UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


[X]			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2022~~2023


[ ]			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from ________ to ________


Commission File Number			Exact name of registrant as specified in its charter, state of incorporation, address of principal executive offices, telephone number			I.R.S. Employer Identification Number


1-16305			PUGET ENERGY, INC. A Washington Corporation 355 110th Ave NE Bellevue, Washington 98004 (425) 454-6363			91-1969407


1-4393			PUGET SOUND ENERGY, INC. A Washington Corporation 355 110th Ave NE Bellevue, Washington 98004 (425) 454-6363			91-0374630

Securities Registered pursuant to Section 12(b) of the Securities Exchange Act of 1934


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Puget Energy, Inc.

Yes

/X/

/ /

Puget Sound Energy, Inc.

Yes

/X/

/ /

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Puget Energy, Inc.

Yes

/X/

/ /

Puget Sound Energy, Inc.

Yes

/X/

/ /

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer", "accelerated filer," a smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Puget Energy, Inc.

Large accelerated filer

/ /

Accelerated filer

/ /

Non-accelerated Filer

/X/

Smaller reporting company

/ /

Emerging growth company

/ /

Puget Sound Energy, Inc.

Large accelerated filer

/ /

Accelerated filer

/ /

Non-accelerated Filer

/X/

Smaller reporting company

/ /

Emerging growth company

/ /

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. / /

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Puget Energy, Inc.

Yes

/ /

/X/

Puget Sound Energy, Inc.

Yes

/ /

/X/

All of the outstanding shares of voting stock of Puget Energy, Inc. are held by Puget Equico LLC, an indirect wholly-owned subsidiary of Puget Holdings LLC. All of the outstanding shares of voting stock of Puget Sound Energy, Inc. are held by Puget Energy, Inc.

Table of Contents


		Page
Definitions		3
Filing Format		4
Forward-Looking Statements		4

Part I.	Financial Information	5

Item 1.	Financial Statements	5
	Puget Energy, Inc.
	Consolidated Statements of Income – Three Months E~~nded~~ Ended March 31, ~~2022~~2023 and ~~2021~~2022	5
	Consolidated Statements of Comprehensive Income – Three Months Ended March 31,~~, 202~~2 2023 and 20202221	6
	Consolidated Balance Sheets – March 31,, 202 23 and December 31, 202122	7
	Consolidated Statements of Common Shareholder's Equity - March 31, ~~202~~2 ,2023 and December 31, 20202221	8
	Consolidated Statements of Cash Flows – Three Months Ended March 31, ~~2022~~2023 and 2022~~2021~~	9

	Puget Sound Energy, Inc.
	Consolidated Statements of Income – Three M ~~onths~~Months Ended March ~~31,~~ 3 1 , 202 23 and 202122	12
	Consolidated Statements of Comprehensive Income – Three Months Ended March ~~31, 2022~~ 3 1 , 202 3 and 202122	11
	Consolidated Balance Sheets – March ~~31, 2022~~3 1 , 202 3 and December 31, 202122	12
	Consolidated Statements of Common Shareholder's Equity - March ~~31, 2022,~~3 1 , 202 3 , and December 31, ~~2021~~202 2	1413
	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2023 and 2022 ~~and 20~~21	1514

	Notes
	Combined Notes to Consolidated Financial Statements	1615

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3432

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	6056

Item 4.	Controls and Procedures	6157

Part II.	Other Information	6257

Item 1.	Legal Proceedings	6257

Item 1A.	Risk Factors	6257

Item 6.	Exhibits	6257

Exhibit Index		6358

Signatures		6459

DEFINITIONS


ASU			Accounting Standards Update
ASC			Accounting Standards Codification
EBITDA			Earnings Before Interest, Tax, Depreciation and Amortization
FASB			Financial Accounting Standards Board
GAAP			U.S. Generally Accepted Accounting Principles
GRC			General Rate Case
IBEW			International Brotherhood of Electrical Workers
ISDA			International Swaps and Derivatives Association
LIBOR			London Interbank Offered Rate
LNG			Liquefied Natural Gas
MMBtu			One Million British Thermal Units
MWh			Megawatt Hour (one MWh equals one thousand kWh)
NAESB			North American Energy Standards Board
NPNS			Normal Purchase Normal Sale
PCA			Power Cost Adjustment
PCORC			Power Cost Only Rate Case
PGA			Purchased Gas Adjustment
~~PTC~~PTCs			Production Tax ~~Credit~~Credits
PSE			Puget Sound Energy, Inc.
Puget Energy			Puget Energy, Inc.
Puget Holdings			Puget Holdings LLC
Puget LNG			Puget LNG, LLC
SERP			Supplemental Executive Retirement Plan
UA			The United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada
Washington Commission			Washington Utilities and Transportation Commission
WSPP			WSPP, Inc.

