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Regulation and Rates

12 Months Ended

Dec. 31, 2023

4) Regulation and Rates

Regulatory Assets and Liabilities

Regulatory accounting allows PSE to defer certain costs that would otherwise be charged to expense, if it is probable that future rates will permit recovery of such costs. It similarly requires deferral of revenues or gains that are expected to be returned to customers in the future.

The net regulatory assets and liabilities at December 31, 2023, and 2022, are included in the following tables:


Puget Sound Energy	Remaining Amortization Period	December 31,
(Dollars in Thousands)		2023		2022
Climate Commitment Act recovery	N/A	$	186,550	$	—
Environmental remediation	(a)	182,697		141,893
Automated meter reading	20 years	104,159		—
Storm damage costs electric	3 to 5 years	95,754		127,524
PGA unrealized loss	N/A	80,376		—
Deferred Washington Commission AFUDC	30 years	58,648		61,463
Baker Dam licensing operating and maintenance costs	(b)	55,641		55,049
Chelan PUD contract initiation	7.8 years	55,523		62,611
PCA mechanism	N/A	48,427		112,207
Lower Snake River	13.4 years	43,220		48,536
Washington Commission LNG	N/A	42,247		28,335
Energy conservation costs	(a)	37,560		10,296
Unamortized loss on reacquired debt	1 to 44 years	31,626		33,732
Decoupling deferrals and interest	Less than 2 years	31,398		36,773
Get to zero depreciation expense deferral (c)	1 to 3 years	29,185		49,605
Colstrip tracker expenditures	N/A	26,253		—
Washington Commission COVID-19	N/A	17,097		7,051
Generation plant major maintenance, excluding Colstrip	2 to 9 years	16,941		20,374
Regulatory filing fee deferral	N/A	14,582		7,559
Advanced metering infrastructure	N/A	12,094		30,431
Snoqualmie licensing operating and maintenance costs	(b)	7,428		7,445
Washington Commission electric vehicle (c)	3 years	5,755		7,796
Water heater rental property loss	3 years	3,847		5,725
Colstrip major maintenance (c)	2 years	2,690		4,035
Mint Farm ownership and operating costs	1.3 years	2,317		4,317
Property tax tracker	Less than 2 years	—		12,398
Various other regulatory assets	(a)	19,963		21,283
Total PSE regulatory assets		$	1,211,978	$	896,438
Deferred income taxes (d)	N/A	$	(761,621)	$	(811,724)
Cost of removal	(e)	(682,058)		(639,320)
PGA liability	2 years	(132,082)		(3,536)
Repurposed production tax credits	N/A	(126,482)		(133,855)
Climate Commitment Act auction proceeds	N/A	(84,485)		—
Decoupling liability	Less than 2 years	(60,664)		(63,206)
Colstrip tracker recovery	N/A	(31,390)		—
Property tax tracker	Less than 2 years	(11,135)		—
Green direct	N/A	(10,442)		(11,837)
Bill discount rate deferral	N/A	(6,579)		—
PGA unrealized gain	N/A	—		(287,725)
Various other regulatory liabilities	(a)	(7,958)		(9,936)
Total PSE regulatory liabilities		$	(1,914,896)	$	(1,961,139)
PSE net regulatory assets (liabilities)		$	(702,918)	$	(1,064,701)

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(a)Amortization periods vary depending on the timing of underlying transactions.

(b)The FERC license requires PSE to incur various O&M expenses over the life of the 40 year and 50 year license for Snoqualmie and Baker, respectively. The regulatory asset represents the net present value of future expenditures and will be offset by actual costs incurred.

(c)Amortization period approved in 2022 GRC, beginning January 2023.

(d)For additional information, see Note 14,"Income Taxes" to the consolidated financial statements included in Item 8 of this report.

(e)The balance is dependent upon the cost of removal of underlying assets and the life of utility plant.


