Utility Plant

The following table presents electric, natural gas and common utility plant classified by account:



		Puget Energy						Puget Sound Energy
Utility Plant	Estimated Useful Life	At December 31,						At December 31,
(Dollars in Thousands)	(Years)	2018			2017			2018			2017
Distribution plant	20-65	$	6,122,739		$	5,670,351		$	7,722,024		$	7,289,998
Production plant	12-90	3,099,805			3,068,135			3,974,250			3,954,057
Transmission plant	43-75	1,442,854			1,361,495			1,550,950			1,471,337
General plant	5-75	682,976			586,226			718,105			628,179
Intangible plant (including capitalized software)	NA	662,328			447,568			652,942			438,185
Plant acquisition adjustment	NA	242,826			242,826			282,792			282,792
Underground storage	25-60	35,404			31,815			48,874			45,288
Liquefied natural gas storage	25-60	12,628			12,628			14,498			14,498
Plant held for future use	NA	39,384			53,428			39,536			53,580
Recoverable Cushion Gas	NA	8,655			8,655			8,655			8,655
Plant not classified	NA	239,857			275,014			239,857			275,014
Capital leases, net of accumulated amortization¹	NA	1,315			1,129			1,315			1,129
Less: accumulated provision for depreciation		(2,832,321		)	(2,428,524		)	(5,495,348		)	(5,131,966		)
Subtotal		$	9,758,450		$	9,330,746		$	9,758,450		$	9,330,746
Construction work in progress	NA	550,466			495,937			550,466			495,937
Net utility plant		$	10,308,916		$	9,826,683		$	10,308,916		$	9,826,683

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¹	At December 31, 2018 and 2017, accumulated amortization of capital leases at Puget Energy and PSE was $1.3 million and $0.7 million, respectively.

Jointly owned generating plant service costs are included in utility plant service cost at the Company's ownership share. The Company provides financing for its ownership interest in the jointly owned utility plants. The following tables indicate the Company’s percentage ownership and the extent of the Company’s investment in jointly owned generating plants in service at December 31, 2018. These amounts are also included in the Utility Plant table above. The Company's share of fuel costs and operating expenses for plant in service are included in the corresponding accounts in the Consolidated Statements of Income.



Puget Energy
Jointly Owned Generating Plants (Dollars in Thousands)	Energy Source (Fuel)	Company’s Ownership Share	Plant in Service at Cost		Construction Work in Progress		Accumulated Depreciation
Colstrip Units 1 & 2	Coal	50.0%	$	239,341	$	—	$	(62,420	)
Colstrip Units 3 & 4	Coal	25.0%	318,736		—		(98,641		)
Colstrip Units 1 – 4 Common Facilities	Coal	various	83		—		(38		)
Frederickson 1	Natural Gas	49.85%	61,790		—		(8,500		)
Jackson Prairie	Natural Gas Storage	33.34%	33,831		404		(7,355		)
Tacoma LNG	LNG	various	—		296,324		—

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¹	As of December 31, 2018, PE's ownership share in Colstrip 1 & 2 plant-in-service includes $130.7 million in regulatory assets related to the 2017 GRC update to depreciation rates for the expected shutdown date of July 1, 2022.



Puget Sound Energy
Jointly Owned Generating Plants (Dollars in Thousands)	Energy Source (Fuel)	Company’s Ownership Share	Plant in Service at Cost		Construction Work in Progress		Accumulated Depreciation
Colstrip Units 1 & 2¹	Coal	50.0%	$	368,242	$	—	$	(191,323	)
Colstrip Units 3 & 4	Coal	25.0%	578,008		—		(357,914		)
Colstrip Units 1 – 4 Common Facilities	Coal	various	252		—		(206		)
Frederickson 1	Natural Gas	49.85%	67,858		—		(14,567		)
Jackson Prairie	Natural Gas Storage	33.34%	47,975		404		(21,499		)
Tacoma LNG	LNG	various	—		130,756		—

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¹	As of December 31, 2018, PSE's ownership share in Colstrip 1 & 2 plant-in-service includes $130.7 million in regulatory assets related to the 2017 GRC update to depreciation rates for the expected shutdown date of July 1, 2022.

Asset Retirement Obligation

The Company has recorded liabilities for steam generation sites, combustion turbine generation sites, wind generation sites, distribution and transmission poles, natural gas mains, and leased facilities where disposal is governed by ASC 410 “Asset Retirement and Environmental Obligations" (ARO).