FILING FORMAT

This ~~report~~combined Quarterly Report on Form 10-Q is ~~a Quarterly Report~~separately filed ~~separately~~ by ~~two registrants,~~ Puget Energy, Inc. (Puget Energy) and Puget Sound Energy, Inc. (PSE). Information in this filing relating to PSE is filed by PSE on its own behalf. PSE makes no representation as to information relating to Puget Energy (except as it may relate to PSE) or any other affiliate or subsidiary of Puget Energy. Any references in this report to “the Company” are to Puget Energy and PSE collectively.

FORWARD-LOOKING STATEMENTS

Puget Energy and PSE include the following cautionary statements in this Form 10-Q to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by or on behalf of Puget Energy or PSE. This report includes forward-looking statements, which are statements of expectations, beliefs, plans, objectives and assumptions of future events or performance. Words or phrases such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “future,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “should,” “will likely result,” “will continue” or similar expressions are intended to identify certain of these forward-looking statements and may be included in discussion of, among other things, our anticipated operating or financial performance, business plans and prospects, planned capital expenditures and other future expectations. In particular, these include statements relating to future actions, business plans and prospects, future performance expenses, the outcome of contingencies, such as legal proceedings, government regulation and financial results.

Forward-looking statements reflect current expectations and involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed. There can be no assurance that Puget Energy’s and PSE’s expectations, beliefs or projections will be achieved or accomplished.

In addition to other factors and matters discussed elsewhere in this report, some important risks that could cause actual results or outcomes for Puget Energy and PSE to differ materially from past results and those discussed in the forward-looking statements include:


