power costs, thereby creating an under-recovery of $67.2 million. Under the terms of the PCA’s sharing mechanism for under-recovered power costs, PSE absorbed $31.2 million of the under-recovered amount, and customers were responsible for the remaining $36.0 million, or $37.0 million including interest. As PSE had an approved balance owing from customers including interest at the start of 2019 totaling $4.7 million, the approved cumulative deferral balance for the PCA, as of December 2019, is $41.7 million. As previously stated, this filing is set to collect the customer’s share of the cumulative 2019 imbalance in PSE’s PCA mechanism.

Purchased Gas Adjustment Mechanism
On April 25, 2019, the Washington Commission approved PSE’s request for an out-of-cycle change to 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 out-of-cycle PGA rates were effective from May 1, 2019 through April 30, 2020 and on May 1, 2020 the rates were set to zero.At the end of the recovery period, an unamortized balance of $4.9 million remained which PSE requested to be amortized in its upcoming annual PGA filing for rates effective November 1, 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 rates effective November 1, 2018; 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 lastthat winter experienced by PSE: the rupture of a pipeline owned by Enbridge, pipeline rupture,Inc. in October 2018, unusually low temperatures in
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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 was approved to collectwill be collecting $114.4 million commodity deferrals and related interest over a two yeartwo-year period, instead of the historic one yearone-year period, from November 2019 through October 2021.
On July 8, 2020, the Washington Commission issued the final order in Dockets UE-190529 and UG-190530, which instructed PSE to extend the collection of amortization balances for the portion of PGA amortization balances originally filed through the annual November 1, 2019 PGA filing under the Supplemental Schedule 106B. The extension requires PSE to move amortization balances for PGA Schedule 106B as of August 31, 2020 to be collected from customers for a three-year period, instead of the originally approved two-year period.



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On October 29, 2020, the Washington Commission approved PSE’s request for November 2020 PGA rates in Docket UG-200832, effective November 1, 2020. As part of that filing, PSE requested PGA rates increase annual revenue by $32.6 million, while the new tracker rates increased annual revenue by $37.4 million; this was in addition to continuing the collection on the remaining balance of $69.4 million under Supplemental Schedule 106B.
The following table presents the PGA mechanism balances and activity at September 30, 2020March 31, 2021 and December 31, 2019:2020:

Puget Sound Energy
Puget Sound Energy
Puget Sound Energy
(Dollars in Thousands)(Dollars in Thousands)At September 30,At December 31(Dollars in Thousands)At March 31,At December 31,
PGA receivable balance and activityPGA receivable balance and activity20202019PGA receivable balance and activity20212020
PGA receivable beginning balancePGA receivable beginning balance$132,766 $9,922 PGA receivable beginning balance$87,655 $132,766 
Actual natural gas costsActual natural gas costs214,772 406,162 Actual natural gas costs113,175 314,792 
Allowed PGA recoveryAllowed PGA recovery(248,809)(289,876)Allowed PGA recovery(154,592)(363,886)
InterestInterest3,177 6,558 Interest549 3,983 
PGA receivable ending balancePGA receivable ending balance$101,906 $132,766 PGA receivable ending balance$46,787 $87,655 


Get to Zero Depreciation Deferral
On April 10, 2019, PSE filed an accounting petition with the Washington Commission, requesting authorization to defer depreciation expense associated with Get Toto Zero (GTZ) projects that were placed in service after June 30, 2018. The GTZ project consists of a number of short-lived technology upgrades. The depreciation expense associated with the GTZ projects with lives of 10 years or less that were placed in service after June 30, 2018, were deferred beginning May 1 per the petition request. As of September 30, 2020,For the period ended March 31, 2021 and December 31, 2019,2020, PSE had deferred GTZ$4.6 million and $2.8 million of depreciation expense balances of $52.0 million and $21.7 million,for GTZ, respectively. In addition to the deferral of depreciation expense, deferral, PSE had also requested to defer carrying charges on the GTZ deferral, to be calculated utilizing the Company’s currently authorized after tax rate of return, or 6.89% per the 2018 ERF. As of September 30, 2020, and December 31, 2019, PSE has a deferred carrying charge balance of $1.2 million and $0.5 million, respectively. The GTZ accounting petition was consolidated with PSE’s 2019 GRC and on July 8, 2020, the Washington Commission issued its order in PSE’s 2019 GRC. The ruling authorized PSE to amortize deferred GTZ expenses as proposed in the original general rate caseGRC filing.The ruling also allows continued deferral of the depreciation expense associated with GTZ investments not already approved for recovery with a book life of 10 years or less, through PSE's next GRC. Finally, the final order set the rate at which PSE could defer and recover carrying charges from PSE’s authorized rate of return to the quarterly interest rate established by the FERC.

Crisis Affected Customer Assistance Program
On April 6, 2020, PSE filed with the Washington Commission revisions to its currently effective Tariff WN U-60.The purpose of this filing is to incorporate into PSE’s low-income tariff a new temporary bill assistance program, Crisis Affected Customer Assistance Program (CACAP), to mitigate the economic impact of the COVID-19 pandemic on PSE’s customers.CACAP would allow PSE customers facing financial hardship due to COVID-19 to receive up to $1,000 in bill assistance. The program puts to immediate use $11.0 million in unspent low income funds from prior years, and supplements other forms of financial assistance. The program does not require an increase to rates and is fully compatible with other low income programs.Based on the COVID-19 pandemic and resulting state of emergency, the Washington Commission allowed the tariff revisions to become effective on April 13, 2020. PSE made an additional filing on July 21, 2020 to increase the amount of electric funds available for distribution by $4.5 million under the CACAP program. The program was set to automatically end when all of the funds are disbursed orended on September 30, 2020, whichever occurred first. Based on the COVID-19 pandemic and resulting state of emergency,2020.
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On March 28, 2021 the Washington Commission allowed the tariff revisionsapproved PSE’s second Crisis Affected Customer Assistance Program (CACAP-2), effective April 12, 2021. CACAP-2 will provide up to become effective on April 13, 2020.$2,500 in bill assistance for each qualifying low-income household, per program year, with a total program budget of $20.0 million for electric customers and $7.7 million for natural gas customers.

Storm Damage Deferral Accounting
The Washington Commission issued a GRC order thathas defined deferrable storm events and provided that costs in excess of the annual cost threshold may be deferred for qualifying storm damage costs that meet the modified Institute of Electrical and Electronics Engineers outage criteria for system average interruption duration index. For the ninethree months ended September 30, 2020,March 31, 2021, PSE incurred $15.5$23.3 million in storm-related electric transmission and distribution system restoration costs, of which $5.3$12.9 million and $0.2 million was deferred as regulatory assets related to storms that occurred in 2020.2021 and 2020, respectively. This compares to $39.3$9.9 million incurred in storm-related electric transmission and distribution system restoration costs for the ninethree months ended September 30, 2019,March 31, 2020, of which the Company deferred $0.4 million and $28.5 million0 as regulatory assets related to storms that occurred in 2018 and 2019, respectively.2020. Under the December 5, 2017, Washington Commission order regarding PSE’s GRC, the following changes to PSE’s storm deferral mechanism were approved: (i) the cumulative annual cost threshold for deferral of storms under the mechanism increased from $8.0 million to $10.0 million effective January 1, 2018; and (ii) qualifying events where the total qualifying cost is less than $0.5 million will not qualify for deferral and these costs will also not count toward the $10.0 million annual cost threshold.


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(8) Commitments and Contingencies

Colstrip
PSE has a 50% ownership interest in Colstrip Units 1 and 2 and a 25% interest in each of Colstrip Units 3 and 4.4, which are coal-fired generating units located in Colstrip, Montana. In March 2013, the Sierra Club and the Montana Environmental Information Center filed a Clean Air Act citizen suit against all Colstrip owners in the U.S. District Court, District of Montana. In July 2016, PSE reached a settlement with the Sierra Club to dismiss all of the Clean Air Act allegations against the Colstrip Generating Station, which was approved by the court in September 2016. As part of the settlement that was signed by all Colstrip owners, Colstrip 1 and 2 owners, PSE and the operator of Colstrip, Talen Energy Corporation (Talen), agreed to retire the 2 oldest units (Units 1 and 2) at Colstrip in eastern Montana no later than July 1, 2022. Depreciation rates were updated in the GRC effective December 19, 2017, where PSE's depreciation increased for Colstrip Units 1 and 2 to recover plant costs to the expected shutdown date. Additionally, PSE has accelerated the depreciation of Colstrip Units 3 and 4, per the terms of the GRC settlement, to December 31, 2027. The GRC also repurposed PTCs and hydro-related treasury grants to recover unrecovered plant costs and to fund and recover decommissioning and remediation costs for Colstrip Units 1 through 4. The final order in the 2019 GRC further shortened the depreciable life for Colstrip 3 and 4 to December 31, 2025 to align with the requirements of the Clean Energy Transformation Act.
Consistent with a June 2019 announcement, Talen permanently shut down Units 1 and 2 at the end of 2019 due to operational losses associated with the Units. Colstrip Units 1 and 2 were retired effective December 31, 2019. The Washington Clean Energy Transition Act requires the Washington Commission to provide recovery of the investment, decommissioning, and remediation costs associated with the facilities that are not recovered through the repurposed PTC'sPTCs and hydro-related treasury grants. The full scope of decommissioning activities and costs may vary from the estimates that are available at this time.
On December 10, 2019, PSE announced its intention to sell its interest in Colstrip Unit 4 to NorthWestern Energy for $1. Under thethis agreement, with NorthWestern Energy, PSE would retainhave retained its obligation to fund 25% of the environmental remediation and decommissioning costs associated with Unit 4 during PSE's operation.ownership. The proposed agreement was subject to approval by the Washington Commission and the Montana Public Service Commission. Additionally, PSE enteredhad agreed to enter into a power purchase agreement with NorthWestern Energy for 90 MW through 2025 to facilitate the transition, and sell a portion of its dedicated Colstrip transmission system, conditioned upon the same regulatory approval of the overall transaction. Other Colstrip owners and other external parties have intervened in the pending regulatory review of this transaction, and one Colstrip owner, Talen, has exercised its contractual right to purchase its pro rata share of the interest to be sold by PSE.approval.
On August 14, 2020, an amendment to the agreement was executed selling a portion of PSE’s interest in Colstrip Unit 4 to Talen, in addition to NorthWestern Energy. Following this, PSE submitted supplementary testimony related to this amendmentHowever, after evaluating the likelihood of the regulatory approval process in the proceeding with theboth Washington Commission. Both the Washington Commission and the Montana, Public Service Commission issued new procedural calendars which were previously on hold until these supplemental filings were completed. The original purchase agreement was written such that the purchase must close by December 31, 2020.
On October 29, 2020, PSE, NorthWestern Energy, and Talen mutually agreed to terminate the proposed sales agreement and the proposed power purchase agreement and relieve all claims against one another arising out of or relating to the sale agreement after evaluating the likelihood of the regulatory approval process in both Washington and Montana.agreement. The termination of the proposed sale and proposed PPA resulted in the withdrawal of PSE's filing with the Washington Commission. Colstrip Unit 4 is classified as Electric Utility Plant on the balance sheet, see Note 6, "Utility Plant," to the consolidated financial statements in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2019.2020.

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Other Commitments and Contingencies
In addition to the contractual obligations and consolidated commercial commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019,2020, during the ninethree months ended September 30, 2020,March 31, 2021, the Company entered into new Electric Portfolio and Electric Wholesale Market Transaction contracts with estimated payment obligations totaling $935.3$777.4 million through 2042.
For further information, see Note 16, "Commitments and Contingencies" to the consolidated financial statements included in Item 8 of the Company's Form 10-K for the period ended December 31, 2019.2020.

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COVID-19
The outbreak of the novel coronavirusCoronavirus Disease 2019 (COVID-19) has become a global pandemic. The Company is monitoring the impact of the pandemic and taking steps to mitigate known risks. The full impact on the Company's business from the pandemic, including governmental and regulatory response actions, is unknown at this time and difficult to predict. The Company provides a critical and essential service to its customers and the health and safety of its employees and customers is its first priority. The Company is continuously monitoring its supply chain and is working closely with essential vendors to understand the impact of COVID-19 to its business and does not currently expect service disruptions.
Government mandated stay at home orders and private work from home mandates due to COVID-19 have affected electric and gas loads for residential, commercial, and industrial customers. During the quarter ended September 30, 2020,March 31, 2021, the Company delivered lowermarginally higher electric and decreased natural gas loads 2.7%of 0.1% and 7.7%3.7%, respectively, when comparing weather-adjusted actual to forecast. Decreases in commercial and industrial loads were partially offset by increases in residential loads. Electric retail revenue reductions were partially offset bymarginal increases included reduced electric supply costs and the effects of decoupling. The impact on natural gas revenue due to load was offset by gas supply cost and decoupling. The Company anticipates that electric and gas loads will continue to be impacted for the remainder of 2020,2021, due to continued work place lock downs, work at home mandates, other government mandated quarantines, economic recession, and resurgence of the COVID-19 virus.
At the date of this report, the Company is effectively managing operations during the pandemic in order to continue to provide critical service to its customers. The Company has flexibility with capital investments and other measures to maintain sufficient liquidity over the next twelve months. The situation remains fluid and future impacts to the Company that are presently unknown or unanticipated may occur. Furthermore, the severity of impact to the Company could increase the longer the global pandemic persists.
On September 3, 2020, the Company filed an accounting petition with the Washington Commission, requesting authorization to defer the costs and foregone revenue net of offsets associated with the COVID-19 public health emergency. On November 6, 2020, PSE anticipates receivingfiled a rulingrevised petition which was approved on December 10, 2020 by the matter sometimeWashington Commission granting PSE's accounting petition in part by allowing the fourth quarterdeferral of 2020.COVID-19 incremental costs and foregone revenue net of offsets. As of March 31, 2021, PSE deferred no costs related to this petition specific to COVID-19.

(9)  Leases

PSE has operatingOther than the item discussed below, there have been no significant changes regarding the Company's leases as described in Note 9 in the Company’s Annual Report on Form 10-K for buildings for corporate offices and operations, real estate for operating facilities and the Tacoma LNG facility, land for our wind farms, and vehicles for PSE’s fleet. The finance leases are for office printers. The leases have remaining lease terms of less than a year to 50 years. PSE's ROU assets and lease liabilities include options to extend leases when it is reasonably certain that PSE will exercise that option.ended December 31, 2020.
During the fourthfirst quarter of 2019, PSE became reasonably certain to exercise2021, mechanical completion was achieved for the Puget LNG facility which triggered an option to extend itsincrease in the lease atpayments for the Port of Tacoma for an additional 25 years as a result of the approval of the Notice of Construction permit for the Tacoma LNG facility.lease. This remeasurement resulted in an increase of the Operatingoperating lease right-of-useROU asset and Operatingoperating lease liabilities of
$14.7 $26.3 million.
The components of lease cost were as follows:
Puget Energy and
Puget Sound Energy		Three Months Ended
September 30,		Nine Months Ended
September 30,
(Dollars in Thousands)2020201920202019
Finance lease cost:
Amortization of right-of-use asset$151 $128 $455 $410 
Interest on lease liabilities8 10 27 29 
Total finance lease cost$159 $138 $482 $439 
Operating lease cost1
$4,902 $5,311 $16,051 $15,318 
_______________
1 Includes $0.3 million allocated to PLNG at Puget Energy related to the Port of Tacoma lease for each of the three months ended September 30, 2020 and 2019, respectively and $0.8 million for each of the nine months ended September 30, 2020 and 2019, respectively.



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Supplemental cash flow information related to leases was as follows:

Puget Energy and
Puget Sound Energy		Nine Months Ended
September 30,
(Dollars in Thousands)20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow for operating leases$11,152 $10,437 
Investing cash flow for operating leases1
4,899 4,881 
Operating cash flow for finance leases27 29 
Financing cash flow for finance leases455 410 
Non-cash disclosure upon commencement of new lease
Right-of-use assets obtained in exchange for new operating lease liabilities4,996 2,032 
_______________
1 Includes $0.8 million allocated to PLNG at Puget Energy related to the Port of Tacoma lease for each of the nine months ended September 30, 2020 and 2019, respectively.

