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Fair Value Measurements (Tables)

3 Months Ended

6 Months Ended

Jun. 30, 2020

Fair Value Inputs, Liabilities, Quantitative Information

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


Puget Energy		At June 30, 2020						At December 31, 2019
(Dollars in Thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Liabilities:
Long-term debt (fixed-rate), net of discount¹	2	$	6,162,530	$	7,608,405	$	5,512,225	$	7,004,316
Long-term debt (variable-rate)	2	234,000		234,000		408,100		408,100
Total liabilities		$	6,396,530	$	7,842,405	$	5,920,325	$	7,412,416


Puget Sound Energy		At June 30, 2020						At December 31, 2019
(Dollars in Thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Liabilities:
Long-term debt (fixed-rate), net of discount²	2	$	4,337,090	$	5,992,573	$	4,336,142	$	5,571,818
Total liabilities		$	4,337,090	$	5,992,573	$	4,336,142	$	5,571,818

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¹The carrying value includes debt issuances costs of $23.1 million and $24.1 million for June 30, 2020, and December 31, 2019, respectively, which are not included in fair value.

²The carrying value includes debt issuances costs of $23.6 million and $24.4 million for June 30, 2020, and December 31, 2019, respectively, which are not included in fair value.

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:


Puget Energy and Puget Sound Energy	Fair Value At June 30, 2020										Fair Value At December 31, 2019
(Dollars in Thousands)	Level 2		Level 3		Total		Level 2		Level 3		Total
Assets:
Electric derivative instruments	$	19,763	$	526	$	20,289	$	19,282	$	651	$	19,933
Natural gas derivative instruments	13,634		620		14,254		9,852		1,523		11,375
Total assets	$	33,397	$	1,146	$	34,543	$	29,134	$	2,174	$	31,308
Liabilities:
Electric derivative instruments	$	25,103	$	29,135	$	54,238	$	13,474	$	4,030	$	17,504
Natural gas derivative instruments	9,425		278		9,703		8,376		241		8,617
Total liabilities	$	34,528	$	29,413	$	63,941	$	21,850	$	4,271	$	26,121

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

The following tables present 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 June 30,
(Dollars in Thousands)	2020										2019
Level 3 Roll-Forward Net Asset/(Liability)	Electric		Natural Gas		Total		Electric		Natural Gas		Total
Balance at beginning of period	$	(26,305)	$	1,092	$	(25,213)	$	5,012	$	2,758	$	7,770
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings¹	(2,284)		—		(2,284)		(6,190)		—		(6,190)
Included in regulatory assets / liabilities	—		(39)		(39)		—		382		382
Settlements	(20)		(711)		(731)		574		(1,619)		(1,045)
Transferred into Level 3	—		—		—		—		—		—
Transferred out of Level 3	—		—		—		(1,842)		877		(965)
Balance at end of period	$	(28,609)	$	342	$	(28,267)	$	(2,446)	$	2,398	$	(48)


Puget Energy and Puget Sound Energy	Six Months Ended June 30,
(Dollars in Thousands)	2020										2019
Level 3 Roll-Forward Net Asset/(Liability)	Electric		Natural Gas		Total		Electric		Natural Gas		Total
Balance at beginning of period	$	(3,378)	$	1,282	$	(2,096)	$	1,362	$	1,673	$	3,035
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings²	(26,837)		—		(26,837)		6,135		—		6,135
Included in regulatory assets / liabilities	—		284		284		—		2,279		2,279
Settlements	1,606		(1,224)		382		(12,909)		(2,718)		(15,627)
Transferred into Level 3	—		—		—		4,391		(398)		3,993
Transferred out of Level 3	—		—		—		(1,425)		1,562		137
Balance at end of period	$	(28,609)	$	342	$	(28,267)	$	(2,446)	$	2,398	$	(48)

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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 $(23.1) million and $(4.7) million for three months ended June 30, 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 $(25.4) million and $(2.4) million for six months ended June 30, 2020 and 2019, 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, 2020:


Puget Energy and Puget Sound Energy	Fair Value								Range
(Dollars in Thousands)	Assets¹		Liabilities¹		Valuation Technique	Unobservable Input	Low		High		Weighted Average
Electric	$	526	$	29,135	Discounted cash flow	Power prices (per MWh)	$	22.97	$	40.05	$	30.14
Natural gas	$	620	$	278	Discounted cash flow	Natural gas prices (per MMBtu)	$	1.10	$	3.08	$	1.78

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¹The 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, 2019:


Puget Energy and Puget Sound Energy	Fair Value								Range
(Dollars in Thousands)	Assets¹		Liabilities¹		Valuation Technique	Unobservable Input	Low		High		Weighted Average
Electric	$	651	$	4,030	Discounted cash flow	Power prices (per MWh)	$	9.00	$	43.85	$	33.99
Natural gas	$	1,523	$	241	Discounted cash flow	Natural gas prices (per MMBtu)	$	1.25	$	3.18	$	2.47

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

Schedule of Effect of Significant Unobservable Inputs, Changes in Plan Assets

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, 2020	Power prices (per MWh)	$	10.23	$	29.05	$	21.27
	Power contract costs per quarter (in thousands)	$	6,308	$	7,085	$	6,468
December 31, 2019	Power prices (per MWh)	$	11.75	$	31.44	$	22.53
	Power contract costs per quarter (in thousands)	$	6,237	$	7,087	$	6,421