On April 17, 2015, the U.S. Environmental Protection Agency (EPA) published a final rule, effective October 19, 2015, that regulates Coal Combustion Residuals (CCR) under the Resource Conservation and Recovery Act, Subtitle D. The CCR ruling requires the Company to perform an extensive study on the effects of coal ash on the environment and public health. The rule addresses the risks from coal ash disposal, such as leaking of contaminants into ground water, blowing of contaminants into the air as dust, and the catastrophic failure of coal ash surface impoundments.

The CCR rule and two new legal agreements which include a consent decree with the Sierra Club and a settlement agreement with the Sierra Club and the National Wildlife Federation in 2016 make significant changes to the Company’s Colstrip operations and those changes were reviewed by the Company and the plant operator in 2015 and 2016. PSE had previously recognized a legal obligation in 2003 under EPA rules to dispose of coal ash material at Colstrip.

The actual ARO costs related to the CCR rule requirements may vary substantially from the estimates used to record the increased obligation due to uncertainty about the compliance strategies that will be used and the preliminary nature of available data used to estimate costs. We will continue to gather additional data and coordinate with the plant operator to make decisions about compliance strategies and the timing of closure activities. As additional information becomes available, the Company will update the ARO obligation for these changes, which could be material.

For the twelve months ended December 31, 2018 and 2017, the Company reviewed the estimated remediation costs at Colstrip and reduced the Colstrip ARO liability by $11.0 million and $5.5 million for Colstrip Units 1 and 2 and $1.8 million and $12.7 million for Colstrip Units 3 and 4, respectively. The 2018 reductions to the Colstrip ARO liability are primarily based on the plant site remedy report approved by the Montana Department of Environmental Quality. For the twelve months ended December 31, 2018 and 2017, the Company also recorded the Colstrip relief of liability of $4.8 million and $3.8 million, respectively. In addition, the Company recorded Tacoma LNG facility ARO liability of $2.7 million for PSE and $2.2 million for Puget LNG as of December 31, 2017.

The following table describes the changes to the Company’s ARO for the year ended December 31, 2018:



Puget Energy and Puget Sound Energy	At December 31,
(Dollars in Thousands)	2018			2017
Asset retirement obligation at beginning of the period	$	191,176		$	200,345
New asset retirement obligation recognized in the period	501			2,881
Relief of liability	(4,750		)	(3,841		)
Revisions in estimated cash flows	(10,512		)	(13,748		)
Accretion expense	5,788			5,539
Asset retirement obligation at end of period¹	$	182,203		$	191,176

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¹	Asset retirement obligations include $1.7 million and $2.2 million for Puget LNG held only at PE as of December 31, 2018 and 2017, respectively.

The Company has identified the following obligations, as defined by ASC 410, “ARO,” which were not recognized because the liability for these assets cannot be reasonably estimated at December 31, 2018:


•	A legal obligation under Federal Dangerous Waste Regulations to dispose of asbestos-containing material in facilities that are not scheduled for remodeling, demolition or sales. The disposal cost related to these facilities could not be measured since the retirement date is indeterminable; therefore, the liability cannot be reasonably estimated;


•	An obligation under Washington state law to decommission the wells at the Jackson Prairie natural gas storage facility upon termination of the project. Since the project is expected to continue as long as the Northwest pipeline continues to operate, the liability cannot be reasonably estimated;


•	An obligation to pay its share of decommissioning costs at the end of the functional life of the major transmission lines. The major transmission lines are expected to be used indefinitely; therefore, the liability cannot be reasonably estimated;


•	A legal obligation under Washington state environmental laws to remove and properly dispose of certain under and above ground fuel storage tanks. The disposal costs related to under and above ground storage tanks could not be measured since the retirement date is indeterminable; therefore, the liability cannot be reasonably estimated;


•	An obligation to pay decommissioning costs at the end of utility service franchise agreements to restore the surface of the franchise area. The decommissioning costs related to facilities at the franchise area could not be measured since the decommissioning date is indeterminable; therefore, the liability cannot be reasonably estimated; and

•

A potential legal obligation may arise upon the expiration of an existing FERC hydropower license if FERC orders the project to be decommissioned, although PSE contends that FERC does not have such authority. Given the value of ongoing generation, flood control and other benefits provided by these projects, PSE believes that the potential for decommissioning is remote and cannot be reasonably estimated.