Supplemental balance sheet information related to leases was as follows:

Puget Sound Energy
(Dollars in Thousands)September 30,December 31,
Operating Leases20202019
Operating lease right-of-use asset$175,091 $183,048 
Operating leases liabilities current19,400 15,862 
Operating lease liabilities long-term163,453 174,327 
Total Operating lease liabilities:$182,853 $190,189 
Finance Leases
Common Plant$1,033 $1,488 
Other current liabilities546 669 
Other deferred credits420 811 
Total finance lease liabilities$966 $1,480 
Weighted Average Remaining Lease Term
Operating leases19.00 Years19.24 Years
Finance leases2.10 Years2.76 Years
Weighted Average Discount Rate
Operating leases3.59 %3.59 %
Finance leases2.98 %2.98 %
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The following tables summarize the Company’s estimated future minimum lease payments as of September 30, 2020, and December 31, 2019, respectively:

Maturities of lease liabilitiesFuture Minimum Lease Payments
(Dollars in Thousands)
At September 30,Operating LeasesFinance Leases
2020 (remaining three months)$5,329 $160 
202123,171 508 
202222,522 279 
202322,082 98 
202421,349 0 
Thereafter162,578 0 
Total lease payments$257,031 $1,045 
Less imputed interest(74,178)(79)
Total$182,853 $966 


Maturities of lease liabilitiesFuture Minimum Lease
Payments
(Dollars in Thousands)
At December 31,Operating LeasesFinance Leases
2020$22,500 $643 
202122,527 508 
202221,856 279 
202321,415 98 
202420,690 0 
Thereafter160,410 0 
Total lease payments$269,398 $1,528 
Less imputed interest(79,209)(48)
Total net present value$190,189 $1,480 


(10) Other

Long-Term Debt
On May 19, 2020, Puget Energy issued $650.0 millionAs of senior secured notes (Notes) at an interest rate of 4.1%. The Notes pay interest semi-annually and are due to mature on June 15, 2030. The proceeds from the issuance of the Notes were used to pay $150.0 million under our term loan credit facility, pay $31.6 million of our revolving credit facility, and to redeem $450.0 million in principal amount of the 6.5% senior secured notes due December 15, 2020 and to pay related fees and expenses.
On June 18, 2020, Puget Energy redeemed the $450.0 million senior secured notes due December 15, 2020 and paid related fees and expenses for a total redemption price of $463.2 million. Excluding the repayment of the $450.0 million principal amount and $0.3 million of unamortized debt discount and issuance cost, the extinguishment incurred a $13.5 million loss, which includes $0.4 million of accrued interest expense and is reported in the Puget Energy "Interest Expense" line item as of September 30, 2020.
At September 30, 2020,March 31, 2021, Puget Energy maintained an $800.0 million credit facility, of which $23.9$23.5 million was drawn and outstanding under the facility.
For further information, see Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's most recent Annual Report on Form 10K for the year ended December 31, 2019.2020.



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Short-Term Debt
During the nine months ended September 30, 2020, commercial paper markets were significantly impacted for a periodAs of time due to COVID-19, during which time the Company drew short term funding from its credit facility. Commercial paper markets improved as of September 30, 2020, at which timeMarch 31, 2021, 0 amount was drawn under PSE's credit facility and $221.0$191.0 million was outstanding under the commercial paper program at PSE. For further information, see Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's most recent Annual Report on Form 10K for the year ended December 31, 2019.2020.
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Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report on Form 10-Q. The discussion contains forward-looking statements that involve risks and uncertainties, such as Puget Energy, Inc. (Puget Energy) and Puget Sound Energy, Inc. (PSE) objectives, expectations and intentions. Words or phrases such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “future,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “should,” “will likely result,” “will continue” and similar expressions are intended to identify certain of these forward-looking statements. However, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Puget Energy's and PSE's actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Forward-Looking Statements” included elsewhere in this report and in the section entitled "Risk Factors" included in Part I, Item 1A in Puget Energy's and Puget Sound Energy's Form 10-K for the period ended December 31, 2019.2020. Except as required by law, neither Puget Energy nor PSE undertakes any obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in Puget Energy's and PSE's other reports filed with the U.S. Securities and Exchange Commission (SEC) that attempt to advise interested parties of the risks and factors that may affect Puget Energy's and PSE's business, prospects and results of operations, including the COVID-19 pandemic.

Overview

Puget Energy is an energy services holding company and substantially all of its operations are conducted through its subsidiary PSE, a regulated electric and natural gas utility company. PSE is the largest electric and natural gas utility in the state of Washington, primarily engaged in the business of electric transmission, distribution and generation and natural gas distribution. Puget Energy's business strategy is to generate stable cash flows by offering reliable electric and natural gas service in a cost-effective manner through PSE. Puget Energy also has a wholly-owned non-regulated subsidiary, Puget LNG, LLC (Puget LNG), which has the sole purpose of owning, developing and financing the non-regulated activity of the Tacoma liquefied natural gas (LNG) facility, currently under construction. All of Puget Energy's common stock is indirectly owned by Puget Holdings LLC (Puget Holdings). Puget Holdings is owned by a consortium of long-term infrastructure investors including the Canada Pension Plan Investment Board, the British Columbia Investment Management Corporation (BCIMC), the Alberta Investment Management Corporation (AIMCo), Ontario Municipal Employee Retirement System (OMERS) and PGGM Vermogensbeheer B.V. The sale of previous owners', Macquarie Infrastructure Partners and Macquarie Capital Group Limited, shares to OMERS, PGGM Vermogensbeheer B.V., AIMCo and BCIMC was approved by various federal and state agencies, including that of the Washington Utilities and Transportation Commission (Washington Commission), and closed on April 17th, 2019. Puget Energy and PSE are collectively referred to herein as “the Company.”
PSE generates revenue and cash flow primarily from the sale of electric and natural gas services to residential and commercial customers within a service territory covering approximately 6,000 square miles, principally in the Puget Sound region of the state of Washington. PSE continually balances its load requirements, generation resources, purchase power agreements, and market purchases to meet customer demand. The Company's external financing requirements principally reflect the cash needs of its construction program, its schedule of maturing debt and certain operational needs. PSE requires access to bank and capital markets to meet its financing needs.


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COVID-19 Update
A novel strain of coronavirus (COVID-19) was first identified in December 2019, and Coronavirus Disease 2019 (COVID-19) was subsequently declared a pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. On January 21, 2020, authorities confirmed the first COVID-19 case in Washington State, followed by the first confirmed virus-related death in Washington State on February 29, 2020, in each case, in the Company’s service territory.
In response to the outbreak and business disruption, first and foremost, we havethe Company prioritized the health and safety of our customers, employees, and the communities in our service territory implementing a number of changes including the following: a) not disconnecting customers for non-payment,non-payment; b) receiving Washington Commission approval to waive late fees, andfees; c) filing a motion with the Washington Commission to waive the statutory deadline for the Company’s General Rate CaseGRC for up to 60 days, from May 20, 2020, until July 20, 2020,2020; d) establishing a Crisis-Affected Customer Assistance Program (CACAP),; and e) implementing social distancing measures for our employees and using remote workforce where possible. PSE continues to serve our customers and has implemented business continuity and emergency response plans and enhanced safety protocols to continue to provide electricity and natural gas services to customers and otherwise support the Company’s operations.
We are continuing to monitor developments involving our workforce, customers, electricity and natural gas demand, commodity costs and suppliers but cannot predict the impact of COVID-19 on our results of operations, financial condition and ongoing operations. An extended slowdown of the United States' economic growth, demand for commodities and/or material changes in governmental policy could result in lower economic growth and lower demand for electricity and natural gas in our service territory. Moreover, such extended slowdown will affect the ability of various customers, contractors, suppliers and other business partners to fulfill their obligations, which could have a material adverse effect on our results of operations, financial condition and ongoing operations.
Due to continued stay at home orders, work from home mandates, and business disruptions caused by COVID-19, electric and natural gas loads decreased 2.7%increased 0.1% and 7.7%, respectively, when comparing weather-adjusted actual to forecast during the quarter ended September 30, 2020 and decreased 3.8% and 3.7%, respectively, during the year ended September 30, 2020. Residential electric and natural gas loads during the quarter ended September 30, 2020, increased 4.0% and 12.5%, respectively, when comparing weather-adjusted actual to forecast.March 31, 2021. Residential electric and natural gas loads during the year ended September 30, 2020,March 31, 2021, increased 2.5%5.0% and 2.9%decreased 4.2%, respectively when comparing weather-adjusted actualdue to forecast.COVID-19. In contrast, the Company delivered weather-adjustedCOVID-19 impacts on commercial electric and natural gas loads resulted in decreases of 7.8%6.6% and 24.8% lower than forecasted, respectively, during the quarter ended September 30, 2020 and 8.2% and 11.6% lower,8.6%, respectively, during the year ended September 30, 2020.March 31, 2021. Revenue reductions are partially offset by the effects of decoupling and reduced electric and natural gas supply costs. Decoupling revenue recognized during the quarter was $6.6over collected by $4.8 million and $2.0recognized $0.2 million for electric and natural gas, respectively as compared to $5.0$7.8 million and a $0.3$1.4 million liabilityrevenue recognized in the same period of 2019 for electric and natural gas, respectively. Decoupling revenue recognized during the year was $37.6 million and $6.8 million for electric and natural gas, respectively as compared to $9.2 million and $0.1 million in the same period of 20192020 for electric and natural gas, respectively. The Company anticipates that electric and natural gas loads will continue to be impacted the remainder of 2020 due to continued work place lock downs, work at home mandates, other government mandated quarantines, economic recession, and resurgence of the COVID-19 virus. Risks to these assumptions include the duration, severity, and potential resurgence of the virus, government proclamations related to managing public health, and fiscal stimulus policies to support economic recovery. Industrial customers, who represent 4.1%3.3% of the Company's total retail revenue and are generally transmission and transportation services which are not volumetric in nature, are not expected to be materially impacted.
Due to business disruptions caused by the COVID-19 pandemic, the Company has incurred increased costs and partially offsetting cost savings that have been immaterial through the period ended September 30, 2020.March 31, 2021. To the extent that the Company incurs material, unexpected expenses associated with the COVID-19 pandemic, such as increased uncollectible accounts receivable, the Company will continue to explore regulatory accounting policies and rate recovery mechanisms to address any negative impacts to financial results. On September 3, 2020, the Company filed an accounting petition with the Washington Commission, requesting authorization to defer the costs and foregone revenue net of offsets associated with the COVID-19 public health emergency. On November 6, 2020, PSE anticipates receivingfiled a rulingrevised petition which was approved on December 10, 2020 by the matter sometimeWashington Commission granting PSE's accounting petition in part by allowing the fourth quarterdeferral of 2020.COVID-19 incremental costs and foregone revenue net of offsets. As of March 31, 2021, PSE deferred no costs specific to COVID-19.
On March 27, 2020, the U.S. Government enacted the CARES Act, which providesprovided approximately $2 trillion of economic relief and stimulus to support the national economy during the COVID-19 epidemic.pandemic. This package included support for individuals, large corporations, small business, and health care entities, among other affected groups. Among other provisions, the CARES Act includes modifications to corporate income tax provisions, including temporary suspension of certain payment requirements for the employer portion of social security taxes. As a result of these modifications, the Company deferred payroll taxes totaling $9.6$13.7 million as of September 30, 2020.March 31, 2021.
Further detail regarding the factors and trends affecting performance of the Company during the fiscal quarter ended September 30, 2020,March 31, 2021, is set forth below in this "Overview" section as well as in other sections of Management's Discussion and Analysis.

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Factors and Trends Affecting PSE's Performance
PSE’s ongoing regulatory requirements and operational needs necessitated the investment of substantial capital in 20192021 and will continue to do so in future years.  Because PSE intends to seek recovery of such investments through the regulatory process, its financial results depend heavily upon favorable outcomes from that process.  The principal business, economic and other factors that affect PSE’s operations and financial performance include:
•The rates PSE is allowed to charge for its services;
•PSE’s ability to recover power costs that are included in rates which are based on volume;
•Weather conditions, including the impact of temperature on customer load; the impact of extreme weather events on budgeted maintenance costs; meteorological conditions such as snow-pack, stream-flow and wind-speed which affect power generation, supply and price;
•The effects of climate change, including changes in the environment that may affect energy costs or consumption, increase the Company’s costs, or adversely affect its operations;
•Regulatory decisions allowing PSE to recover purchased power and fuel costs, on a timely basis;
•PSE’s ability to supply electricity and natural gas, either through company-owned generation, purchase power contracts or by procuring natural gas or electricity in wholesale markets;
•Equal sharing between PSE and its customers of earnings which exceed PSE's authorized rate of return (ROR);
•Availability and access to capital and the cost of capital;
•Regulatory compliance costs, including those related to new and developing federal regulations of electric system reliability, state regulations of natural gas pipelines and federal, state and local environmental laws and regulations;
•Wholesale commodity prices of electricity and natural gas;
•Increasing capital expenditures with additional depreciation and amortization;
•Failure to complete capital projects on schedule and within budget or the abandonment of capital projects, either of which could result in the Company’s inability to recover project costs;
•Tax reform, the effect of lower tax rates, and regulatory treatment of excess deferred tax balances on rate base and customer rates;
•General economic conditions in PSE's service territory and its effects on customer growth and use-per-customer;
•Federal, state, and local taxes;
•Employee workforce factors, including potential strikes, work stoppages, transitions in senior management, and loss or retirement of key personnel and availability of qualified personnel;
•The effectiveness of PSE’s risk management policies and procedures;
•Cyber security attacks, data security breaches, or other malicious acts that cause damage to the Company’s generation and transmission facilities or information technology systems, or result in the release of confidential customer, employee, or Company information;
•Acts of war or terrorism, or the impact of civil unrest to infrastructure or preventing access to infrastructure; and
•Risks due to pandemics, including supply shortages, rising costs, disruption to vendor or customer relationships, the potential for reputational harm, the impact of government, business and company closure of facilities, customer or contract defaults; concerns of safety to employees and customers, potential costs due to quarantining of employees and work-from-home policies.

Regulation of PSE Rates and Recovery of PSE Costs
PSE's regulatory requirements and operational needs require the investment of substantial capital in 20202021 and future years. As PSE intends to seek recovery of these investments through the regulatory process, its financial results depend heavily upon outcomes from that process. The rates that PSE is allowed to charge for its services influence its financial condition, results of operations and liquidity. PSE is highly regulated and the rates that it charges its retail customers are approved by the Washington Commission. The Washington Commission has traditionally required these rates be determined based, to a large extent, on historic test year costs plus weather normalized assumptions about hydroelectric conditions and power costs in the relevant rate year. Incremental customer growth and sales typically have not provided sufficient revenue to cover general cost increases over time due to the combined effects of regulatory lag and attrition. Absent a resolution for the impact of lag and attrition, the Company will need to seek rate relief through a rate case on a regular and frequent basis in the foreseeable future. In addition, the Washington Commission determines whether the Company's expenses and capital investments are reasonable and prudent for the provision of cost-effective, reliable and safe electric and natural gas service. If the Washington Commission determines that a capital investment is not reasonable or prudent, the costs (including return on any resulting rate base) related to such capital investment may be disallowed, partially or entirely, and not recovered in rates.
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Washington state law also requires PSE to pursue electric conservation that is cost-effective, reliable and feasible. PSE’s mandate to pursue electric conservation initiatives may have a negative impact on the electric business financial performance due to lost margins from lower sales volumes as variable power costs are not part of the decoupling mechanism. The Washington Commission and Washington state law also setsset natural gas conservation achievement standards for PSE. The effects of achieving these standards will, however, have only a slight negative impact on natural gas business financial performance due to the natural gas business being almost fully decoupled.
On April 15, 2021, the Washington State Legislature passed a bill that would require investor-owned utilities to file a multiyear rate plan for two, three, or four years as part of General Rate Cases filed with the Washington Commission on or after January 1, 2022. The legislation allows companies to include a request to include a fair value measure of plant in service as of the date that rates go into effect. Utilities would be bound to the first and second year of a multiyear rate plan and can file for a new rate plan in years three or four. If a company earns greater than a half percent above its authorized rate of return on a regulated basis, revenues above the level must be deferred for later return to customers. The Washington Commission must also set performance measurements to be assessed in the multiyear rate plan. The bill is pending review by the Governor for approval or veto.