●			Governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC) and the Washington Utilities and Transportation Commission (Washington Commission), that may affect our ability to recover costs and earn a reasonable return, including but not limited to disallowance or delays in the recovery of capital investments and operating costs and discretion over allowed return on investment;
●			Changes in, adoption of and compliance with laws and regulations, including decisions and policies concerning the environment, climate change, greenhouse gas or other emissions or by-products of electric generation (including coal ash or other substances), natural resources, and fish and wildlife (including the Endangered Species Act) as well as the risk of litigation arising from such matters, whether involving public or private claimants or regulatory investigative or enforcement measures;
●			Changes in tax law, related regulations or differing interpretation, or enforcement of applicable law by the Internal Revenue Service (IRS) or other taxing jurisdiction; and PSE's ability to recover costs in a timely manner arising from such changes;
●			Inability to realize deferred tax assets and use production tax credits (PTCs) due to insufficient future taxable income;
●			Accidents or natural disasters, such as hurricanes, windstorms, earthquakes, floods, fires, extreme weather conditions, landslides, and other acts of God, terrorism, asset-based or cyber-based attacks, pandemic or similar significant events, which can interrupt service and lead to lost revenue, cause temporary supply disruptions and/or price spikes in the cost of fuel and raw materials and impose extraordinary costs;
●			The impact of widespread health developments, including the global Coronavirus Disease 2019 (COVID-19) pandemic, and responses to such developments (such as voluntary and mandatory quarantines, government stay at home orders, restrictions on travel, commercial, social and other activities, and the impact of vaccination mandates on employee and vendor staffing levels) could materially and adversely affect, among other things, electric and natural gas demand, customers’ ability to pay, supply chains, availability of skilled work-force, contract counterparties, liquidity and financial markets;
●			Commodity price risks associated with procuring natural gas and power in wholesale markets from creditworthy counterparties;
●			Wholesale market disruption, which may result in a deterioration of market liquidity, increase the risk of counterparty default, affect the regulatory and legislative process in unpredictable ways, negatively affect wholesale energy prices and/or impede PSE's ability to manage its energy portfolio risks and procure energy supply, affect the availability and access to capital and credit markets and/or impact delivery of energy to PSE from its suppliers;
●			Financial difficulties of other energy companies and related events, which may affect the regulatory and legislative process in unpredictable ways, adversely affect the availability of and access to capital and credit markets and/or impact delivery of energy to PSE from its suppliers;
●			The effect of wholesale market structures (including, but not limited to, regional market designs or transmission ~~organizations or the decision of companies in the Western Interconnection to join such markets)~~organizations) or other related federal initiatives;
●			PSE electric or natural gas distribution system failure, blackouts or large curtailments of transmission systems (whether PSE's or others'), or failure of the interstate natural gas pipeline delivering to PSE's system, all of which can affect PSE's ability to deliver power or natural gas to its customers and generating facilities;
●			Electric plant generation and transmission system outages, which can have an adverse impact on PSE's expenses with respect to repair costs, added costs to replace energy or higher costs associated with dispatching a more expensive generation resource;
●			The ability to restart generation following a regional transmission disruption;
●			The ability of a natural gas or electric plant to operate as intended;
●			PSE's resource adequacy needs to meet the Clean Energy Transformation Act (CETA) and the Climate Commitment Act (CCA) requirements, through a combination of owned or contracted resources, may significantly increase purchased power and gas costs if pricing pressures and supply constraints on resource acquisitions increase;
●			Changes in climate, weather conditions, or sustained extreme weather events in the Pacific Northwest, which could have effects on customer usage and PSE's revenue and expenses;
●			Regional or national weather, which could impact PSE's ability to procure adequate supplies of natural gas, fuel or purchased power to serve its customers and the cost of procuring such supplies;
●			Variable hydrological conditions, which can impact streamflow and PSE's ability to generate electricity from hydroelectric facilities;
●			Variable wind conditions, which can impact PSE's ability to generate electricity from wind facilities;
●			The ability to renew contracts for electric and natural gas supply and the price of renewal;
●			Industrial, commercial and residential growth and demographic patterns in the service territories of PSE;
●			General economic conditions in the Pacific Northwest, such as inflation, which may impact customer consumption or affect PSE's accounts receivable;
●			The loss of significant customers, changes in the business of significant customers or the condemnation of PSE's facilities as a result of municipalization or other government action or negotiated settlement, which may result in changes in demand for PSE's services;
●			The failure of information systems or the failure to secure information system data, which may impact the operations and cost of PSE's customer service, generation, distribution and transmission;
●			Opposition and social activism that may hinder PSE's ability to perform work or construct infrastructure;
●			Capital market conditions, including changes in the availability of capital and interest rate fluctuations;
●			Employee workforce factors including strikes; work stoppages; retirements; absences due to pandemics, accidents, natural disasters or other significant, unforeseeable events; availability of qualified employees or the loss of a key executive;
●			PSE's service territory operates within a region of high demand for skilled workers resulting in significant competition and inflated wages, which puts pressure on PSE's ability to attract, retain and compensate employees;
●			The ability to obtain insurance coverage, the availability of insurance for certain specific losses, and the cost of such insurance;
●			Changes in Puget Energy's or PSE's credit ratings, which may have an adverse impact on the availability and cost of capital for Puget Energy or PSE generally;
●			Deteriorating values of the equity, fixed income and other markets which could significantly impact the value of investments of PSE's retirement plan, post-retirement medical benefit plan trusts and the funding of obligations thereunder; and
●			Recent laws proposed or passed by various municipalities in PSE's service territory, including Seattle, seek to reduce or eliminate the use of natural gas in various contexts, such as for space, cooking, and water heating in new commercial and multifamily buildings. Such laws may impact operations due to costs and delays from incremental permitting and other requirements that are outside PSE's control.

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. For further information, see Part I, Item 1A, “Risk Factors” in the Company's most recent Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

PUGET ENERGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands)