Puget Energy	Remaining Amortization Period	December 31,
(Dollars in Thousands)		2023		2022
Total PSE regulatory assets	(a)	$	1,211,978	$	896,438
Puget Energy acquisition adjustments:
Regulatory assets related to power contracts	3 to 30 years	6,266		7,904

Total Puget Energy regulatory assets		$	1,218,244	$	904,342
Total PSE regulatory liabilities	(a)	$	(1,914,896)	$	(1,961,139)
Puget Energy acquisition adjustments:
Deferred income taxes		660		563
Regulatory liabilities related to power contracts	3 to 30 years	(46,924)		(63,660)
Various other regulatory liabilities	Varies	(1,264)		(1,264)
Total Puget Energy regulatory liabilities		$	(1,962,424)	$	(2,025,500)
Puget Energy net regulatory asset (liabilities)		$	(744,180)	$	(1,121,158)

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(a)Puget Energy’s regulatory assets and liabilities include purchase accounting adjustments under ASC 805.

If the Company determines that it no longer meets the criteria for continued application of ASC 980, the Company would be required to write off its regulatory assets and liabilities related to those operations not meeting ASC 980 requirements. Discontinuation of ASC 980 could have a material impact on the Company's financial statements.

In accordance with guidance provided by ASC 410, “Asset Retirement and Environmental Obligations (ARO),” PSE reclassified from accumulated depreciation to a regulatory liability $682.1 million and $639.3 million in 2023 and 2022, respectively, for the cost of removal of utility plant. These amounts are collected from PSE’s customers through depreciation rates.

General Rate Case Filing

PSE filed a GRC which includes a two year multiyear rate plan (MYRP) with the Washington Commission on February 15, 2024, requesting an overall increase in electric and natural gas rates of 6.7% and 19.0% respectively in rate year one (expected to approximate calendar year 2025) and 8.5% and 2.1%, respectively in rate year two (expected to approximate calendar year 2026). PSE requested a return on equity of 9.95% for the first rate year beginning in 2025 and 10.5% for the second rate year beginning in 2026. PSE requested an overall rate of return of 7.65% in rate year one and 7.99% in rate year two. The filing requests recovery of forecasted plant additions through 2024 as required by RCW 80.28.425 as well as forecasted plant additions through 2026, the final year of the MYRP. The next phase of the filing will be to establish a procedural calendar for the adjudication of the case. The Company estimates the agreed upon rates from this proceeding will become effective by statute approximately 11 months after filings.

On December 22, 2022, the Washington Commission issued an order on PSE’s 2022 general rate case (GRC), which was filed on January 31, 2022, that approved a weighted cost of capital of 7.16%, or 6.62% after-tax, a capital structure of 49.0% in common equity in 2023 and 2024, and a return on equity of 9.4%. On January 6, 2023, the Washington Commission approved PSE’s natural gas rates in its compliance filing with an overall net revenue change of $70.8 million or 6.4% in 2023 and $19.5 million or 1.7% in 2024, with an effective date of January 7, 2023. On January 10, 2023, the Washington Commission approved PSE’s electric rates in its compliance filing with an overall net revenue change of $247.0 million or 10.8% in 2023 and $33.1 million or 1.3% in 2024 with an effective date of January 11, 2023. Per the 2022 GRC Final Order in Docket No. UE-220066, rates approved in PSE's power cost only rate case (PCORC) in Docket No. UE-200980 were set to zero as of January 11, 2023, and PSE agreed not to file a PCORC during 2023 and 2024, the period covered by the two-year rate plan agreed to in the GRC settlement.

Prior rates were subject to the 2019 GRC and included 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 annualized overall rate impacts were an electric revenue increase of $48.3 million, or 2.3%, and a natural gas increase of $4.9 million, or 0.6%, effective October 1, 2021. For further information, see Note 4, "Regulation and Rates" to the consolidated financial statements included in Item 8 of the Company's Form 10-K for the period ended December 31, 2022.