Power Cost Only Rate Case
A power cost only 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 general rate case (GRC).
On December 9, 2020, PSE filed its 2020 PCORC. The filing proposed an increase of $78.5 million (or an average of approximately 3.7%) in the Company's overall power supply costs with an anticipated effective date in June 2021. On February 2, 2021, PSE supplemented the PCORC to update its power costs, leading to a requested increase from $78.5 million to $88.0 million (or an average of approximately 4.1%).
On March 2, 2021, the parties to the PCORC reached a multiparty settlement in principle, with Public Counsel not joining the settlement, but also not opposing. The settlement agreement and supporting testimony was filed with the Washington Commission on April 2, 2021, who held hearings on the matter on April 22, 2021. The settlement resulted in an estimated revenue increase of $65.3 million or 3.1% and, pending approval by the Washington Commission, is expected to be effective June 2021.

General Rate Case Filing
PSE filed a general rate case (GRC)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 traditional areas of focus (revenue requirements, cost allocation, rate design and cost of capital), the 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 supplemental testimony, which provided certain updates to the original filing, but did not impact the requested overall electric and natural gas rate increases, return on equity or overall rate of return as originally filed. On January 15, 2020, PSE filed rebuttal testimony whichthat 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 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.
On July 8, 2020, the Washington Commission issued its order on PSE’s GRC. The ruling provided for a weighted cost of capital of 7.39% or 6.80% after-tax, and a capital structure of 48.5% in common equity with a return on equity of 9.4%. The order also resulted in a combined net increase to electric of $29.5 million, or 1.6%, and to natural gas of $36.5 million, or 4.0%. However, the Washington Commission extended the amortization of certain regulatory assets, PSE’s electric decoupling deferral, and PSE’s purchased gas adjustment (PGA) deferral to mitigate the impact of the rate increase in response to the economic instability created by the COVID-19 pandemic, which reduced the electric revenue increase to approximately $0.9 million, or 0.05%, and the natural gas increase to $1.3 million, or 0.15%. The Washington Commission also determined that the Company’s proposed attrition adjustment of $23.9 million for electric and $16.2 million for natural gas was not in the public interest at this time. The order also effectively ends the deferral of PSE’s advanced metering infrastructure (AMI) investment while allowing the deferral on the return on AMI investments through December 31, 2019. Additional AMI investments will be evaluated in future proceedings for deferrals of return until the AMI project is complete. As a result of the 2019 GRC outcome, Puget Energy and PSE credit rating metrics will likely be adversely impacted absent other regulatory relief or Corporate mitigation measures otherwise Puget Energy and PSE are at risk of a downgrade to their credit rating. On July 17, 2020, PSE filed a
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motion for clarification with the Washington Commission seeking clarification on several items. On July 31, 2020, the Washington Commission issued an order granting PSE’s motion for clarification. The ruling adjusted certain items from the final order issued on July 8, 2020, which led to a combined net increase to electric of $59.6 million, or 2.9%, an increase of $30.1 million above the $29.5 million granted in the final order. The order also led to a combined net increase to natural gas of $42.9 million, or 5.6%, an increase of $6.4 million above the $36.5 million granted in the final order. The Washington Commission maintained adjustments which mitigated the impacts of the rate increases in response to the economic instability created by the COVID-19 pandemic, which reduced the electric revenue increase to approximately $27.7 million, or 1.3%, and the natural gas increase to $0.2 million, or 0.02%.
On August 6, 2020, PSE filed a petition for judicial review with the Superior Court of the State of Washington for King County (Superior Court) challenging the portion of the final order that requires PSE to pass back to customers the reversal of plant-related excess deferred income taxes in a manner that may deviate from the IRS normalization and consistency rules. On August 7, 2020, PSE filed a motion to stay with the Superior Court related to the portions of the final order under judicial review. On September 14, 2020, the Superior Court denied PSE's motion to stay. PSE reviewed the original Washington Commission order including the ramifications of certain tax issues and will filerequested a Private Letter Ruling (PLR) with the IRS onregarding this matter. PSE will continue to utilize the average rate assumption method (ARAM) in the turnaround of certain accelerated tax depreciation benefits on PSE assets. There is approximately $25.6 million in annual revenue requirement related to the 2019 GRC which PSE has requested it be allowed to track in order to allow the Washington Commission to decide if it is appropriate for PSE to recover, pending the outcome of the IRS ruling.
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On September 23, 2020, PSE filed a compliance filing.filing with the Washington Commission. The natural gas tariffs became effective October 1, 2020 and the electric tariffs on October 15, 2020. On October 7, 2020, PSE, the Washington Commission and interveners agreed to dismiss the petition for judicial review. The agreement is based on a commitment from the Washington Commission that if the IRS ruling finds that the Washington Commission’s methodology for reversing plant-related excess deferred income taxes is impermissible, the Washington Commission will open a proceeding to review and enact the changes required by the IRS ruling. There is approximately $25.6 million in annual revenue requirement related to the 2019 GRC which PSE has requested it be allowed to track in order to allow the Washington Commission to decide if it is appropriate for PSE to recover, pending the outcome of the IRS ruling.
For further details regarding the 2019 GRC filing, and credit ratings, see Note 7, "Regulations and Rates" to the consolidated financial statements included in part 1 of this report and "Financing Program: in Item 2 of this report, respectively.report.

Expedited Rate Filing
On November 7, 2018, PSE filed an ERFexpedited rate filing (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. The settlement requirescondition, that PSE passpassed back the deferred balance associated with the tax over-collection of $34.6 million fromfor the period January 1, 2018, through April 30, 2018, over a one-year period which beganended May 1, 2019.2020.
For further details regarding the 2018 ERF, see Note 7, "Regulations and Rates" to the consolidated financial statements included in part 1 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%. OtherPSE began passing back protected deferred tax balances created by tax reform as determined in the ERF settlement agreement through PSE’s Schedule 141X tariff. The pass back of deferred tax balances was continued with the GRC final order which also created PSE’s Schedule 141Z tariff, in addition to Schedule 141X, to pass-back additional deferred tax balances. Further details of the outcomes associated with PSE’s tax deferral filing are discussed in the ERF and GRC disclosures. On July 8, 2020, the Washington Commission issued its order in PSE’s GRC, which was consolidated with PSE’s accounting petition filed on December 29, 2017. On July 17, 2020, PSE filed a motion for clarification of several issues in the Washington Commission’s order including issues relating to its accounting petition. On July 31, 2020, PSE received an order granting PSE’s motion for clarification which adjusted certain items within the final order, including treatment of protected excess deferred taxes. PSE reviewed the original Washington Commission order including the ramifications of certain tax issues and the order for clarification and will consider filing a PLR with the IRS on the matter. PSE filed a compliance filing on September 23, 2020. The natural gas tariffs became effective October 1, 2020 and electric tariffs on October 15, 2020.
The Washington Commission approved the following PSE requests to change rates to reflect the new corporate tax rates:
Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)
Electric:
May 1, 2018(3.4)%$(72.9)
Natural Gas:
May 1, 2018(2.7)%$(23.6)

For further details regarding the Washington Commission Tax Deferral Filing, see Note 7, "Regulations and Rates" to the consolidated financial statements included in part 1 of this report.

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Decoupling Filings
On December 5, 2017, the Washington Commission approved PSE’s request within the 2017 GRC to extend the decoupling mechanism with several changes to the methodology that took effect on December 19, 2017. Electric and natural gas delivery revenues continue to be recovered on a per customer basis and electric fixed production energy costs are now decoupled and recovered on the basis of a fixed monthly amount. The allowed decoupling revenue for electric and natural gas customers will no longer increase annually each January 1 as occurred prior to December 19, 2017. Approved revenue per customer costs can only be changed in a GRC or ERF. Approved electric fixed production energy costs can alsoonly be changed in a GRC or a power cost only rate case. Other changes to the decoupling methodology approved by the Washington Commission include regrouping of electric and natural gas non-residential customers and the exclusion of certain electric schedules from the
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decoupling mechanism going forward. The rate test, which limits the amount of revenues PSE can collect in its annual filings, increased from 3.0% to 5.0% for natural gas customers but will remain at 3.0% for electric customers. The decoupling mechanism willis to be reviewed again in PSE’sPSE's first rate caseGRC filed in or after 2021, or in a separate proceeding, if appropriate. PSE’s decoupling mechanism over- and under- collections will still be collectible or refundable after this effective date even if the decoupling mechanism is not extended.
On February 21, 2019, the Washington Commission approved the multi-party settlement agreement which was filed within PSE’s ERF filing. As part of this settlement agreement, electric and natural gas allowed delivery revenue per customer was updated to reflect changes in the approved revenue requirement. For electric, there were no changes to the annual allowed fixed power cost revenue. The changes took effect on March 1, 2019.
On July 8, 2020, the Washington Commission issued the final order via docketsin Dockets UE-190529 and UG-190530, which instructed PSE to extend the collection of amortization balances for electric decoupling delivery and fixed power cost sections originally filed through the annual May 2020 decoupling filing.The extension requiresrequired PSE to move amortization balances for electric decoupling as of August 31, 2020 of about $16.0 million for electric delivery and fixed power cost decoupling to new decoupling amortization accounts to be collected from customers for a two-year period, instead of the originally approved one-year period.Additionally, through approving the electric cost of service, the final order approved the re-allocation of decoupling balances from Schedule 40 to the remaining electric decoupling groups.
On December 23, 2020, the Washington Commission approved PSE’s filing to correct Schedule 142 decoupling amortization rates, with an effective date of January 1, 2021, by zeroing out rates still effective past October 15, 2020 on tariff sheet Schedule 142-H, which was replaced by rates on tariff sheet Schedule 142-I effective October 15, 2020.As part of this filing, PSE will true up the over-collection amounts for the period of October 15, 2020 through December 31, 2020 in PSE’s annual May 2021 decoupling filing.
On September 30, 2020,March 31, 2021, PSE performed an analysis to determine if electric and natural gas decoupling revenue deferrals would be collected from customers within 24 months of the annual period, per ASCAccounting Standards Codification (ASC) 980.  If not, for U.S. Generally Accepted Accounting Principles (GAAP)GAAP purposes only, PSE would need to record a reserve against the decoupling revenue and a corresponding regulatory asset balance.  Once the reserve is probable of collection within 24 months from the end of the annual period, the reserve can be recognized as decoupling revenue. The analysis indicated that $4.1$0.9 million of electric deferred revenue will not be collected within 24 months of the annual period;period, therefore, a reserve adjustment was booked to 20202021 electric decoupling revenue. Natural gas deferred revenue will be collected within 24 months of the annual period; therefore, no reserve adjustment was booked to 20202021 natural gas decoupling revenue.
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The Washington Commission approved the following PSE requests to change rates for prior deferrals under its electric and natural gas decoupling mechanisms:
Effective DateEffective DateAverage
Percentage
Increase (Decrease)
in Rates
Increase (Decrease)
in Revenue
(Dollars in Millions)1
Effective DateAverage
Percentage
Increase (Decrease)
in Rates
Increase (Decrease)
in Revenue
(Dollars in Millions)1
Electric:Electric:Electric:
October 1, 2020(0.5)%$(10.2)
May 1, 20202
0.22.0
May 1, 20190.920.6
May 1, 2018(1.1)(25.2)
Natural Gas:
May 1, 2021May 1, 20211.0%$21.4
January 1. 2021January 1. 2021(1.0)(20.6)
October 15, 20202
October 15, 20202
(0.5)(10.2)
May 1, 2020May 1, 2020(0.5)%$(4.8)May 1, 20200.22.0
May 1, 2019May 1, 2019(5.3)(45.9)May 1, 20190.920.6
May 1, 20181.715.9
Natural Gas:Natural Gas:
May 1, 2021May 1, 20211.5%$15.0
May 1, 2020May 1, 2020(0.5)(4.8)
May 1, 2019May 1, 2019(5.3)(45.9)
_______________
1.For the Electric rates effective May 1, 2021 there was $21.1 million of excess deferred revenues for delivery and fixed power costs which could not be set in rates until May 1, 2022 due to 3% rate cap; there was no excess earnings that impacted both electric and natural gas revenue change. For electric and natural gas rates effective May, 1, 2020 there were no excess earnings that impacted the approved revenue change. For electric and natural gas rates effective May 1,1. 2019, there were no excess earnings that impacted the approved revenue change. For electric and natural gas rates effective May 1, 2018, the approved revenue change is net of reductions from excess earnings of $10.0 million for electric and $4.9 million for natural gas.
2 2.The 2019 GRC final order lengthened the recovery period from original one-year recovery to two-year recovery to April 2022, however, the rates issued in the final order are not currently in effect.2022.

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Electric Rates
Power Cost Adjustment Mechanism
PSE currently has a power cost adjustment (PCA)PCA mechanism that provides for the deferral of power costs that vary from the “power cost baseline” level of power costs. The “power cost baseline” levels are set, in part, based on normalized assumptions about weather and hydroelectric conditions.  Excess power costs or savings are apportioned between PSE and its customers pursuant to the graduated scale set forth in the PCA mechanism and will trigger a surcharge or refund when the cumulative deferral trigger is reached.
Effective January 1, 2017, the following graduated scale is used in the PCA mechanism:
Company's ShareCustomers’ Share
Annual Power Cost VariabilityOverUnderOverUnder
Over or Under Collected by up to $17 million100%100%—%—%
Over or Under Collected by between $17 million - $40 million35506550
Over or Under Collected beyond $40 + million10109090

In 2016, PSE filed an accounting petition with the Washington Commission which requested deferral of the variances, either positive or negative, between the fixed costs previously recovered in the PCA and the revenue received to cover the allowed fixed costs.  The Washington Commission issued Order No. 01 approving PSE’s accounting petition. With the final determination in PSE’s GRC, this deferral ceased with the rate effective date of December 19, 2017.
For the ninethree months ended September 30, 2020,March 31, 2021, in its PCA mechanism, PSE under recovered its allowable costs by $51.5$11.4 million of which $21.9 millionzero was apportioned to customers and $1.6$0.3 million of interest was accrued on the deferred customer balance. This compares to an under recovery of allowable costs of $48.9$25.1 million for the ninethree months ended September 30, 2019,March 31, 2020, of which $19.5$4.0 million was apportioned to customers and accrued $0.3$0.5 million of interest on the total deferred customer balance.

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Power Cost Adjustment Clause Filing
On July 1, 2019, PSE updated its Schedule 95 rates in the Power Cost Adjustment Clause tariff to reflect the transition fee as required by Section 12 of the Microsoft Special Contract. Additionally, Schedule 95 rates also include portions of fixed power cost adjustments per the allowed decoupling rate re-allocation effective April 1, 2019, resulting from Microsoft becoming a transportation customer as well as small variable power cost adjustments.
On July 8, 2020, the Washington Commission issued the final order via docketsin Dockets UE-190529 and UG-190530, which instructed PSE to remove SCHSchedule 95 collection on decoupling allowed rates for Microsoft Special Contracts, which will be included in allowed rates under the Decoupling Schedule 142 effective October 15, 2020.
PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2019. The surcharging of deferrals can be triggered by the Company when the balance in the deferral account is a credit of $20.0 million or more. Due to concerns about the economic impact of the COVID-19 pandemic on customers, PSE voluntarily, with Washington Commission Staff support, delayed filing an increase to its Schedule 95 rates in its annual PCA report filing in Docket UE-200398, which was approved on July 30, 2020. Subsequently, PSE filed to recover the deferred balance in Docket UE-200893, effective December 1, 2020, and the Washington Commission approved PSE’s request on November 24, 2020. During 2019, actual power costs were higher than baseline power costs, thereby creating an under-recovery of $67.2 million. Under the terms of the PCA’s sharing mechanism for under-recovered power costs, PSE absorbed $31.2 million of the $67.2 million under-recovered amount, and customers were responsible for the remaining $36.0 million, or $37.0 million including interest. As PSE had an approved balance owing from customers including interest at the start of 2019 totaling $4.7 million, the approved cumulative deferral balance for the PCA as of December 2019 is $41.7 million. As previously stated, this filing is set to collect the customer’s share of the cumulative 2019 imbalance in PSE’s PCA mechanism.
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The following table sets forth power cost adjustment clause filing approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:
Effective DateEffective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase
(Decrease)
in Revenue
(Dollars in Millions)		Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase
(Decrease)
in Revenue
(Dollars in Millions)
October 1, 2020(0.2)%$(3.3)
December 1, 2020December 1, 20202.1%$43.9
October 15, 2020October 15, 2020(0.2)(3.3)
July 3, 2020July 3, 20201.223.9July 3, 20201.223.9
July 1, 20191
July 1, 20191
(1.2)(24.9)
July 1, 20191
(1.2)(24.9)
May 1, 2019May 1, 20190.13.3May 1, 20190.13.3
_______________
1.The rates for Microsoft Special Contracts portion was zeroed out effective July 3, 2020 following the July 2019 through June 2020 period. The actual residual amount (if over $100 thousand) resulting at July 31, 2020 will bewere included in the electric Schedule 129 Low Income Program rates that become effective October 1, 2020.

