Summary of Consolidation and Significant Accounting Policy

3 Months Ended

Mar. 31, 2024

Summary of Significant Accounting Policies

Basis of Presentation

Puget Energy is an energy services holding company that owns PSE, which 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, which has the sole purpose of owning and operating the non-regulated activity of the Tacoma LNG facility. 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, 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 FASB ASC 805, “Business Combinations” (ASC 805), 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” (ASC 805) purchase accounting adjustments. The preparation of financial statements in conformity with U.S. 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

The Company measures expected credit losses on trade receivables on a collective basis by receivable type, which include electric retail receivables, natural 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.

The following table presents the activity in the allowance for credit losses for accounts receivable for the three months ended March 31, 2024 and 2023:


Puget Energy and Puget Sound Energy	Three Months Ended March 31,
(Dollars in Thousands)	2024		2023
Allowance for credit losses:
Beginning balance	$	38,211	$	41,962
Provision for credit loss expense	13,680		9,482
Receivables charged-off	(8,628)		(7,216)

Total ending allowance balance1	$	43,263	$	44,228

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1 $21.9 million and $11.1 million of provision related to balances of deferred costs specific to COVID-19 as of March 31, 2024 and 2023, respectively.

Tacoma LNG Facility

In February 2022, the Tacoma LNG facility at the Port of Tacoma completed commissioning and commenced commercial operations. In December 2019, the Puget Sound Clean Air Agency (PSCAA) issued the air quality permit for the facility, and the Pollution Hearings Control Board of Washington State upheld the approval following extended litigation. The Tacoma LNG facility provides peak-shaving services to PSE’s natural gas customers, and provides LNG as fuel to transportation customers, particularly in the marine market at a lower cost due to the facility's scale. The State of Washington Division II Court of Appeals upheld the permit issuance and in February 2024 denied the Puyallup Tribe of Indians' motion to reconsider. On March 22, 2024, a coalition of environmental organizations lead by Advocates for a Cleaner Tacoma, petitioned the Washington Supreme Court to review portions of the Court of Appeals' decision. On March 25, 2024, the Puyallup Tribe of Indians also petitioned the Washington Supreme Court for review.

Pursuant to an order by the 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, $239.1 million and $240.5 million of non-utility plant operating cost is reported in the Puget Energy "Other property and investments" line item as of March 31, 2024 and December 31, 2023, respectively. Additionally, $6.7 million and $7.8 million of operating costs are reported in the Puget Energy "Non-utility expense and other" financial statement line item for the three months ended March 31, 2024, and March 31, 2023, respectively. Further, $234.1 million and $235.6 million of natural gas plant 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 March 31, 2024 and December 31, 2023, respectively, as PSE is a regulated entity.

Variable Interest Entities

In April 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 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. In May 2020, PSE entered into a PPA with Golden Hills Wind Farm, LLC (Golden Hills) pursuant to which Golden Hills would develop a wind generation facility and sell bundled energy and associated attributes, namely RECs, to PSE over a term of 20 years. On April 29, 2022, Golden Hills commenced commercial operations. In February 2021, PSE entered into a PPA with Clearwater Wind Project, LLC (Clearwater) in which Clearwater would develop a wind generation facility and sell energy and associated attributes to PSE over a term of 25 years. On November 8, 2022, Clearwater commenced commercial operations. For each of the aforementioned PPAs, PSE has no equity investment in the generation facilities, but is the only customer of each facility. PSE has concluded that Skookumchuck, Golden Hills, and Clearwater represent variable interest entities (VIE) and that PSE is not the primary beneficiary of these VIEs since it does not control the commercial and operating activities of the facilities. Additionally, PSE does not have the obligation to absorb losses or receive benefits. As a result, PSE does not consolidate the VIEs.

Purchased energy of $26.3 million and $29.7 million were recognized in purchased electricity on the Company's consolidated statements of income for the three months ended March 31, 2024 and March 31, 2023, respectively. Additionally, $13.9 million and $14.6 million were included in accounts payable on the Company's balance sheet as of March 31, 2024 and December 31, 2023, respectively.

For further information on the Company's accounting policies, see Part II, Item 8, Note 1, "Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.