Climate Commitment Act Deferral

On December 29, 2022, PSE filed accounting petitions with the Washington Commission requesting authorization to defer costs and revenues associated with the Company’s compliance with the Climate Commitment Act (CCA) codified in law within Revised Code of Washington (RCW) 70A.65. On February 28, 2023, in Order 01 under Docket No. UE-220974 and UG-220975, the Washington Commission granted PSE approval to defer the cost of emission allowances to comply with the CCA and the proceeds from no-cost allowances consigned to auction beginning January 1, 2023. On August 3, 2023, the Washington Commission approved PSE's request for CCA rates in Docket No. UG-230470, subject to refund, effective October 1, 2023, to recover the estimated ongoing allowance costs and proportionate pass back of credits to customers from estimated auction proceeds during the period of August 2023 through December 2023. On October 26, 2023, the Washington Commission approved PSE's request for CCA rates in Docket No. UG-230756, subject to refund, effective November 1, 2023, to recover the estimated ongoing allowance costs and proportionate pass back of credit to customers from estimated auction proceeds during the period of January 2023 through September 2023. The recovery of ongoing allowance costs and pass back of credits is consistent with the approved accounting petitions in Dockets No. UG-220975 and UG-230471. As of December 31, 2023, PSE deferred $184.4 million of CCA compliance costs for natural gas and electric liabilities. Additionally, PSE will consign for auction at least the minimum amount of no-cost emission allowances allocated for natural gas operations in compliance with the CCA, the proceeds of which will be used for the benefit of natural gas customers, as determined by the Washington Commission. PSE will not record a regulatory liability to defer the proceeds until consigned allowances are sold at auction. As of December 31, 2023, PSE recorded $83.0 million related to the proceeds from the sale of consigned GHG emission allowances.

In October 2022, the Washington Department of Ecology (WDOE) published final regulations to implement the cap and invest program. The WDOE also indicated that it will have subsequent rulemakings building off initial rulemaking as program implementation is underway and progress with Washington State carbon goals are evaluated. One component of the CCA rules stipulates the WDOE shall provide qualifying electric utilities, such as PSE, with no-cost allowances based on the cost burden of the program to electric customers, which is derived using a forecast of emissions. An additional component of the CCA rules stipulates that the allocation of no-cost allowances may be adjusted once a year under a "true-up mechanism" which takes into account the cumulative total of no-cost allowances issued to an electric utility relative to the electric utility's reported GHG emissions. Such adjustments will be made in the fourth quarter of the following year, at which time WDOE could add allowances to an electric utility's account if such account has an allowance deficit, or withhold future allocated allowances going forward if such account had previously allocated excess allowances. WDOE has not provided further guidance or rules specifying how such adjustments will be determined. As a result, the Company cannot predict the impact of such adjustments.

WDOE provided an initial allocation of no-cost allowances to electric utilities on April 24, 2023. However, qualifying electric utilities were allowed to submit revised emissions forecasts approved by the Washington Commission to WDOE by July 30, 2023. PSE filed its revised forecast of 2023 emission under Docket No. UE 220797, which was approved by the Washington Commission on July 27, 2023, and approved by the WDOE on September 27, 2023. Accordingly, the Company's compliance obligation as of December 31, 2023, reflects the revised allowance allocation.

Following the September 27, 2023 WDOE decision, PSE's no-cost allowance allocation will be set for 2023 until the fourth quarter of 2024 when there is an opportunity to request a "true-up" of no-cost allowances under the aforementioned adjustment mechanism. However, as of December 31, 2023, due to the uncertainty around implementation of the adjustment mechanism PSE did not adjust the CCA electric compliance obligation anticipating an adjustment to no cost allowances to reported 2023 electric GHG emissions and does not plan to make such adjustment until a formal true-up allocation has been granted by the WDOE.

Revenue Decoupling Adjustment Mechanism

In June 2021, the Washington Commission approved the multi-party settlement agreement, which was filed within PSE’s PCORC filing. As part of this settlement agreement, the electric annual fixed power cost allowed revenue was updated to reflect changes in the approved revenue requirement and took effect on July 1, 2021.

In September 2021, the Washington Commission approved the 2019 GRC filing. As part of this filing, the annual electric and natural gas delivery cost allowed revenue was updated to reflect changes in the approved revenue requirement. The changes took effect on October 1, 2021.

On January 6, 2023, the Washington Commission approved the natural gas 2022 GRC filing. As part of this filing, the annual natural gas delivery allowed revenue was updated to reflect changes in the approved revenue requirement. Additionally, the Commission approved the removal of the earnings test from the decoupling mechanism in accordance with RCW 80.28.425(6). The changes took effect on January 7, 2023.