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 compared to the forecasted load set in rates.
The following table sets forth conservation rider rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:

Effective DateEffective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase
(Decrease)
in Revenue
(Dollars in Millions)		Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase
(Decrease)
in Revenue
(Dollars in Millions)
May 1, 2021May 1, 2021(0.6)%$(12.3)
May 1, 2020May 1, 20200.9%$17.8May 1, 20200.917.8
May 1, 2019May 1, 2019(0.9)(17.5)May 1, 2019(0.9)(17.5)
May 1, 2018(0.8)(18.0)

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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.
The following table sets forth property tax tracker mechanism rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:
Effective DateEffective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)		Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)
May 1, 2021May 1, 2021(0.1)%$(1.9)
May 1, 2020May 1, 20200.07%$1.4May 1, 20200.071.4
May 1, 2019May 1, 2019(0.2)(5.1)May 1, 2019(0.2)(5.1)
May 1, 2018(0.1)(1.3)

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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 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%.
The following table sets forth the federal incentive tracker tariff revenue requirement approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:

Effective DateEffective DateAverage
Percentage
Increase (Decrease)
in Rates from prior year		Total credit to be passed back to eligible customers
(Dollars in Millions)		Effective DateAverage
Percentage
Increase (Decrease)
in Rates from prior year		Total credit to be passed back to eligible customers
(Dollars in Millions)
January 1, 2021January 1, 20210.3%$(29.5)
January 1, 2020January 1, 2020(0.04)%$(37.8)January 1, 2020(0.04)(37.8)
January 1, 2019January 1, 20190.1(38.7)January 1, 20190.1(38.7)

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.
The following table sets forth residential exchange benefit adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:
Effective DateEffective DateAverage
Percentage
Increase (Decrease)
in Rates		Total credit to be passed back to eligible customers
(Dollars in Millions)		Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Total credit to be passed back to eligible customers
(Dollars in Millions)
October 12, 2019October 12, 20190.01%$(81.8)October 12, 20190.01%$(81.8)
October 1, 2017(0.6)(80.8)

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Natural Gas Rates
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 compared to forecast conservation expenditures from the prior year, as well as actual compared to the forecasted load set in rates.
The following table sets forth conservation rider rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:
Effective DateEffective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)		Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)
Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)
May 1, 2021May 1, 2021(0.2)%$(1.5)
May 1, 2020May 1, 20200.4%$3.5May 1, 20200.43.5
May 1, 2019May 1, 20190.11.1May 1, 20190.11.1

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Natural Gas 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.
The following table sets forth property tax tracker mechanism rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:
Effective DateAverage Percentage Increase (Decrease) in RatesIncrease (Decrease) in Revenue (Dollars in Millions)
May 1, 2020(0.3)%$(2.8)
May 1, 2019(0.2)(1.6)
May 1, 2018(0.2)(2.2)

Effective DateAverage Percentage Increase (Decrease) in RatesIncrease (Decrease) in Revenue (Dollars in Millions)
May 1, 20210.4%$3.6
May 1, 2020(0.3)(2.8)
May 1, 2019(0.2)(1.6)


Natural Gas Cost Recovery Mechanism
The purpose of the cost recovery mechanism (CRM) is to recover capital costs related to projects included in PSE's pipeline 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.
The following table sets forth CRM rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:

Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)
November 1, 20201.2%$10.6
November 1, 20190.87.0
November 1, 20180.55.0

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Purchased Gas Adjustment Mechanism
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, although out-of-cycle rate changes are allowed at other times of the year if needed.
On April 25, 2019, the Washington Commission approved PSE’s request for an out-of-cycle change to 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 out-of-cycle PGA rates were effective from May 1, 2019 through April 30, 2020 and on May 1, 2020 the out-of-cycle PGA rates were set to zero.At the end of the recovery period, an unamortized balance of $4.9 million remainsremained which PSE will requestrequested to be amortized in its upcoming annual PGA filing for rates effective November 1, 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
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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 rupture of a pipeline owned by Enbridge pipeline rupture,in October 2018, 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.
On July 8, 2020, the Washington Commission issued the final order in Dockets UE-190529 and UG-190530, which instructed PSE to extend the collection of amortization balances for the portion of PGA amortization balances originally filed through annual November 1, 2019 PGA filing under Supplemental Schedule 106B. The extension requires PSE to move amortization balances for PGA Schedule 106B as of August 31, 2020 to be collected from customers for a three-year period, instead of originally approved two-year period.

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On October 29, 2020, the Washington Commission approved PSE’s request for November 2020 PGA rates in Docket UG-200832, effective November 1, 2020. As part of that filing, PSE requested PGA rates increase annual revenue by $32.6 million, while the new tracker rates increased annual revenue by $37.4 million; this was in addition to continuing the collection on the remaining balance of $69.4 million under Supplemental Schedule 106B.
The following table presents the PGA mechanism balances and activity at September 30, 2020March 31, 2021 and December 31, 2019:2020:
Puget Energy and
Puget Sound Energy

Puget Sound Energy
Puget Sound Energy
(Dollars in Thousands)(Dollars in Thousands)At September 30,At December 31,(Dollars in Thousands)At March 31,At December 31,
PGA receivable balance and activityPGA receivable balance and activity20202019PGA receivable balance and activity20212020
PGA receivable beginning balancePGA receivable beginning balance$132,766 $9,922 PGA receivable beginning balance$87,655 $132,766 
Actual natural gas costsActual natural gas costs214,772 406,162 Actual natural gas costs113,175 314,792 
Allowed PGA recoveryAllowed PGA recovery(248,809)(289,876)Allowed PGA recovery(154,592)(363,886)
InterestInterest3,177 6,558 Interest549 3,983 
PGA receivable ending balancePGA receivable ending balance$101,906 $132,766 PGA receivable ending balance$46,787 $87,655 

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 date:
Effective DateEffective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)		Effective DateAverage
Percentage
Increase (Decrease)
in Rates		Increase (Decrease)
in Revenue
(Dollars in Millions)
November 1, 2020November 1, 20208.1%$70.0November 1, 20207.7%$70.0
October 1, 2020October 1, 2020(3.9)(35.5)October 1, 2020(3.9)(35.5)
November 1, 20192
13.4118.3
May 1, 20191
6.354.0
November 1, 2018(10.9)(98.4)
November 1, 20191
November 1, 20191
13.4118.3
May 1, 20192
May 1, 20192
6.354.0
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1.The 2019 GRC final order lengthened the recovery period from two to three years.
2.The rate for out of the cycle May 2019 PGA (Supplemental A) filing was set to zero effective May 1, 2020, The actual residual amount resulting will bewas included in annual PGA filling effective November 1, 2020.
2.The 2019 GRC final order lengthened the recovery period from two to three years.


Other Proceedings
Microsoft Special Contract
Following discussions between PSE, the Microsoft Corporation, and others, and after completing a negotiated regulatory process, the Washington Commission issued an order in July 2017 approving a special contract between PSE and Microsoft relating to retail access for Microsoft loads 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 Microsoft must be carbon free, (iii) there will be no reduction in Microsoft's funding of PSE’s
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conservation programs, (iv) Microsoft paid a transition fee that was a straight pass-through to customers and (v) Microsoft will fund enhanced low-income support. Microsoft began taking service under the special contract on April 1, 2019, after meeting the eligibility requirements under the special contract.

Voluntary Long-Term Renewable Energy
Effective September 2016, the Washington Commission approved PSE's tariff revision to create an additional voluntary renewable energy product. This provides customers with 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 offered this service, Green Direct, to larger customers (aggregated annual loads greater than 10,000 MWh) and government customers. The initial resource option offered under this rate schedule is a new wind generation facility with the capacity of approximately 136.8 MW currently under construction in the region by a developer under contract to PSE.which went into operation on November 7, 2020. The project is fully subscribed and is expected to begin generating power in late 2020. Twenty-onethe twenty-one customers will receive the anticipated outputunder Phase 1 of the project.
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program began taking service in November 2020.
In July 2018, the Washington Commission approved a second phase of the Green Direct product. The phase two project is the 150 MW solar facility to be located in Klickitat County, WA. It is expected to achieve commercial operation in 2021 and serve twenty customers. The phase 2 offering will be a blend of the phase 1 wind and athe solar project to be built in Washington.facility. Phase 1 customers will receive wind through 2020 and then are expected to receive the blended energy later in March 2021. An additional twenty customers will start receiving energy through phase 2 of the program by March 2021.

Crisis Affected Customer Assistance Program
On April 6, 2020, PSE filed with the Washington Commission revisions to its currently effective Tariff WN U-60. The purpose of this filing is to incorporate into PSE’s low-income tariff a new temporary bill assistance program, Crisis Affected Customer Assistance Program (CACAP), to mitigate the economic impact of the COVID-19 pandemic on PSE’s customers. CACAP would allow PSE customers facing financial hardship due to COVID-19 to receive up to $1,000 in bill assistance. The program puts to immediate use $11.0 million in unspent low income funds from prior years, and supplements other forms of financial assistance. The program does not require an increase to rates and is fully compatible with other low income programs. Based on the COVID-19 pandemic and resulting state of emergency, the Washington Commission allowed the tariff revisions to become effective on April 13, 2020. PSE made an additional filing on July 21, 2020 to increase the amount of electric funds available for distribution by $4.5 million under the CACAP program. The program was set to automatically end when all of the funds are disbursed orended on September 30, 2020, whichever occurred first. Based on the COVID-19 pandemic and resulting state of emergency,2020.
On March 28, 2021 the Washington Commission allowed the tariff revisionsapproved PSE’s second Crisis Affected Customer Assistance Program (CACAP-2), effective April 12, 2021. CACAP-2 will provide up to become effective on April 13, 2020.$2,500 in bill assistance for each qualifying low-income household, per program year, with a total program budget of $20.0 million for electric customers and $7.7 million for natural gas customers.

For additional information, see Note 7, "Regulation and Rates" to the consolidated financial statements included in Item 1 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 refinance existing or issue new long-term debt, obtain access to new or renew existing credit facilities and could increase the cost of issuing long-term debt and maintaining credit 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 generating capacity acquisitions, which may be relied on for future growth and to otherwise implement its strategy, could be adversely affected. PSE monitors the credit environment and expects to continue to be able to access the capital markets to meet its short-term and long-term borrowing needs. For additional information, see "Financing Program" included in Item 2 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
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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. PSE also faces increasing competition for sales to its retail customers through alternative methods of electric energy generation, including solar and other self-generation methods. In addition, PSE’s natural gas customers may elect to use heating oil, propane or other fuels instead of using and purchasing natural gas from PSE.

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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 three and nine months ended September 30, 2019,March 31, 2020, and 2020.2021.

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”.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 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.

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Electric Margin
Electric margin represents electric sales to retail and transportation customers less the cost of generating and purchasing electric energy sold to customers, including transmission costs, to bring electric energy to PSE's service territory.
The following chart displays the details of PSE's electric margin changes for the three months ended September 30, 2019March 31, 2020 and 2020:2021:
psd-20200930_g3.jpg

______________
*Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
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Three Months Ended September 30, 2019 compared to 2020
Electric Operating Revenue
Electric operating revenues decreased $12.9 million from the prior year primarily due to a decrease in sales to other utilities of $28.2 million and other decoupling revenue of $3.0 million; partially offset by an increase in electric retail sales of $13.3 million, transportation and other revenue of $3.4 million and decoupling revenue of $1.6 million.  These items are discussed in detail below.
•Electric retail sales increased $13.3 million due to an increase in rates of $18.3 million and partially offset by reduced retail electricity usage of $5.1 million, or 1.7%, compared to the prior year. The decrease in retail electricity usage was due to lower commercial and industrial customer usage of 9.2% and 3.6%, respectively. The decrease was partially offset by a 6.6% increase of residential customer usage and an increase in retail customers of 1.3% compared to 2019. Usage patterns were affected by a decrease in heating degree days of 17.5% and the COVID-19 pandemic, through business shut downs and customers working from home. See Management's Discussion and Analysis, "Regulation and Rates" and "Overview" included in Item 2 of this report for electric rate changes and COVID-19 updates.
•Sales to other utilities decreased $28.2 million due to a 54.6% decrease in sales volume and a 8.0% decrease in price. The decrease was primarily due to lower market heat rates in the third quarter of 2020.
•Decoupling revenue increased $1.6 million, primarily attributable to a $1.4 million increase in PCA fixed cost deferral revenues, driven by decreased actual usage as noted above in the retail revenue section. This resulted in actual revenues being lower in the current period than in the same period in 2019 whereas allowed revenue remained consistent.
•Other decoupling revenue decreased $3.0 million due to $2.0 million deferred decoupling revenue that will not be collected within 24 months of the end of 2020. There was no deferred revenue in the same period in 2019. Additionally, the amortization of prior year under collected deferral revenues increased by $1.0 million due to an increase in amortization rates.
•Transportation and other revenue increased $3.4 million primarily due to an increase in production tax credits (PTCs) deferral revenue of $8.7 million for the re-purpose of the PTCs; partially offset by a decrease in tax reform deferrals in 2020 for revenue subject to refunds of $4.8 million.

Electric Power Costs
Electric power costs decreased $31.6 million primarily due to a $39.4 million decrease of electric generation fuel expenses partially offset by an increase of $8.6 million of purchased electricity costs. These items are discussed in detail below.
•Purchased electricity expense increased $8.6 million primarily due to a 37.3% increase in wholesale electricity purchases; partially offset by a 21.3% decrease in wholesale prices. The increase in purchases was primarily driven by a decrease in contracted resources of 14.0% and a 34.9% decrease in total generation primarily from the removal of Colstrip 1 & 2 and a 31.0% decrease in combustion turbine (CT) generation
•Electric generation fuel expense decreased $39.4 million primarily due to a $18.4 million decrease in Colstrip related to the retirement of Units 1 and 2 and a $16.8 million decrease in CT generation costs primarily driven by a 31.3% decrease in production due to lower market heat rates in the third quarter of 2020.

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The following chart displays the details of PSE's electric margin changes for the nine months ended September 30, 2019 and 2020:
psd-20200930_g4.jpgpsd-20210331_g3.jpg
______________
*    Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.

