Fair Value Measurements (Tables)

3 Months Ended

Jun. 30, 2018

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

the Wells Hydro contract was determined to be impaired due to a decrease in forward prices for this contract of 39.0% from December 31, 2017, causing an impairment of $1.9 million.

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



Puget Energy
(Dollars in Thousands)
Valuation Date	Contract Name	Carrying Value		Fair Value		Write Down
March 31, 2018	Wells Hydro	$	4,302	$	2,395	$	1,907

Fair Value Inputs, Liabilities, Quantitative Information

The fair value of the junior subordinated and long-term notes was estimated using the discounted cash flow method with the U.S. Treasury yields and the Company's credit spreads as inputs, interpolating to the maturity date of each issue. The carrying values and estimated fair values were as follows:



Puget Energy		At June 30, 2018				At December 31, 2017
(Dollars in Thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Liabilities:
Junior subordinated notes	2	$	—	$	—	$	250,000	$	238,935
Long-term debt (fixed-rate), net of discount¹	2	5,505,640		6,483,719		5,105,329		6,520,515
Long-term debt (variable-rate)	2	139,551		139,551		102,600		102,600
Total liabilities		$	5,645,191	$	6,623,270	$	5,457,929	$	6,862,050



Puget Sound Energy		At June 30, 2018				At December 31, 2017
(Dollars in Thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Liabilities:
Junior subordinated notes	2	$	—	$	—	$	250,000	$	238,935
Long-term debt (fixed-rate), net of discount²	2	3,895,042		4,598,167		3,499,911		4,550,130
Total liabilities		$	3,895,042	$	4,598,167	$	3,749,911	$	4,789,065

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¹	The carrying value includes debt issuances costs of $26.6 million and $27.9 million for June 30, 2018 and December 31, 2017, respectively, which are not included in fair value.


²	The carrying value includes debt issuances costs of $24.2 million and $24.6 million for June 30, 2018 and December 31, 2017, respectively, which are not included in fair value.

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation



Puget Energy and Puget Sound Energy	Three Months Ended June 30,
(Dollars in Thousands)	2018									2017
Level 3 Roll-Forward Net Asset/(Liability)	Electric			Natural Gas			Total			Electric			Natural Gas			Total
Balance at beginning of period	$	1,186		$	5,096		$	6,282		$	3,788		$	1,752		$	5,540
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings¹	366			—			366			339			—			339
Included in regulatory assets / liabilities	—			354			354			—			1,124			1,124
Settlements	(151		)	(1,800		)	(1,951		)	(2,508		)	(1,974		)	(4,482		)
Transferred into Level 3	—			—			—			—			—			—
Transferred out of Level 3	608			299			907			(976		)	554			(422		)
Balance at end of period	$	2,009		$	3,949		$	5,958		$	643		$	1,456		$	2,099



Puget Energy and Puget Sound Energy	Six Months Ended June 30,
(Dollars in Thousands)	2018									2017
Level 3 Roll-Forward Net Asset/(Liability)	Electric			Natural Gas			Total			Electric			Natural Gas			Total
Balance at beginning of period	$	1,098		$	1,923		$	3,021		$	972		$	625		$	1,597
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings²	1,985			—			1,985			1,045			—			1,045
Included in regulatory assets / liabilities	—			5,329			5,329			—			3,582			3,582
Settlements	(654		)	(3,602		)	(4,256		)	(3,838		)	(3,304		)	(7,142		)
Transferred into Level 3	(1,837		)	—			(1,837		)	2,191			(553		)	1,638
Transferred out of Level 3	1,417			299			1,716			273			1,106			1,379
Balance at end of period	$	2,009		$	3,949		$	5,958		$	643		$	1,456		$	2,099

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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 $0.7 million and $0.5 million for the three months ended June 30, 2018 and 2017, 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 $1.7 million and $0.7 million for the six months ended June 30, 2018 and 2017, respectively.

Fair Value Inputs, Assets and Liabilities, Quantitative Information

The following table presents the forward price ranges for the Company's Level 3 commodity contracts as of June 30, 2018:



Puget Energy and Puget Sound Energy	Fair Value						Range
(Dollars in Thousands)	Assets¹		Liabilities¹		Valuation Technique	Unobservable Input	Low		High		Weighted Average
Electric	$	3,660	$	1,651	Discounted cash flow	Power prices (per MWh)	$	20.97	$	40.25	$	26.52
Natural gas	$	6,062	$	2,113	Discounted cash flow	Natural gas prices (per MMBtu)	$	1.74	$	2.73	$	2.14

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¹	The valuation techniques, unobservable inputs and ranges are the same for asset and liability positions.

The following table presents the forward price ranges for the Company's Level 3 commodity contracts as of December 31, 2017:



Puget Energy and Puget Sound Energy	Fair Value						Range
(Dollars in Thousands)	Assets¹		Liabilities¹		Valuation Technique	Unobservable Input	Low		High		Weighted Average
Electric	$	3,525	$	2,427	Discounted cash flow	Power prices (per MWh)	$	7.02	$	28.94	$	18.61
Natural gas	$	4,041	$	2,118	Discounted cash flow	Natural gas prices (per MMBtu)	$	1.22	$	2.80	$	1.54

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¹	The valuation techniques, unobservable inputs and ranges are the same for asset and liability positions.

The following table presents the significant unobservable inputs used in estimating the impaired long-term power purchase contracts' fair value:



Puget Energy
Valuation Date	Unobservable Input	Low	High	Average
March 31, 2018	Power prices (per MWh)	$9.69	$25.30	$17.50
	Power contract costs per quarter (in thousands)	4,126	4,126	4,126

Parent Company [Member]

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Schedule of Fair Value, Assets and Liabilities Measured on 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:

Subsidiaries [Member]

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis



Puget Energy and	Fair Value						Fair Value
Puget Sound Energy	At June 30, 2018						At December 31, 2017
(Dollars in Thousands)	Level 2		Level 3		Total		Level 2		Level 3		Total
Assets:
Electric derivative instruments	$	7,229	$	3,660	$	10,889	$	9,866	$	3,525	$	13,391
Natural gas derivative instruments	6,510		6,062		12,572		6,973		4,041		11,014
Total assets	$	13,739	$	9,722	$	23,461	$	16,839	$	7,566	$	24,405
Liabilities:
Electric derivative instruments	$	36,991	$	1,651	$	38,642	$	46,623	$	2,427	$	49,050
Natural gas derivative instruments	24,144		2,113		26,257		34,926		2,118		37,044
Total liabilities	$	61,135	$	3,764	$	64,899	$	81,549	$	4,545	$	86,094