On January 10, 2023, the Washington Commission approved the electric 2022 GRC filing. As part of this filing, the annual electric delivery and fixed power cost allowed revenue was updated to reflect changes in the approved revenue

requirement. Additionally, the Commission approved the removal of the earnings test from the decoupling mechanism in accordance with RCW 80.28.425(6). The changes took effect on January 11, 2023.

On December 31, 2023, 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 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. Based on the analyses in 2023 and 2022, no reserve adjustment was recorded as of December 31, 2023 and 2022.

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.

Effective January 1, 2017, the following graduated scale is used in the PCA mechanism:


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

For the year ended December 31, 2023, in its PCA mechanism, PSE over recovered its allowable costs by $51.1 million of which $24.9 million was apportioned to customers and $3.9 million of interest was accrued on the deferred customer balance. This compares to an under recovery of allowable costs of $110.1 million, for the year ended December 31, 2022, of which $74.6 million was apportioned to customers and accrued $1.5 million of interest on the total deferred customer balance.

Power Cost Adjustment Clause

PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2022. During 2022, actual power costs were higher than baseline power costs, thereby, creating an under-recovery of $110.1 million. Under the terms of the PCA’s sharing mechanism for under-recovered power costs, PSE absorbed $39.0 million of the under-recovered amount, and customers were responsible for the remaining $71.1 million, or $76.4 million, including interest and adjusted for revenue sensitive items. On April 28, 2023, PSE filed the 2022 PCA report under Docket No. UE-230313 that proposed a recovery of the deferred balance, which included a revenue requirement increase of 0.9% in overall bill for all customers, with rates proposed to go into effect from December 1, 2023 through December 31, 2024.

PSE also exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2021, as actual power costs were higher than baseline power costs, thereby creating an under-recovery of $68.0 million. PSE absorbed $31.3 million of the under-recovered amount, and customers were responsible for the remaining $36.7 million, or $38.4 million, including interest. In October 2022, the Washington Commission approved PSE's 2021 PCA report that proposes to recover the deferred balance for 2021 PCA period by keeping the current rates and allowing recovery from January 1, 2023 through November 30, 2023.

On September 29, 2023, PSE filed its variable power cost rates update as part of the 2022 GRC Order requirement under Docket No. UE-220066. The filing was approved in part on December 22, 2023, with updated rates effective January 1, 2024.

Purchased Gas Adjustment Mechanism

In October 2021, the Washington Commission approved PSE's request for PGA rates in Docket No. UG-210721, effective November 1, 2021. As part of that filing, PSE requested an annual revenue increase of $59.1 million, where PGA rates, under Schedule 101, increase annual revenue by $80.6 million, and the tracker rates under Schedule 106, decrease annual revenue by $21.5 million. Those annual 2021 PGA rate increases were set in addition to continuing the collection on the remaining balance of $69.4 million under Supplemental Schedule 106B, which were set, in effect, through September 30, 2023, per the 2019 GRC.

In October 2022, the Washington Commission approved PSE's request for PGA rates in Docket No. UG-220715, effective November 1, 2022. As part of that filing, PSE requested an annual revenue increase of $155.3 million, where PGA rates, under Schedule 101, increase annual revenue by $142.1 million, and the tracker rates under Schedule 106, increase annual revenue by $13.2 million.

In November 2022, the FERC approved a settlement of a counterparty, FERC Docket No. RP17-346. Under the terms, PSE was allocated $24.2 million related to PSE natural gas services which was recorded on December 31, 2022, and included below. The 2022 GRC order requires PSE to amortize the refund in 2023 as a credit against natural gas costs and therefore pass back the refund to customers through the PGA mechanism.

On October 26, 2023, the Washington Commission approved PSE's request for PGA rates in Docket No. UG-230769, effective November 1, 2023. As part of that filing, PSE requested an annual revenue decrease of $309.4 million, where PGA rates, under Schedule 101, decrease annual revenue by $93.9 million, and the tracker rates under Schedule 106, decrease annual revenue by $215.5 million. The annual 2023 PGA rate decreases include the aforementioned counterparty settlement pass back of $28.1 million under Supplemental Schedule 106B.