NineThree Months Ended September 30, 2019March 31, 2020 compared to 20202021
Electric Operating Revenue
Electric operating revenues decreased $185.2increased $89.5 million from the prior year primarily due to decreasesan increase in transportation and other revenues of $112.8 million, electric retail sales of $51.1$62.6 million, other revenues of $27.0 million, an increase in other decoupling revenue of $9.1 million and an increase in sales to other utilities of $36.1 million and other decoupling revenue of $13.7$3.4 million; partially offset by an increase in decoupling revenue of $28.5$12.6 million. These items are discussed in detail below.
•Electric retail sales decreased $51.1increased $62.6 million due to a decreasean increase of $63.9$44.0 million in rates compared to the prior year and $18.6 million from reducedan increase in retail electricity usage of 4.5%; partially offset by an2.7%. The increase in rates of $12.8 million comparedis primarily due to the prior year. The reduction was duetariffs effective October 15, 2020 filed pursuant to a decrease of commercial and industrial customer usage of 11.3%, and 6.2%, respectively, primarily driven by business shut downs resulting from COVID-19; partially offset by an increase in residential sales of 1.7%, increase in heating degree days of 0.3% and an increase in retail customers of 1.4% compared to 2019.the Company's most recent GRC. See Management's Discussion and Analysis, "Regulation and Rates" and "Overview" included in Item 2 of this report for electric rate changeschanges. The additional usage was due to an increase in residential usage of 5.1%, which was driven by an increase in heating degree days of 3.1% and COVID-19 updates.an increase in retail customers of 1.3% compared to 2020.
•Sales to other utilities decreased $36.1increased $3.4 million primarilyor 20.2% due to decreases in sales volume and pricea 49.5% increase in the third quarter and lower market pricesactual price of sales combined with a 19.6% decrease in volumes. The increase to the first quarter. Volumes were 17.6% below 2019 volumes primarilyactual price of sales was due to lowerhigher market power prices, which were 42.7% higher than in 2020. Lower sales volumes were the result of 88.4% higher natural gas prices which reduced market heat rates in the third quarter of 2020 and a decline in demand duecaused PSE’s natural gas-fueled generators to COVID-19. Prices were 31.1% below 2019 prices primarily as a result of higher than normal power prices in the first quarter of 2019. During the first 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.run less frequently.
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•Decoupling revenue increased $28.5decreased $12.6 million, the combination ofprimarily attributable to a $16.1$6.8 million increaseand $5.8 million decrease in PCAdelivery and fixed production cost (FPC) deferral revenues and a $12.4 million increaserespectively in delivery deferral revenues, primarilythe current period compared to the same period in 2020. This was driven by decreased actualincreased usage as noted above in the retail revenue section. This resulted in allowedactual delivery and fixed production cost (FPC)FPC deferral revenues being greater than actualallowed delivery and FPCdeferral revenues in the current year, thanwhereas in the prior year.year actual revenues were lower compared to allowed revenues.
•Other decoupling revenue increased $13.7$9.1 million, primarily due to the following: (i) $5.2a $7.1 million decrease year-over-yearincrease related to an increase in current year amortization of previous years' decoupling deferrals resulting from higher amortization rates, partially offset by decreased usage; (ii) $5.0 million increase in the 24-monthGAAP alternative revenue reserve resulting from $0.8program recognition guidelines. In 2020, there were $7.1 million of decoupling revenue that was deferred in 2018not anticipated to be collected within 24 months, and therefore was deferred. This amount was recognized as revenue in the first quarter of 2019,2021, when the alternative revenue program revenue recognition guidelines were met. Also there was a $2.0 million decrease year-over-year in amortization of prior year undercollections due to a decrease in amortization rates related to an increase in the amortization period from 1 to 2 years as well as the deferral of $4.2 million of decoupling revenue which will not be collected within 24 monthsa result of the end of 2020; and (iii) $3.5 million decrease related to earnings in excess of allowed ROR. In 2019, earnings in excess of allowed ROR of $3.5 million was returned to customers. There were no such returns to customers in 2020.GRC.
•Transportation and other revenue decreased $112.8increased $27.0 million primarily due to a decreasean increase in production tax credit (PTC) deferral revenue of $21.6 million for the re-purpose of the PTCs driven by an increase in current period taxable income. Additionally, there was an increase in net wholesale non-core gas sales of $95.1 million and a decrease$10.7 million; partially offset by an increase in PTCs deferraltax reform deferrals in 2021 for revenue subject to refunds of $17.9 million for the re-purpose of the PTCs.$6.2 million. The decreasechange in net wholesale non-core gas sales was primarily due to an approximately 65% decreasea $10.2 million increase in sales driven by a 79% increase in the average price of the non-core gas sold year ended September 30, 2020in 2021 compared to the same period in the prior year and2020, offset by a 6%12% decrease in sales volume. This was offsetNatural gas prices rose in 2021 during the February cold weather event and Texas power and gas crisis but returned to more normal levels by a $35.8 million decrease in the total costend of the non-core gas sold due to an approximately 26% decrease in the average price of non-core gas purchases and to the aforementioned decrease in non-core gas sales volume. Gas prices decreased compared to 2019 due to a combination of high gas production, mild weather and surplus storage in the first part of the year, plus a decrease in demand due to the effects of COVID-19. By comparison, gas prices were high in early 2019 due to the continuing effects of the late 2018 Enbridge pipeline rupture that decreased pipeline capacity in the region, compressor issues at a gas storage facility that limited gas deliverability, and higher than expected load due to cold weather.period.

Electric Power Costs
Electric power costs decreased $152.9increased $35.2 million primarily due to a decreasean increase of $94.9$39.7 million of purchased electricity costs and $57.6costs; partially offset by $3.2 million of electric generation fuel expenses.expenses and $1.2 million of residential exchange credits. These items are discussed in detail below.
•Purchased electricity expense decreased $94.9increased $39.7 million primarily due to a 20.1% decrease in wholesale prices partially offset by a 1.7%16.9% increase in wholesale electricity purchases.purchases and a 6.0% increase in wholesale prices. The increase in purchases was primarily driven by an increase in load as well as an increase in other contracted resources and non-firm energy of 36.7% and 17.0%, respectively, driving a 21.3% decrease in combustion turbine generation as natural gas costs increased 88.4% .
•Electric generation fuel expense decreased $57.6$3.2 million primarily due to a $32.1 million decrease in Colstrip related to the retirement of Units 1 and 2 and a $21.1$3.2 million decrease in combustion turbine (CT) generation costs primarily driven by a 21.3% decrease in CT production driven by the cost of natural gas. Natural gas prices trended downand increase in wholesale purchases.
•Residential exchange expense credits increased $1.2 million compared to the same period in 2020 due toas a combinationresult of increased supply from high gas production, decreased demand from mild weather, surplus storagehigher electric residential sales volumes associated with the BPA residential exchange program. The residential exchange credit is a pass-through tariff item with a corresponding credit in the first part of the year as well as load pattern changes due to COVID-19 business disruptions from stay at home orders. In contrast, 2019 natural gas prices were high due to the effect of the Enbridge pipeline rupture in late 2018 which led to a decrease in pipeline capacity in the region at the same time that there was compressor issues at a gas storage facility limiting gas deliverability, and higher than expected load due to the cold weather in 2019.electric operating revenue, with no impact on net income.
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Natural Gas Margin
Natural gas margin is natural gas sales to retail and transportation customers less the cost of natural gas purchased, including transportation costs to bring natural gas to PSE’s service territory. The PGA mechanism passes through increases or decreases in the natural gas supply portion of the natural gas service rates to customers based upon changes in the price of natural gas purchased from producers and wholesale marketers or changes in natural gas pipeline transportation costs. PSE's margin or net income is not affected by changes under the PGA mechanism because over- and under- recoveries of natural gas costs included in baseline PGA rates are deferred and either refunded to or collected from customers in future periods.
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The following chart displays the details of PSE's natural gas margin changes for the three months ended September 30, 2019March 31, 2020 and 2020:2021:
psd-20200930_g5.jpgpsd-20210331_g4.jpg
_______________
*    Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
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Three Months Ended September 30, 2019March 31, 2020 compared to 20202021
Natural Gas Operating Revenue
Natural gas operating revenue increased $4.1$21.9 million primarily due to an increase of $3.0$23.1 million in total retail sales an increase of $2.3 million in decoupling revenue and an increase of $0.4$1.7 million in other decoupling revenue; partially offset by a decrease of $1.5$1.2 million in decoupling revenue and a $1.8 million decrease in transportation and other revenue. These items are discussed in detail below.
•Natural gas retail sales revenue increased $3.0$23.1 million due to an increase in rates of $9.2$14.5 million primarily fromand an increase in rates for PGA and partially offset by a decrease in natural gas load of 7.5%2.5%, or $6.1$8.6 million of natural gas sales. Commercial firmThe increase in rates is primarily due to the PGA increase effective November 1, 2020 and industrial firm customers usage decreased 21.8% and 37.2%, respectively, largely driven by business shut downs resulting from COVID-19 and a 17.5% decrease in heating degree days comparedthe tariffs effective October 1, 2020 filed pursuant to 2019.the Company's most recent GRC. See Management's Discussion and Analysis, "Regulation and Rates" and "Overview" included in Item 2 of this report for natural gas rate changeschanges. Natural gas load increased primarily due to an increase in usage by residential, commercial and COVID-19 updates.industrial customers of 2.7%, 1.6% and 8.3%, respectively, compared to 2020. Increased load was driven by an increase in heating degree days of 3.1% and an increase in retail customers of 1.0% compared to 2020.
•Decoupling revenue decreased $1.2 million, primarily attributable to increased $2.3 million, driven by lower actual revenuesusage in the third quarter of 2020 ascurrent period compared to the same period year over year, while allowed revenues remained consistent. The decrease in actual revenues is attributable to lower natural gas usage,2020, as noted above in the retail revenue section.
•Transportation and other revenue decreased $1.5 million primarily due to decrease in tax reform deferrals in 2020 for revenue subject to refunds of $0.9 million.

Natural Gas Energy Costs
Purchased natural gas expense increased $3.5 million due to an increase in the PGA rates in November 2019 and the addition of two supplemental gas commodity costs amortization rates in 2019 which were added in order to recover the large amount of gas costs that PSE incurred in late 2018 and early 2019 due to the Enbridge pipeline explosion partially offset by a decrease in natural gas usage of 7.5%.

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The following chart displays the details of PSE's natural gas margin changes for the nine months ended September 30, 2019 and 2020:
psd-20200930_g6.jpg
_______________
*Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.

Nine Months Ended September 30, 2019 compared to 2020
Natural Gas Operating Revenue
Natural gas operating revenue increased $94.7 million primarily due to an increase of $66.6 million in total retail sales, an increase of $21.7 million in other decoupling revenue and an increase of $6.6 million in decoupling revenue. These items are discussed in detail below.
•Natural gas retail sales revenue increased $66.6 million due to an increase in rates of $85.1 million primarily from an increase in rates for PGA partially offset by a decrease in natural gas load of 3.5%, or $18.5 million of natural gas sales. Natural gas load decreased primarily due to a 0.9%, 10.4%, and 9.2% decrease in average therms used by residential customers, commercial firm and industrial firm customers, respectively. Commercial and industrial firm customers decrease was primarily driven by business shut downs resulting from COVID-19. See Management's Discussion and Analysis, "Regulation and Rates" and "Overview" included in Item 2 of this report for natural gas rate changes and COVID-19 updates.
•Decoupling revenue increased $6.6 million. This is attributable to an increaseresulted in allowed natural gas revenuerevenues being closer to actual natural gas revenues in first three quarters of 2020 compared tothe current period, whereas in the same period in the previous year and a decrease in2020, allowed revenues were much higher than actual revenue, due to lower usage as discussed in the retail revenue section above.revenues.
•Other decoupling revenue increased $21.7$1.7 million, primarily due to a $23.8 million decrease in current yearperiod amortization of prior year under collection, which was driven by decreased usage.undercollected revenues compared to the same period in 2020. This is partially offset byattributable to a $2.2 million decrease related to earnings in excess of allowed ROR. In 2019, earnings in excess of allowed ROR of $2.2 million was returned to customers. There were no such returns to customers in 2020.amortization rates.


5853

Natural Gas Energy Costs
Purchased natural gas• expense increased $79.1Transportation and other revenue decreased $1.8 million primarily due to an increasea decrease in the PGA ratesprovision for rate refunds of $3.8 million and a decrease in November 2019 and the additiongas rental services revenue of two supplemental gas commodity costs amortization rates in 2019 which were added in order to recover the large amount of gas costs that PSE incurred in late 2018 and early 2019 due to the Enbridge pipeline explosion;$1.2 million; partially offset by a decrease$2.7 million reduction of entitlement constraint charges incurred against revenue compared to the same period in natural gas usage of 3.5%.2020.


Other Operating Expenses and Other Income (Deductions)
The following chart displays the details of PSE's operating expenses and other income (deductions) for the three months ended September 30, 2019March 31, 2020 and 2020:2021:

psd-20200930_g7.jpgpsd-20210331_g5.jpg
Three Months Ended September 30, 2019March 31, 2020 compared to 20202021
Other Operating Expenses
•Net unrealized (gain) loss on derivative instruments increased $54.7decreased $71.5 million to a net gain of $39.9$23.0 million for the quarter ended September 30, 2020. The main driverMarch 31, 2021. One of the drivers is related to the change isin the weighted average forward prices for electric and natural gas. Specifically, electric priceprices increased 21.3%29.1% resulting in a $36.8$54.9 million gain for electric. Gas priceNatural gas prices increased 18.4%16.1% resulting in a $29.7$23.5 million gain for natural gas. ThisThe other driver is offset byrelated to the change in net settlements of electric and natural gas trades previously recorded of $3.9as $5.3 million in losses and $7.9$12.2 million in gains, respectively.respectively, that settled and are recorded in purchased electricity or electric generation fuel which results in a loss of $6.9 million for unrealized gains and losses on derivative instruments. For further details, see Note 4, "Accounting for Derivative Instruments and Hedging" to the consolidated financial statements included in Item 1 of this report.
•Utility operations and maintenance expense decreased $1.8increased $5.6 million primarily due to an increase of $3.2 million of uncollectible accounts driven by COVID-19 disconnect suspension, an increase of $1.2 million of customer assistance expense related to the PSE's policies to reduce the impact to customers from COVID-19 and an increase of $1.2 of injuries and damages expense due to a $1.0 million decrease to the loss reserve in the first quarter of 2020; partially offset by a decrease in electric steam generation maintenancecustomer records and collection expense of $1.6 million primarily related to the retirement of Colstrip 1 & 2, other power generation maintenance of $1.0$1.7 million due to reduced wind turbine maintenance at Wild Horse wind facility, as well as reduced salary expense of $1.4 million. This was partially offset by increases of $1.0 million for customer assistance expensesbilling, collection, disconnects and $1.0 million of bad debt expense.
•Non-utility and other expense decreased $6.4 million primarilyfield work due to a decrease in long-term incentive plan expense of $7.2 million due to a decrease in long-term incentive plan awards in 2020.COVID-19.
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•Depreciation and amortization expense increased $26.5$50.3 million primarily driven by: (i) electricElectric amortization increased by $15.5 million.$32.5 million or 154.7% from the same period in 2020. This increase is primarily driven by the $8.7a $21.6 million change in PTC amortization and the PTCs amortization; andcompletion of amortization period for the regulatory liability with Microsoft power costs in 2020; (ii) Conservation amortization increased by $6.7 million due to an increase in retail usage of $2.42.7% and 2.5% for electric and natural gas, respectively; (iii) Common amortization increased by $5.8 million or 30.5% from the same period in 2020. The increase is primarily driven by a lower level of AMI related depreciation; (ii) electricdepreciation deferred for the GTZ program due to the final 2019 GRC order; (iv) Electric distribution depreciation increased a net of $2.1$1.8 million or 6.0%,4.9% from 2019.the same period in 2020. The increase is primarily due to $193.3 million in net additions of electrical distribution assets; (iii) conservation amortization increased by $3.6 million; and (iv) natural gas distribution depreciation increased by $2.1 million, or 7.5%, from 2019. The increase is primarily due to $252.3 million in net additions in natural gas distribution assets