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating revenue:	Operating revenue:					Operating revenue:
Electric	Electric	$	756,377	$	758,592	Electric	$	1,010,160	$	756,377
Natural gas	Natural gas	426,348		392,906		Natural gas	517,258		426,348
Other	Other	10,712		8,588		Other	13,769		10,712
Total operating revenue	Total operating revenue	1,193,437		1,160,086		Total operating revenue	1,541,187		1,193,437
Operating expenses:	Operating expenses:					Operating expenses:
Energy costs:	Energy costs:					Energy costs:
Purchased electricity	Purchased electricity	238,203		205,410		Purchased electricity	339,816		238,203
Electric generation fuel	Electric generation fuel	60,644		60,418		Electric generation fuel	150,254		60,644
Residential exchange	Residential exchange	(23,070)		(25,802)		Residential exchange	(23,531)		(23,070)
Purchased natural gas	Purchased natural gas	177,333		155,015		Purchased natural gas	235,482		177,333
Unrealized (gain) loss on derivative instruments, net	Unrealized (gain) loss on derivative instruments, net	(131,921)		(23,002)		Unrealized (gain) loss on derivative instruments, net	192,123		(131,921)
Utility operations and maintenance	Utility operations and maintenance	170,300		160,540		Utility operations and maintenance	194,991		170,300
Non-utility expense and other	Non-utility expense and other	15,419		9,906		Non-utility expense and other	16,046		15,419
Depreciation & amortization	Depreciation & amortization	164,576		208,431		Depreciation & amortization	188,717		164,576
Conservation amortization	Conservation amortization	30,141		34,060		Conservation amortization	38,219		30,141
Taxes other than income taxes	Taxes other than income taxes	121,377		110,310		Taxes other than income taxes	133,690		121,377
Total operating expenses	Total operating expenses	823,002		895,286		Total operating expenses	1,465,807		823,002
Operating income (loss)	Operating income (loss)	370,435		264,800		Operating income (loss)	75,380		370,435
Other income (expense):	Other income (expense):					Other income (expense):
Other income	Other income	13,164		13,630		Other income	13,698		13,164
Other expense	Other expense	(3,154)		(1,510)		Other expense	(2,477)		(3,154)
Interest charges:	Interest charges:					Interest charges:
AFUDC	AFUDC	4,129		3,586		AFUDC	5,608		4,129
Interest expense	Interest expense	(86,468)		(89,360)		Interest expense	(90,042)		(86,468)
Income (loss) before income taxes	Income (loss) before income taxes	298,106		191,146		Income (loss) before income taxes	2,167		298,106
Income tax (benefit) expense	Income tax (benefit) expense	19,811		2,153		Income tax (benefit) expense	2,198		19,811
Net income (loss)	Net income (loss)	$	278,295	$	188,993	Net income (loss)	$	(31)	$	278,295

The accompanying notes are an integral part of the financial statements.

PUGET ENERGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Net income (loss)	Net income (loss)	$	278,295	$	188,993	Net income (loss)	$	(31)	$	278,295
Other comprehensive income (loss):	Other comprehensive income (loss):					Other comprehensive income (loss):
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $487 and $634, respectively		1,831		2,385
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $(176) and $487, respectively						Net unrealized gain (loss) from pension and postretirement plans, net of tax of $(176) and $487, respectively	(658)		1,831

Other comprehensive income (loss)	Other comprehensive income (loss)	1,831		2,385		Other comprehensive income (loss)	(658)		1,831
Comprehensive income (loss)	Comprehensive income (loss)	$	280,126	$	191,378	Comprehensive income (loss)	$	(689)	$	280,126

The accompanying notes are an integral part of the financial statements.

PUGET ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

(Unaudited)

ASSETS


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Utility plant (at original cost, including construction work in progress of $696,617 and $870,204 respectively):
Utility plant (at original cost, including construction work in progress of $943,177 and $861,801 respectively):						Utility plant (at original cost, including construction work in progress of $943,177 and $861,801 respectively):
Electric plant	Electric plant	$	9,843,756	$	9,729,643	Electric plant	$	10,431,708	$	10,300,895
Natural gas plant	Natural gas plant	4,553,903		4,498,198		Natural gas plant	4,778,660		4,721,982
Common plant	Common plant	1,120,192		1,155,567		Common plant	1,098,813		1,103,783
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(4,081,891)		(4,031,458)		Less: Accumulated depreciation and amortization	(4,448,520)		(4,341,789)
Net utility plant	Net utility plant	11,435,960		11,351,950		Net utility plant	11,860,661		11,784,871
Other property and investments:	Other property and investments:					Other property and investments:
Goodwill	Goodwill	1,656,513		1,656,513		Goodwill	1,656,513		1,656,513
Other property and investments	Other property and investments	326,229		324,897		Other property and investments	318,265		328,535
Total other property and investments	Total other property and investments	1,982,742		1,981,410		Total other property and investments	1,974,778		1,985,048
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	603,757		56,946		Cash and cash equivalents	110,974		105,740
Restricted cash	Restricted cash	30,525		46,204		Restricted cash	20,329		63,045
Accounts receivable, net of allowance for doubtful accounts of $41,233 and $34,958, respectively		419,355		398,895
Accounts receivable, net of allowance for doubtful accounts of $44,228 and $41,962, respectively						Accounts receivable, net of allowance for doubtful accounts of $44,228 and $41,962, respectively	603,944		673,236
Unbilled revenue	Unbilled revenue	215,299		271,606		Unbilled revenue	263,420		284,022