The following table presents the PGA mechanism balances and activity at December 31, 2023 and December 31, 2022:


Puget Energy and Puget Sound Energy
(Dollars in Thousands)	At December 31,		At December 31,
PGA receivable balance and activity	2023		2022
PGA receivable beginning balance	$	(3,536)	$	57,935
Actual natural gas costs	404,897		457,950
Allowed PGA recovery	(521,882)		(496,879)
Interest	(7,639)		1,674
Refund from counterparty settlement	(3,922)		(24,216)
PGA (liability)/receivable ending balance	$	(132,082)	$	(3,536)

Storm Loss Deferral Mechanism

The Washington Commission has defined deferrable weather-related events and provided that costs in excess of the annual cost threshold may be deferred for qualifying damage costs that meet the modified Institute of Electrical and Electronics Engineers outage criteria for system average interruption duration index. For the year ended December 31, 2023, PSE incurred $8.1 million in weather-related electric transmission and distribution system restoration costs, of which the Company deferred zero and $2.1 million as regulatory assets related to storms that occurred in 2023 and 2022, respectively. This compares to $32.2 million incurred in weather-related electric transmission and distribution system restoration costs for the year ended December 31, 2022, of which the Company deferred $21.4 million and $0.2 million as regulatory assets related to storms that occurred in 2022 and 2021, respectively. Under the 2017 GRC Order, the storm loss deferral mechanism approved the following: (i) the cumulative annual cost threshold for deferral of storms under the mechanism at $10.0 million; 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.

Environmental Remediation

The Company is subject to environmental laws and regulations by federal, state and local authorities and is required to undertake certain environmental investigative and remedial efforts as a result of these laws and regulations. The Company has been named by the Environmental Protection Agency (EPA), the WDOE and/or other third parties as potentially responsible or liable at several contaminated sites, including former manufactured gas plant sites. In accordance with the guidance of ASC 450 “Contingencies”, the Company reviews its estimated future obligations and will record adjustments, if any, on a quarterly basis. The adjustments recorded are based on the best estimate or the low end of a range of reasonably possible costs expected to be incurred by the Company based on its currently understood legal exposure at applicable sites. It is reasonably possible that incurred costs exceed the recorded amounts due to changes in laws and/or regulations, higher than expected costs due to changes in labor market or supply chain, evolving technology, unforeseen and/or the discovery of new or additional contamination. The Company currently estimates that a significant portion of its past and future environmental remediation costs are recoverable from insurance companies, from third parties, and/or from customers under a Washington Commission order. The Company is subject to cost-sharing agreements with third parties regarding environmental remediation projects in Seattle, Tacoma, Everett, and Bellingham, Washington. As of December 31, 2023, the Company’s share of future remediation costs is estimated to be approximately $72.9 million.

The following table summarizes changes in the Company's environmental remediation regulatory assets for the years ended December 31, 2023, and 2022:


Puget Energy and Puget Sound Energy
	Year Ended December 31,
(Dollars in Thousands)	2023		2022
Environmental remediation regulatory asset beginning balance	$	141,893	$	127,977
Remediation cost amortization, net of recoveries	(4,521)		(1,226)
Changes in estimates1	45,325		15,142
Environmental remediation regulatory asset ending balance	$	182,697	$	141,893

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1. Driven in significant part by the Quendall Terminals site on Lake Washington in Renton, Washington. The site represents contaminated facilities from a long defunct creosote manufacturer which had purchased waste products from PSE predecessors. In addition, it was driven by an increase in estimate at the shared site of Gas Works Park on Lake Union in Seattle, Washington, which was previously a gas manufacturing plant.

The following table summarizes changes in the Company's environmental remediation liabilities for the years ended December 31, 2023, and 2022:


Puget Energy and Puget Sound Energy
	Year Ended December 31,
(Dollars in Thousands)	2023		2022
Environmental remediation liabilities beginning balance	$	135,052	$	119,929
Payments made, net of recoveries	(495)		(1,343)
Changes in estimates1	45,883		16,466
Environmental remediation liabilities ending balance	$	180,440	$	135,052

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