Other Income, Interest Expense and Income Tax Expense    
•Other income/expense increased $2.1 million primarily due to a $1.3 million decrease in PGA interest income driven
by a larger over-recovery compared to an under-recovery in 2019.
•Income tax expense increased $6.7 million primarily driven by an increase in pre-tax income.
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The following chart displays the details of PSE's operating expenses and other income (deductions) for the nine months ended September 30, 2019 and 2020:

psd-20200930_g8.jpg
Nine Months Ended September 30, 2019 compared to 2020
Other Operating Expenses
•Net unrealized (gain) loss on derivative instruments decreased $33.4 million to a net gain of $3.6 million for the nine months ended September 30, 2020. The main driver is the change in net settlements of electric and natural gas trades previously recorded as $51.6 million and $8.7 million in losses, respectively, and when settled are moved to purchased power or electric generation fuel creating a gain in unrealized (gain) loss on derivative instruments. The other driver related to the change is the weighted average forward prices for electric and natural gas. Specifically, gas price increased 15.2% resulting in a $10.3 million gain for natural gas. Electric price increased 2.0%, however, it resulted in a $37.2 million loss due to a $46.8 million net loss in the first quarter of 2020 from a significant decrease in power price during the period.
•Utility operations and maintenance expense decreased $6.2 million primarily due to steam generation maintenance of $5.8 primarily related to the retirement of Colstrip 1 & 2, other power generation maintenance of $2.2 million due to reduced wind turbine maintenance at Wild Horse wind facility, $2.3 million of gas distribution operating expenses due to reduced leak survey expenses in 2020 and delayed spending in operational programs due to COVID-19. Additionally, the following expenses have decreased due to a change in operations from stay at home mandates and other business disruptions from COVID-19: $2.6 million of injuries and damages expense, $1.6 million of maintenance to general plant, and $1.8 million in rent expense. These expenses were partially offset by increases of $6.2 million of non-health related employee absence expense driven by COVID-19 stay-at-home mandates, $2.6 million of customer assistance expenses, and $1.4 million due to increased CT operations.
•Non-utility and other expense decreased $1.7 million primarily due to a decrease in long term incentive plan costs of $10.3 million and a decrease in biogas purchase expense of $2.2 million; partially offset by a one-time $7.0 million biogas payment and an increase in SERP costs of $4.1 million.
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•Depreciation and amortization expense decreased $22.9 million primarily driven by: (i) electric amortization decreased by $29.8 million from 2019. This decrease is primarily driven by the $17.9 million change in the PTCs amortization and $5.8 million in amortization for the regulatory liability associated with revised Schedule 95A effective July 1, 2019; (ii) common amortization decreased by $6.7 million, or 10.9%, from 2019. The decrease is primarily driven by the $17.5 million in deferral treatment of software amortization effective May 1, 2019 as submitted to the Washington Commission offset by net additions of computer software of $42.7 million; and (iii) conservation amortization decreased by $2.0 million. Additionally, the decreases were partially offset by (iv) electric distribution depreciation increased a net of $6.6 million, or 6.4%, from 2019. The increase is primarily due to $193.3$211.4 million in net additions of electric distribution assets; and (v) naturalNatural gas distribution depreciationamortization increased by $6.3$2.4 million or 7.6%,134% from 2019.the same period in 2020. The increase is primarily due to $252.3 million indriven by the final accounting for the AMI deferrals provided by the results of the 2019 GRC and net additions inprimarily of natural gas distribution assets.intangible utility plant of $25.9 million.
•Taxes other than income taxes decreased $3.9increased $4.8 million primarily due to a decreasean increase of $4.6$2.2 million related to the propertyelectric state excise tax tracker dueand $1.3 million related to load.electric municipal taxes driven by the increase in retail revenue in 2021 as compared to 2020.

Interest and Income Tax Expense    
•Other income/Income tax expense increased $8.1$3.4 million primarily due to $6.3 million of SmartBurn plant investment at Colstrip Units 3 & 4 which recoverydriven by an increase in pre-tax book income and was disallowed in the 2019 GRC.
•Interest expense increased $2.8 million due to $9.7 million of interest expense on the $450.0 million senior note issued in 2019, increased PTCs interest expense of $4.0 million in 2020, partially offset by the amortization of excess deferred income taxes (EDIT) which also contributed to a decrease of $7.6 million of other interest expense attributed to lower commercial paper borrowingdecline in 2020.

the effective tax rate.

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Puget Energy
Primarily, all operations of Puget Energy are conducted through PSE. Puget Energy's net income (loss) for the three months ended September 30, 2019March 31, 2020 and 2020,2021, is as follows:

psd-20200930_g9.jpgpsd-20210331_g6.jpg

Three Months Ended September 30, 2019March 31, 2020 compared to 20202021
Summary Results of Operation
Puget Energy’s net income increased for the three months ended September 30, 2020,March 31, 2021 by $49.4$94.1 million primarily due to an increase in PSE's net income of $48.3 million compared to the same period in the prior year.


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Puget Energy
Puget Energy's net income (loss) for the nine months ended September 30, 2019 and 2020, is as follows:

psd-20200930_g10.jpg

Nine Months Ended September 30, 2019 compared to 2020
Summary Results of Operation
Puget Energy’s net income increased for the nine months ended September 30, 2020, by $21.9 million primarily due to an increase in PSE's net income of $35.7 million and partially offset by an increase in interest expense of $15.9 millionwhen compared to the same period in the prior year. The increase in interest expense wasis primarily due to a $13.5 million loss from the redemption of senior secured notes in June 2020, a $200 millionincreased PSE net additional issuance of $650 million issued in May 2020income and $450 million redeemed in June 2020. For the discussion of redemption, see Note 10, "Other"decreased Puget Energy income tax expense as Puget Energy's effective tax rate decreased due to the consolidated financial statements in Item Iamortization of this report.unprotected EDIT.

Capital Requirements
Contractual Obligations and Commercial Commitments
In addition to the contractual obligations and consolidated commercial commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019,2020, during the ninethree months ended September 30, 2020,March 31, 2021, the Company entered into new Electric Portfolio and Electric Wholesale Market Transaction contracts with estimated payment obligations totaling $935.3$777.4 million through 2042.2037.
For further information, see Note 16, "Commitments and Contingencies" to the consolidated financial statements included in Item 8 of the Company's Form 10-K for the periodyear ended December 31, 2019.2020.
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The following are the Company's aggregate availability under commercial commitments as of September 30, 2020:March 31, 2021:
Puget Energy and
Puget Sound Energy		Puget Energy and
Puget Sound Energy		Amount of Available Commitments
Expiration Per Period		Puget Energy and
Puget Sound Energy		Amount of Available Commitments
Expiration Per Period
(Dollars in Thousands)(Dollars in Thousands)Total20202021-20222023-2024Thereafter(Dollars in Thousands)Total20212022-20232024-2025Thereafter
Commercial commitments:Commercial commitments:Commercial commitments:
PSE revolving credit facilityPSE revolving credit facility$800,000 $— $— $800,000 $— PSE revolving credit facility$800,000 $— $800,000 $— $— 
Inter-company short-term debtInter-company short-term debt30,000 — — — 30,000 Inter-company short-term debt30,000 — — — 30,000 
Total PSE commercial commitmentsTotal PSE commercial commitments830,000 — — 800,000 30,000 Total PSE commercial commitments830,000 — 800,000 — 30,000 
Puget Energy revolving credit facilityPuget Energy revolving credit facility776,100 — — 776,100 — Puget Energy revolving credit facility776,500 — 776,500 — — 
Less: Inter-company short-term debt eliminationLess: Inter-company short-term debt elimination(30,000)— — — (30,000)Less: Inter-company short-term debt elimination(30,000)— — — (30,000)
Total Puget Energy commercial commitmentsTotal Puget Energy commercial commitments$1,576,100 $— $— $1,576,100 $— Total Puget Energy commercial commitments$1,576,500 $— $1,576,500 $— $— 

For further discussion, see Management's Discussion and Analysis, "Financing Program" in Item 2.

Off-Balance Sheet Arrangements
As of September 30, 2020,March 31, 2021, 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.

Utility Construction Program
The Company’s construction programs for generating facilities, the electric transmission system, the natural gas and electric distribution systems and the Tacoma LNG facility are designed to meet regulatory requirements, support customer growth and to improve energy system reliability.  Due to business disruptions caused by the COVID-19 pandemic, the Company closely monitored and adjusted capital expenditures, resulting in a decrease of $83.2$17.7 million compared to forecasted amounts for the ninethree months ended September 30, 2020.March 31, 2021.  Construction expenditures, excluding equity allowance for funds used during construction (AFUDC), totaled $678.1$213.8 million for the ninethree months ended September 30, 2020.March 31, 2021. Presently planned utility construction expenditures, excluding equity AFUDC, are as follows:

Capital Expenditure ProjectionsCapital Expenditure ProjectionsCapital Expenditure Projections
(Dollars in Millions)(Dollars in Millions)202020212022(Dollars in Millions)202120222023
Total energy delivery, technology and facilities expendituresTotal energy delivery, technology and facilities expenditures$882.8$967.9$985.8Total energy delivery, technology and facilities expenditures$953.9$974.4$1,135.1

The program is subject to change based upon general business, economic and regulatory conditions.  Utility construction expenditures and any new generation resource expenditures may be funded from a combination of sources which may include cash from operations, short-term debt, long-term debt and/or equity.  The Company’sPSE’s planned capital expenditures may result in a level of spending that will exceed its cash flow from operations.  As a result, execution of the Company’sPSE’s strategy is dependent in part on continued access to capital markets.  

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Capital Resources
Cash from Operations
Puget Sound EnergyPuget Sound EnergyNine Months Ended
September 30,		Puget Sound EnergyThree Months Ended
March 31,
(Dollars in Thousands)(Dollars in Thousands)20202019Change(Dollars in Thousands)20212020Change
Net incomeNet income$159,420 $123,720 $35,700 Net income$199,470 $111,321 $88,149 
Non-cash items1
Non-cash items1
497,676 531,225 (33,549)
Non-cash items1
190,391 215,063 (24,672)
Changes in cash flow resulting from working capital2
Changes in cash flow resulting from working capital2
119,266 (8,124)127,390 
Changes in cash flow resulting from working capital2
876 24,754 (23,878)
Regulatory assets and liabilitiesRegulatory assets and liabilities(90,513)(46,993)(43,520)Regulatory assets and liabilities(14,351)(16,865)2,514 
Purchased gas adjustmentPurchased gas adjustment30,859 (155,711)186,570 Purchased gas adjustment40,868 41,429 (561)
Other non-current assets and liabilities3
Other non-current assets and liabilities3
(26,391)(13,028)(13,363)
Other non-current assets and liabilities3
(3,077)(23,801)20,724 
Net cash provided by operating activitiesNet cash provided by operating activities$690,317 $431,089 $259,228 Net cash provided by operating activities$414,177 $351,901 $62,276 
_______________
1 Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity, PTCs and
other miscellaneous non-cash items.
2 Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayment, PGA, accounts
payable and accrued expenses.
3 Other non-current assets and liabilities include funding of pension liability.

NineThree Months Ended September 30, 2020March 31, 2021 compared to 20192020
Cash generated from operations for the ninethree months ended September 30, 2020March 31, 2021 increased by $259.2$62.3 million including a net income increase of $35.7$88.1 million. The following are significant factors that impacted PSE's cash flows from operations:
•Cash flow adjustments resulting from non-cash items decreased $33.5$24.7 million primarily due to decreases in depreciation and amortization of $20.9 million, amortization of TCJA Over Collection of $3.3 million, conservation amortization of $2.0 million, equity allowance for funds used during construction (AFUDC-Equity) of $7.7 million, a $33.4$71.5 million change from a net unrealized loss on derivative instruments of $29.9$48.5 million to a net unrealized gain on derivative instruments of $3.5$23.0 million, partially offset by a $17.9$21.6 million change in production tax creditPTC utilization, offset by increases in depreciation and amortization of $43.6 million, amortization of TCJA Over Collection of $10.0 million, conservation amortization of $6.7 million, deferred income taxes of $8.9 million and a loss of $6.3 million due to writing off Smart Burn project at Colstrip.$8.8 million. For further details, see Management's Discussion and Analysis, "Other Operating Expenses" in Item 2.
•Cash flows resulting from changes in working capital increased $127.4 million primarily duedecreased $23.9 million. As a result of the COVID-19 pandemic and its impact on the economy, along with our initiative to decreasedsuspend disconnections of customers for non-payment, cash outflow in Accounts payable of $134.8 million, which was mainly due to 2019 includes payments of significant power and natural gas costs accrued at December 31, 2018 that were paid in 2019.Receivable increased $43.8 million. The decreaseincrease of cash outflow in accounts payableAccount Receivable was partially offset by $7.4$21.3 million increase of increases related to changescash inflow in account receivable and expense accruals.Account Payable.
•Cash flow resulting from purchased gas adjustment (long-term) increased $186.6$0.6 million. Affected by three events experienced by PSE in 2019 winter: (1) the Enbridge pipeline rupture, (2) unusually low temperatures in February
•Cash flows resulting from regulatory assets and March, and (3)liabilities increased $2.5 million primarily due to a compressor failure in February at the Jackson Prairie storage facility, actual natural gas cost went above natural gas baseline rates$15.9 million increase in the PGApower cost adjustment mechanism, caused the total purchased gas adjustment receivable to increase from $9.9partially offset by a deferral of $12.9 million to $155.7 million during the first nine months of 2019, which led to $145.8 million cash outflow. In contrast, both price of natural gas and actual gas consumption decreased in the first nine months of 2020. Combined with higher PGA rates taking effect on May 1, 2019 and November 1, 2019, total purchase gas adjustment receivable decreased from $132.8 million to $101.9 million in the first nine months of 2020, resulting in a $30.9 million cash inflow. A change from $145.8 million cash outflow to $30.9 million cash inflow led to an increase of cash flow of $176.7 million, which includes an increase in PGA long-term of $186.6 million and a decrease in PGA short-term of $9.9 million.2021 storm excess costs.
•Cash flow resulting from changes in regulatory assets and liabilities decreased $43.5 million in the same period year over year primarily due to a $46.0 million increase in decoupling deferrals, partially offset by a $2.6 million decrease in cash collections of previously deferred amounts.
•Cash flow resulting from changes inother non-current assets and liabilities decreased $13.4increased $20.7 million primarily due to $19.1 million increasepayments made in payment of Long-termboth SERP liability and LTIP (Long-Term Incentive Plan (LTIP) and an increase of $4.1 million relatedPlan) liability in 2020 were higher comparing to the Low Income Program and the Covid-19 Help Program, partially offset by $9.6 million payroll taxes deferral.2021.

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Puget EnergyPuget EnergyNine Months Ended
September 30,		Puget EnergyThree Months Ended
March 31,
(Dollars in Thousands)(Dollars in Thousands)20202019Change(Dollars in Thousands)20212020Change
Net incomeNet income$(77,721)$(63,961)$(13,760)Net income$(10,477)$(16,385)$5,908 
Non-cash items1
Non-cash items1
12,420 5,990 6,430 
Non-cash items1
(11,720)(932)(10,788)
Changes in cash flow resulting from working capital2
Changes in cash flow resulting from working capital2
(473)(10,938)10,465 
Changes in cash flow resulting from working capital2
(5,913)(19,998)14,085 
Other non-current assets and liabilities3
Other non-current assets and liabilities3
(8,703)(8,047)(656)
Other non-current assets and liabilities3
(2,618)(3,215)597 
Net cash provided by operating activitiesNet cash provided by operating activities$(74,477)$(76,956)$2,479 Net cash provided by operating activities$(30,728)$(40,530)$9,802 
_______________
1 Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, (Gain) or loss on extinguishment of debt, AFUDC-equity, PTCs and
other miscellaneous non-cash items.
2 Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayments, PGA, accounts payable and accrued expenses.
3 Other noncurrent assets and liabilities include funding of pension liability.
NineThree Months Ended September 30, 2020March 31, 2021 compared to 20192020
Cash generated from operations for the ninethree months ended September 30, 2020,March 31, 2021, in addition to the changes discussed at PSE above, decreasedincreased by $2.5$9.8 million compared to the same period in 2019,2020, which includes a net income decreaseincrease of $13.8$5.9 million.  The remaining change was primarily impacted by the factors explained below:
•Non-cash items increased $6.4 million primarily caused by the cash outflow of $13.5 million due to extinguishment of debt reflected in Financing activities, which partially offset by increased cash outflow of $7.2decreased $10.8 million due to changes in deferred taxes.
•Cash flow resulting from working capital increased $10.5$14.1 million primarily due to a $6.6$9.0 million increase related to changes incaused by the change of eliminations of PSE's intercompany account receivable and account payable balances with Puget LNG and PE, decreased cash outflow of $2.9 million related toPuget Energy, an increase in tax payable and increase cash inflow of $1.0$5.6 million, withpartially offset by other accrued expenses.


Financing Program
The Company’s external financing requirements principally reflect the cash needs of its construction program, its schedule of maturing debt and certain operational needs.  The Company anticipates refinancing the redemption of bonds or other long-term borrowings with its credit facilities and/or the issuance of new long-term debt.  Access to funds depends upon factors such as Puget Energy’s and PSE’s credit ratings, prevailing interest rates and investor receptivity to investing in the utility industry, Puget Energy and PSE. The Company believes it has sufficient liquidity through its credit facilities and access to capital markets to fund its needs over the next twelve months.
Proceeds from PSE’s short-term borrowings and sales of commercial paper are used to provide working capital and the interim funding of utility construction programs.  Puget Energy and PSE continue to have reasonable access to the capital and credit markets.
As a result of the COVID-19 pandemic and its impact on the economy and capital markets, the Company continues to carefully monitor cash receipts from customers and any impacts on the Company’s liquidity which may affect its ability to fund safe, reliable, and dependable service for our customers. Our initiative to suspend disconnections of customers for non-payment and the receipt of the Washington Commission approval to waive late fees will impact future cash receipts.
As a result of the 2019 GRC outcome and the continuing negative impacts of tax reform on the Company's cash flows, Puget Energy and PSE's credit rating metrics will bewere negatively impacted in the near term absent other regulatory relief or corporate mitigation measures.impacted. In response to the 2019 GRC order, Moody's released an issuer comment stating the GRC outcome was credit negative but took no formal credit rating action. S&P placed Puget Energy and PSE on CreditWatch with negative implications due the rate case outcome and Fitch affirmed Puget Energy and PSE ratings but changed its outlook from stable to negative. Subsequently, S&P removed Puget Energy and PSE from CreditWatch negative. All three credit agencies indicated that continued stress on credit metrics and/or lack of sufficient regulatory rate relief over the relative near term could result in additional negative ratings implications, including a credit rating downgrade. A consistent credit rating downgrade by the three credit agencies would lower Puget Energy from investment grade to non-investment grade, however, PSE would remain at investment grade, assuming a one notch credit adjustment. Additionally, a credit rating downgrade would increase the cost of borrowing for Puget Energy and PSE in future long-term financings and impact the terms under their existing credit facilities. Any increase in the cost of borrowing would negatively impact Puget Energy and PSE's future results of operations and could negatively impact their future liquidity, access to debt capital resources.resources and financial condition. A downgrade to
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Puget Energy and PSE's credit ratings would not impact debt covenants under our existing credit facilities nor would it impact other contracts, as neither include credit rating triggering event clauses. A credit rating decrease for PSE could result in increased cash collateral required for commodity contracts, which would adversely affect PSE's liquidity. Management continually monitors the credit rating environment for both Puget Energy and PSE, but cannot predict with certainty the actions credit agencies may take, if any, in response to weaker near term credit
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metrics, regulatory and rate recovery uncertainties, and management's efforts to contain the growth of capital and operating expenditures. Containing the growth of capital and operating expenditures will be limited, over the near to medium term, due to continuing strategic and risk mitigation imperatives and the necessity of providing safe, reliable and resilient service levels to customers, particularly in the context of the COVID-19 pandemic.
Commercial paper markets were significantly impacted for athe period of timeJanuary 1, 2020 to June 30, 2020, due to COVID-19, which limited commercial paper borrowings so therefore the Company drew short term funding from its credit facility. The Company created a minimum cash reserve of $100 million on April 1, 2020, which was intended to be utilized to cover cash disbursements in the event of illiquid markets. As a result of significantly improved commercial paper markets and steady cash collection over the second quarter of 2020, the Company reduced its cash reserve requirement to $20$10 - $25$15 million. Evolving factors that we cannot accurately predict, including the duration and scope of the COVID-19 pandemic, and any relevant governmental, business and customers’ actions that have been and continue to be taken in response to the COVID-19 pandemic, could negatively impact the Company’s liquidity.

Puget Sound Energy
Credit Facility
As of September 30, 2020,March 31, 2021, PSE had an $800.0 million credit facility to meet short-term liquidity needs. The credit facility includes a swingline feature allowing same day availability on borrowings up to $75.0 million. The credit facility has an expansion feature which, upon the banks' approval, would increase the total size of the facility to $1.4 billion. The unsecured revolving credit facility matures in October 2023.
The credit agreement is syndicated among numerous lenders and contains usual and customary affirmative and negative covenants that, among other things, place limitations on PSE's ability to transact with affiliates, make asset dispositions and investments or permit liens to exist. The credit agreement also contains a financial covenant of total debt to total capitalization of 65.0% or less. PSE certifies its compliance with such covenants to participating banks each quarter. As of September 30, 2020,March 31, 2021, PSE was in compliance with all applicable covenant ratios.
The credit agreement provides PSE with the ability to borrow at different interest rate options. The credit agreement allows PSE to borrow at the bank's prime rate or to make floating rate advances at the London Interbank Offered Rate (LIBOR) plus a spread that is based upon PSE's credit rating. PSE must pay a commitment fee on the unused portion of the credit facility. The spreads and the commitment fee depend on PSE's credit ratings. As of the date of this report, the spread to the LIBOR is 1.25% and the commitment fee is 0.175%.
As of September 30, 2020,March 31, 2021, no amount was drawn under PSE's credit facility and $221.0$191.0 million was outstanding under the commercial paper program. Outside of the credit agreement, PSE had a $2.65$2.7 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.

Demand Promissory Note
In 2006, PSE entered into a revolving credit facility with Puget Energy, in the form of a credit agreement and a demand promissory note (Note) pursuant to which PSE may borrow up to $30.0 million from Puget Energy subject to approval by Puget Energy.  Under the terms of the Note, PSE pays interest on the outstanding borrowings based on the lower of the weighted-average interest rates of PSE’s outstanding commercial paper interest rate or PSE’s senior unsecured revolving credit facility.  Absent such borrowings, interest is charged at one-month LIBOR plus 0.25%. As of September 30, 2020,March 31, 2021, PSE had no outstanding balance under the Note.

Debt Restrictive Covenants
The type and amount of future long-term financings for PSE may be limited by provisions in PSE's electric and natural gas mortgage indentures.
PSE’s ability to issue additional secured debt may also be limited by certain restrictions contained in its electric and natural gas mortgage indentures.  Under the most restrictive tests at September 30, 2020,March 31, 2021, PSE could issue:
•Approximately $1.9$2.1 billion of additional first mortgage bonds under PSE’s electric mortgage indenture based on approximately $3.2$3.5 billion of electric bondable property available for issuance, subject to an interest coverage ratio limitation of 2.0 times net earnings available for interest (as defined in the electric utility mortgage), which PSE exceeded at September 30, 2020;March 31, 2021; and
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•Approximately $702.0$824.0 million of additional first mortgage bonds under PSE’s natural gas mortgage indenture based on approximately $1.2$1.4 billion of natural gas bondable property available for issuance, subject to a combined natural gas and electric interest coverage test of 1.75 times net earnings available for interest and a natural gas interest coverage test of 2.0 times net earnings available for interest (as defined in the natural gas utility mortgage), both of which PSE exceeded at September 30, 2020.March 31, 2021.
At September 30, 2020,March 31, 2021, PSE had approximately $7.7$8.0 billion in electric and natural gas rate base to support the interest coverage ratio limitation test for net earnings available for interest.

Shelf Registrations
On August 2, 2019, PSE filed a new shelf registration statement under which it may issue, up to $1.0 billion aggregate principal amount of senior notes secured by first mortgage bonds. As of the date of this report, $550.0 million was available to be issued. The shelf registration will expire in August 2022.

Dividend Payment Restrictions
The payment of dividends by PSE to Puget Energy is restricted by provisions of certain covenants applicable to long-term debt contained in PSE’s electric and natural gas mortgage indentures.  At September 30, 2020,March 31, 2021, approximately $945.2 million$1.2 billion of unrestricted retained earnings was available for the payment of dividends under the most restrictive mortgage indenture covenant.
PursuantBeginning February 6, 2009, pursuant to the terms of the merger order by the Washington Commission, merger order, PSE may not declare or pay dividends if PSE’s common equity ratio, calculated on a regulatory basis, is 44.0% or below except to the extent a lower equity ratio is ordered by the Washington Commission.  Also, pursuant to the merger order, PSE may not declare or make any distribution unless on the date of distribution PSE’s corporate credit/issuer rating is investment grade, or, if its credit ratings are below investment grade, PSE’s ratio of earnings before interest, tax, depreciation and amortization (EBITDA) to interest expense for the most recently ended four fiscal quarter periods prior to such date is equal to or greater than 3.0 to 1.0.  The common equity ratio, calculated on a regulatory basis, was 48.3%49.9% at September 30, 2020,March 31, 2021, and the EBITDA to interest expense was 5.25.4 to 1.0 for the twelve months ended September 30, 2020.March 31, 2021.
PSE’s ability to pay dividends is also limited by the terms of its credit facilities, pursuant to which PSE is not permitted to pay dividends during any Event of Default (as defined in the facilities), or if the payment of dividends would result in an Event of Default, such as failure to comply with certain financial covenants. At September 30, 2020,March 31, 2021, the Company was in compliance with all applicable covenants, including those pertaining to the payment of dividends.

Long Term Debt
PSEThe Company had no new long-term debt activities in the ninethree months ended September 30, 2020.March 31, 2021. For further information, see Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's most recent Annual Report on Form 10K for the year ended December 31, 2019.2020.

Puget Energy
Credit Facility
At September 30, 2020,March 31, 2021, Puget Energy maintained an $800.0 million credit facility. The Puget Energy revolving senior secured credit facility also has an accordion feature which, upon the banks' approval, would increase the size of the facility to $1.3 billion. The unsecured revolving credit facility matures in October 2023.
The revolving senior secured credit facility provides Puget Energy the ability to borrow at different interest rate options and includes variable fee levels. Interest rates may be based on the bank's prime rate or LIBOR, plus a spread based on Puget Energy's credit ratings. Puget Energy must pay a commitment fee on the unused portion of the facility. As of September 30, 2020,March 31, 2021, there was $23.9$23.5 million drawn and outstanding under the facility. As of the date of this report, the spread over LIBOR was 1.75% and the commitment fee was 0.275%.
The revolving senior secured credit facility contains usual and customary affirmative and negative covenants. The agreement also contains a maximum leverage ratio financial covenant as defined in the agreement governing the senior secured credit facility. As of September 30, 2020,March 31, 2021, Puget Energy was in compliance with all applicable covenants.

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Long-Term Debt
On May 19, 2020, Puget Energy issued $650.0The Company had no new long-term debt activities in the three months ended March 31, 2021. The Company is evaluating refinancing options related to $500 million of senior secured notes (Notes) at anthat mature in September 2021. The Company will monitor interest rate dynamics over the next several months, and evaluate various term structures and timing of 4.1%. The Notes pay interest semi-annually and are duewhen to mature on June 15, 2030. The proceeds fromrefinance the issuance of the Notes were used to pay $150.0 million under our term loan credit facility, pay $31.6 million of our revolving credit facility, and to redeem $450.0 million in principal amount of our 6.5% senior secured notes due December 15, 2020 and to pay related fees and expenses.
On June 18, 2020, Puget Energy redeemed the $450.0 million senior secured notes due December 15, 2020 and paid related fees and expenses for a total redemption price of $463.2 million. Excluding the repayment of the $450.0 million principal amount and $0.3 million of unamortized debt discount and issuance cost, the extinguishment incurred a $13.5 million loss, which includes $0.4 million of accrued interest expense and is reported in the Puget Energy "Interest Expense" line item as of September 30, 2020.
notes. For further information, see Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's most recent Annual Report on Form 10K for the year ended December 31, 2019.2020.

Dividend Payment Restrictions
Puget Energy’s ability to pay dividends is also limited by the merger order issued by the Washington Commission.  Pursuant to the merger order, Puget Energy may not declare or make a distribution unless on such date Puget Energy’s ratio of consolidated EBITDA to consolidated interest expense for the four most recently ended fiscal quarters prior to such date is equal to or greater than 2.0 to 1.0.  Puget Energy's EBITDA to interest expense was 3.43.6 to 1.0 for the twelve months ended September 30, 2020.March 31, 2021.
At September 30, 2020,March 31, 2021, the Company was in compliance with all applicable covenants, including those pertaining to the payment of dividends.

Other
New Accounting Pronouncements
For the discussion of new accounting pronouncements, see Note 2, "New Accounting Pronouncements" to the consolidated financial statements in Item I of this report.

Washington Clean Energy Transformation Act
In May 2019, Washington State passed the 100 Percent Clean Electric Bill that supports Washington's clean energy economy and transitioning to a clean, affordable, and reliable energy future. The Clean Energy Transformation Act (CETA) requires all electric utilities to eliminate coal-fired generation from their allocation of electricity by December 31, 2025; to be carbon-neutral by January 1, 2030, through a combination of non-emitting electric generation, renewable generation, and/or alternative compliance options; and makes it the state policy that, by 2045, 100% of electric generation and retail electricity sales will come from renewable or non-emitting resources. Clean Energy Implementation plans are required every four years from each investor-owned utility (IOU), and each IOU must propose interim targets for meeting the 2045 standard between 2030 and 2045, and lay out an actionable plan that they intend to pursue to meet the standard. The Washington Commission may approve, reject, or recommend alterations to an IOU’s plan.
In order to meet these requirements, CETAthe Act clarifies the Washington Commission’s authority to consider and implement performance and incentive-based regulation, multi-year rate plans, and other flexible regulatory mechanisms where appropriate. CETAThe Act mandates that the Washington Commission accelerate depreciation schedules for coal-fired resources, including transmission lines, to December 31, 2025, or to allow IOUs to recover costs in rates for earlier closure of those facilities. IOUs will be allowed to earn a rate of return on certain PPAs and 36 months deferred accounting treatment for clean energy projects (including PPAs) identified in the utility’s clean energy implementation plan.
IOUs are considered to be in compliance when the cost of meeting the standard or an interim target within the four-year period between plans equals a 2% increase in the weather adjusted sales revenue to customers from the previous year. If relying on the 2% threshold for alternative compliance,cost cap exemption, IOUs must demonstrate that they have maximized investments in renewable resources and non-emitting generation prior to using alternative compliance measures.
The law requires additional rulemaking by several Washington agencies for its measures to be enacted and PSE is unable to predict outcomes at this time. The Company intends to seek recovery of any costs associated with the clean energy legislation through the regulatory process.

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Colstrip 
PSE has a 50% ownership interest in Colstrip Units 1 and 2 and a 25% interest in each of Colstrip Units 3 and 4. In March 2013, the Sierra Club and the Montana Environmental Information Center filed a Clean Air Act citizen suit against all Colstrip owners in the U.S. District Court, District of Montana. In July 2016, PSE reached a settlement with the Sierra Club to dismiss all of the Clean Air Act allegations against the Colstrip Generating Station, which was approved by the court in September 2016. As part of the settlement that was signed by all Colstrip owners, Colstrip 1 and 2 owners, PSE and the operator of Colstrip, Talen Energy Corporation (Talen), agreed to retire the two oldest units (Units 1 and 2) at Colstrip in eastern Montana no later than July 1, 2022. Depreciation rates were updated in the GRC effective December 19, 2017, where PSE's depreciation
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increased for Colstrip Units 1 and 2 to recover plant costs to the expected shutdown date. Additionally, PSE has accelerated the depreciation of Colstrip Units 3 and 4, per the terms of the 2017 GRC settlement, to December 31, 2027. The GRC also repurposed PTCs and hydro-related treasury grants to recover unrecovered plant costs and to fund and recover decommissioning and remediation costs for Colstrip Units 1 through 4. On July 8, 2020, the Washington Commission issued its final order in the 2019 GRC which further shortened the depreciable life for Colstrip 3 and 4 to December 31, 2025 to align with the requirements of the Clean Energy Transformation Act.
Consistent with a June 2019 announcement, Talen permanently shut down Units 1 and 2 at the end of the year due to operational losses associated with the Units. Colstrip Units 1 and 2 were retired effective December 31, 2019. The Washington Clean Energy Transformation Act requires the Washington Commission to provide recovery of the undepreciated investment and to allow in electric rates all prudently incurred decommissioning, and remediation costs associated with the facilities. The full scope of decommissioning activities and costs may vary from the estimates that are available at this time.
On December 10, 2019, PSE announced its intention to sell its interest in Colstrip Unit 4 to NorthWestern Energy for $1. Under thethis proposed agreement, with NorthWestern Energy, PSE would retainhave retained its obligation to fund 25% of the environmental remediation and decommissioning costs associated with Unit 4 during PSE's operation.ownership. The proposed agreement was subject to approval by the Washington Commission and the Montana Public Service Commission. Additionally, PSE had agreed to enter into a power purchase agreement with NorthWestern Energy for 90 MW through 2025 to facilitate the transition, and sell a portion of its dedicated Colstrip transmission system, conditioned upon regulatory approval. Other Colstrip owners and other external parties have intervened in the pending regulatory review of this transaction, and one Colstrip owner, Talen, has exercised its contractual right to purchase its pro rata share of the interest to be sold by PSE.
On August 14, 2020, an amendment to the agreement was executed selling a portion of PSE’s interest in Colstrip Unit 4 to Talen, in addition to NorthWestern Energy. Following this, PSE submitted supplementary testimony related to this amendmentHowever, after evaluating the likelihood of the regulatory approval process in the proceeding with theboth Washington Commission. Both the Washington Commission and the Montana, Public Service Commission issued new procedural calendars which were previously on hold until these supplemental filings were completed. The original purchase agreement was written such that the purchase must close by December 31, 2020. On October 29, 2020, PSE, NorthWestern Energy, and Talen mutually agreed to terminate the proposed sales agreement and the proposed power purchase agreement and relieve all claims against one another arising out of or relating to the sale agreement after evaluating the likelihood of the regulatory approval process in both Washington and Montana.agreement. The termination of the proposed sale and proposed PPA resulted in the withdrawal of PSE's filing with the Washington Commission. As such, Colstrip Unit 4 is classified as Electric Utility Plant on the balance sheet.

Regional Haze Rule
In January 2017, the U.S. Environmental Protection Agency (EPA) published revisions to the Regional Haze Rule. Among other things, these revisions delayed new Regional Haze review from 2018 to 2021, however the end date will remain 2028. In January 2018, EPA announced that it was reconsidering certain aspects of these revisions and PSE is unable to predict the outcome. Challenges to the 2017 Regional Haze Revision Rule are pending in abeyance in the U.S. Court of Appeals for the D.C. Circuit, pending resolution of EPA's reconsideration of the rule.

Clean Air Act 111(d)/EPA Clean Power Plan
In June 2014, the EPA issued a proposed Clean Power Plan (CPP) rule under Section 111(d) of the Clean Air Act designed to regulate GHG emissions from existing power plants. The proposed rule includes state-specific goals and guidelines for states to develop plans for meeting these goals. The EPA published a final rule in October 2015. In March 2017, then EPA Administrator, Scott Pruitt, signed a notice of withdrawal of the proposed CPP federal plan and model trading rules and, in October 2017, the EPA proposed to repeal the CPP rule.
In August 2018, the EPA proposed the Affordable Clean Energy (ACE) rule, pursuant to Section 111(d) of the Clean Air Act.Act, as a replacement to the CPP rule. The ACE rule, wasalong with the repeal of the CPP rule, were finalized in June 2019, and establishesestablish emission guidelines for states to develop plans to address greenhouse gas emissions from existing coal-fired plants. Compliance plans underOn January 19, 2021 the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) vacated the ACE are due July 2022,rule and compliance generally required by July 2024.remanded the record back to the Agency for further consideration consistent with its opinion, finding that the rule misinterpreted the Clean Air Act. PSE is evaluating the final ACE rulethis vacatur to determine its impact on operations.

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Washington Clean Air Rule
The CARWashington clean air rule (CAR) was adopted in September 2016, in Washington State and attempts to reduce greenhouse gas emissions from “covered entities” located within Washington State. Included under the new rule are large manufacturers, petroleum producers and natural gas utilities, including PSE. The CAR sets a cap on emissions associated with covered entities, which decreases over time approximately 5.0% every three years. Entities must reduce their carbon emissions, or purchase emission reduction units (ERUs), as defined under the rule, from others.
In September 2016, PSE, along with Avista Corporation, Cascade Natural Gas Corporation and NW Natural, filed a lawsuit in the U.S. District Court for the Eastern District of Washington challenging the CAR. In September 2016, the four companies filed a similar challenge to the CAR in Superior Court of the State of Washington for Thurston County Superior Court.County. In March 2018, the Superior Court of the State of Washington for Thurston County Superior Court invalidated the CAR. The Department of Ecology appealed the Superior Court decision in May 2018. As a result of the appeal, direct review to the Washington State Supreme Court was granted and oral argument was held on March 16, 2019. In January 2020, the Washington Supreme Court affirmed that CAR is not valid for “indirect emitters” meaning it does not apply to the sale of natural gas for use by customers. The court ruled, however, that the rule can be severed and is valid for direct emitters including electric utilities with permitted air emission sources, but remanded the case back to the Thurston County to determine which parts of the rule survive. The Washington State Department of Ecology and the four parties asked Thurston County to stay this case until the 2020 Washington State legislative session concluded and now the Washington State Department of Ecology plans to ask the court to extend the stay until the COVID-19 pandemic is over. Meanwhile, the four companies moved to voluntarily dismiss the federal court litigation without prejudice in March 2020.

Related Party Transactions
In August 2015, PSE filed a proposal with the Washington Commission to develop an LNGa liquified nature gas (LNG) facility at the Port of Tacoma. The Tacoma LNG facility will provide peak-shaving services to PSE’s natural gas customers, and will provide LNG as fuel to transportation customers, particularly in the marine market. Following a mediation process and the filing of a settlement stipulation by PSE and all parties, the Washington Commission issued an order on October 31, 2016, that allowed PSE’s parent company, Puget Energy, to create a wholly-owned subsidiary, named Puget LNG, which was formed on November 29, 2016, for the sole purpose of owning, developing and financing the non-regulated activity of the Tacoma LNG facility. Puget LNG has entered into one fuel supply agreement with a maritime customer and is marketing the facility’s expected output to other potential customers.
The Tacoma LNG facility is currently under construction.achieved mechanical completion in February 2021. Pursuant to the Washington Commission’s order, Puget LNG will be allocated approximately 57.0% of the capital and operating costs of the Tacoma LNG facility and PSE will be allocated the remaining 43.0% of the capital and operating costs. PSE and Puget LNG are considered related parties with similar ownership by Puget Energy. Therefore, capital and operating costs that occur under PSE and are allocated to Puget LNG are related party transactions by nature. Per this allocation of costs, $221.2$239.4 million of construction work in progress and $0.5$0.2 million of operating costs related to Puget LNG's portion of the Tacoma LNG facility are reported in the Puget Energy "Other property and investments" and "Non-utility expense and other" financial statement line items, respectively, as of September 30, 2020.March 31, 2021. The portion of the Tacoma LNG facility allocated to PSE will be subject to regulation by the Washington Commission.

IBEW Union Contract
The International Brotherhood of Electrical Workers (IBEW) Local 77 union and PSE reached an agreement on a new contract, which was ratified on March 26, 2020, upon the IBEW vote approving the provisions and took effect on April 1, 2020. The contract is for six years and will expire March 31, 2026.

Human Capital
Information regarding the Company’s human capital measures and objectives is contained in the Environmental, Social and Governance (ESG) report that can be found on the Company’s website, www.pse.com. The information on the Company’s website is not, and will not be deemed to be a part of this Quarterly Report on Form 10-Q or incorporated into the Company’s other filings with the SEC.

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Item 3.     Quantitative and Qualitative Disclosure about Market Risk

The Company is exposed to various forms of market risk, consisting primarily of fluctuations in commodity prices, counterparty credit risk, as well as interest rate risk. PSE maintains risk policies and procedures to help manage the various risks. There have been no material changes to market risks affecting the Company from those set forth in Part II, Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.

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Commodity Price Risk
The nature of serving regulated electric and natural gas customers with its portfolio of owned and contracted electric generation resources exposes PSE and its customers to some volumetric and commodity price risks. PSE’s Energy Management Committee establishes energy risk management policies and procedures to manage commodity and volatility risks and the related effects on credit, tax, accounting, financing and liquidity.    
PSE's objective is to minimize commodity price exposure and risks associated with volumetric variability in the natural gas and electric portfolios. It is not engaged in the business of assuming risk for the purpose of speculative trading.  PSE hedges open natural gas and electric positions to reduce both the portfolio risk and the volatility risk in prices.  

Counterparty Credit Risk
PSE is exposed to credit risk primarily through buying and selling electricity and natural gas to serve customers. Credit risk is the potential loss resulting from a counterparty's non-performance under an agreement. PSE manages credit risk with policies and procedures for counterparty analysis and measurement, monitoring and mitigation of exposure. Additionally, PSE has entered into commodity master arrangements (i.e., WSPP, Inc. (WSPP), International Swaps and Derivatives Association (ISDA) or North American Energy Standards Board (NAESB)) with its counterparties to mitigate credit exposure. PSE also increased the participation on commodity exchanges to reduce the bilateral counterparty credit risk.
Interest Rate Risk
The Company believes its interest rate risk primarily relates to the use of short-term debt instruments, variable-rate leases and anticipated long-term debt financing needed to fund capital requirements. The Company manages its interest rate risk through the issuance of mostly fixed-rate debt with varied maturities. The Company utilizes internal cash from operations, borrowings under its commercial paper program, and its credit facilities to meet short-term funding needs. During periods of financial market or interest rate volatility, the Company may utilize its credit facilities for short term funding needs instead of the commercial paper program. Credit facility borrowings are based on a more stable base rate and the credit spread is fixed.fixed
Short-term obligations are commonly refinanced with fixed-rate bonds or notes when needed and when interest rates are considered favorable. The Company may also enter into swaps or other financial hedge instruments to manage the interest rate risk associated with the debt.


Item 4.     Controls and Procedures

Puget Energy
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of Puget Energy’s management, including the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, Puget Energy has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2020,March 31, 2021, 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 September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, Puget Energy’s internal control over financial reporting.

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Puget Sound Energy
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of PSE’s management, including the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, PSE has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2020,March 31, 2021, 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 September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, PSE’s internal control over financial reporting.


PART II            OTHER INFORMATION


Item 1.         Legal Proceedings

Contingencies arising out of the Company's normal course of business existed as of September 30, 2020.March 31, 2021.  Litigation is subject to numerous uncertainties and the Company is unable to predict the ultimate outcome of these matters. For details on legal proceedings, see Note 8, "Commitments and Contingencies" in the Combined Notes to Consolidated Financial Statements in Item I.
On August 26, 2020, the SEC issued Final Rule Release No. 33-10825, "Modernization of Regulation S-K Items 101, 103, and 105." This rule, which became effective on November 9, 2020, updated the disclosure threshold for environmental proceedings. Prior to this rule, environmental proceedings to which the government is a party were required to be disclosed if the proceeding was expected to result in sanctions of $100,000 or more. The above referenced rule increases the quantitative threshold to $300,000, but also permits the registrant to elect a higher threshold, limited to the lesser of $1 million or 1% of consolidated current assets, if the registrant determines that such threshold is more reasonably designed to result in the disclosure of material environmental proceedings. The registrant must disclose this alternative threshold in each annual and quarterly report.
Given the size of the Company's operations, we have elected to adopt a threshold of $1 million. As of the date of this filing, we are not aware of any matters that exceed this threshold and meet the definition for disclosure.


Item 1A.     Risk Factors

The following represents aThere have been no material change in ourchanges from the risk factors from those disclosedset forth in Part 1, Item 1A, "Risk Factors" of ourthe Company's Annual Report on Form 10-K for the yearperiod ended December 31, 2019.

PSE faces risks related to the COVID-19 pandemic and other outbreaks that could have a material adverse impact on our business and results of operations. Business disruptions arising from stay at home mandates due to the COVID-19 pandemic has adversely affected economic activity within Washington State and the United States of America. We cannot predict the degree that the continued spread of COVID-19 and efforts to contain the virus (including, but not limited to, voluntary and mandatory quarantines, restrictions on travel, limiting gatherings of people, and reduced operations and extended closures of many businesses and institutions) could materially impact our results of operations, financial condition and ongoing operations. The impacts include but are not limited to:
•impacting customer demand for electricity and natural gas by our customers, particularly from commercial and industrial customers;
•reducing the availability and productivity of our employees;
•causing us to experience an increase in costs as a result of our emergency measures, delayed payments from our customers and uncollectible accounts;
•causing delays and disruptions in the availability of and timely delivery of materials and components used in our operations;
•causing a deterioration in our financial metrics or the business environment that impacts our credit ratings;
•causing significant disruption in the financial markets which could have a negative impact on our ability to access capital in the future and cost of capital;
•resulting in our inability to meet the requirements of the covenants in our existing credit facilities, including covenants regarding the ratio of total debt to total capitalization; and
•disrupting our ability to meet customer requirements and potentially significantly increase response costs.


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Item 5.         Other Information

On October 29, 2020, PSE, NorthWestern Energy, and Talen Montana, LLC mutually agreed to terminate the proposed sales agreement of Colstrip Unit 4. Upon evaluation of the recent regulatory proceedings, all parties mutually agreed to (i) terminate the proposed sale, (ii) withdraw pending regulatory applications, and (iii) release all claims against each other arising out of the proposed sales agreement. The termination was effective October 29, 2020, and no termination penalties were incurred. For additional details on Colstrip, see Note 8, "Commitments and Contingencies" in the Combined Notes to Consolidated Financial Statements in Item I.

2020.

Item 6.         Exhibits

Included in the Exhibit Index are a list of exhibits filed as part of this Quarterly Report on Form 10-Q.
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EXHIBIT INDEX

Amended Articles of Incorporation of Puget Energy (incorporated herein by reference to Exhibit 3.1 to Puget Energy’s Current Report on Form 8-K, dated February 6, 2009, Commission File No. 1-16305).
Amended and Restated Articles of Incorporation of Puget Sound Energy, Inc. (incorporated herein by reference to Exhibit 3.2 to Puget Sound Energy’s Current Report on Form 8-K, dated February 6, 2009, Commission File No. 1-4393).
Amended and Restated Bylaws of Puget Energy dated February 6, 2009 (incorporated herein by reference to Exhibit 3.3 to Puget Energy’s Current Report on Form 8-K, Commission File No. 1-16305).
Amended and Restated Bylaws of Puget Sound Energy, Inc. dated February 6, 2009 (incorporated herein by reference to Exhibit 3.4 to Puget Sound Energy’s Current Report on Form 8-K, Commission File No. 1-4393).
Chief Executive Officer certification of Puget Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Principal Financial Officer certification of Puget Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Chief Executive Officer certification of Puget Sound Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Principal Financial Officer certification of Puget Sound Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Principal Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101Financial statements from the Quarterly Report on Form 10-Q of Puget Energy, Inc. and Puget Sound Energy, Inc. for the quarter ended September 30, 2020March 31, 2021 filed on November 4, 2020May 05, 2021 formatted in XBRL: (i) the Consolidated Statement of Income (Unaudited), (ii) the Consolidated Statements of Comprehensive Income (Unaudited), (iii) the Consolidated Balance Sheets (Unaudited), (iv) the Consolidated Statements of Cash Flows (Unaudited), and (v) the Notes to Consolidated Financial Statements (submitted electronically herewith).
__________________
* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

 PUGET ENERGY, INC.
PUGET SOUND ENERGY, INC.
 
 
/s/ Stephen King
 Stephen King
Controller & Principal Accounting Officer
Date:  November 4, 2020May 5, 2021


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