Materials and supplies, at average cost	Materials and supplies, at average cost	120,364		113,287		Materials and supplies, at average cost	136,745		132,172
Fuel and natural gas inventory, at average cost	Fuel and natural gas inventory, at average cost	47,360		59,393		Fuel and natural gas inventory, at average cost	56,562		94,075
Unrealized gain on derivative instruments	Unrealized gain on derivative instruments	293,884		128,210		Unrealized gain on derivative instruments	125,377		587,029
Prepaid expense and other	Prepaid expense and other	50,906		46,293		Prepaid expense and other	42,208		41,940
Power contract acquisition adjustment gain	Power contract acquisition adjustment gain	16,303		17,274		Power contract acquisition adjustment gain	16,807		16,736
Total current assets	Total current assets	1,797,753		1,138,108		Total current assets	1,376,366		1,997,995
Other long-term and regulatory assets:	Other long-term and regulatory assets:					Other long-term and regulatory assets:

Power cost adjustment mechanism	Power cost adjustment mechanism	67,808		79,546		Power cost adjustment mechanism	101,577		112,207
Purchased gas adjustment receivable		44,020		57,935

Regulatory assets related to power contracts	Regulatory assets related to power contracts	9,362		9,689		Regulatory assets related to power contracts	7,621		7,904
Other regulatory assets	Other regulatory assets	809,414		815,058		Other regulatory assets	827,659		784,231
Unrealized gain on derivative instruments	Unrealized gain on derivative instruments	36,690		26,197		Unrealized gain on derivative instruments	64,498		94,621
Power contract acquisition adjustment gain	Power contract acquisition adjustment gain	59,332		63,660		Power contract acquisition adjustment gain	42,525		46,924
Operating lease right-of-use asset	Operating lease right-of-use asset	182,077		184,957		Operating lease right-of-use asset	190,640		193,509
Other	Other	165,440		163,374		Other	196,464		180,204
Total other long-term and regulatory assets	Total other long-term and regulatory assets	1,374,143		1,400,416		Total other long-term and regulatory assets	1,430,984		1,419,600
Total assets	Total assets	$	16,590,598	$	15,871,884	Total assets	$	16,642,789	$	17,187,514

The accompanying notes are an integral part of the financial statements.

PUGET ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

(Unaudited)

CAPITALIZATION AND LIABILITIES


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Capitalization
Capitalization:						Capitalization:
Common shareholder’s equity:	Common shareholder’s equity:					Common shareholder’s equity:
Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding	Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding	$	—	$	—	Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding	$	—	$	—
Additional paid-in capital	Additional paid-in capital	3,523,532		3,523,532		Additional paid-in capital	3,523,532		3,523,532
Retained earnings	Retained earnings	1,344,572		1,067,216		Retained earnings	1,437,167		1,465,331
Accumulated other comprehensive income (loss), net of tax	Accumulated other comprehensive income (loss), net of tax	(25,601)		(27,432)		Accumulated other comprehensive income (loss), net of tax	(25,432)		(24,774)
Total common shareholder’s equity	Total common shareholder’s equity	4,842,503		4,563,316		Total common shareholder’s equity	4,935,267		4,964,089
Long-term debt:	Long-term debt:					Long-term debt:
First mortgage bonds and senior notes	First mortgage bonds and senior notes	4,662,000		4,662,000		First mortgage bonds and senior notes	4,662,000		4,662,000
Pollution control bonds	Pollution control bonds	161,860		161,860		Pollution control bonds	161,860		161,860

Long-term debt	Long-term debt	2,034,300		1,583,300		Long-term debt	2,034,300		2,034,300
Debt discount issuance costs and other	Debt discount issuance costs and other	(203,217)		(203,394)		Debt discount issuance costs and other	(191,744)		(194,787)
Total long-term debt	Total long-term debt	6,654,943		6,203,766		Total long-term debt	6,666,416		6,663,373
Total capitalization	Total capitalization	11,497,446		10,767,082		Total capitalization	11,601,683		11,627,462
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	376,793		444,384		Accounts payable	409,130		665,750
Short-term debt	Short-term debt	69,750		140,000		Short-term debt	237,700		441,300
Current maturities of long-term debt		450,000		450,000

Accrued expenses:	Accrued expenses:					Accrued expenses:
Taxes	Taxes	169,124		127,398		Taxes	200,050		116,098
Salaries and wages	Salaries and wages	43,489		47,936		Salaries and wages	47,616		60,537
Interest	Interest	81,556		67,807		Interest	77,202		62,148
Unrealized loss on derivative instruments	Unrealized loss on derivative instruments	40,237		63,309		Unrealized loss on derivative instruments	112,634		124,976
Power contract acquisition adjustment loss	Power contract acquisition adjustment loss	1,741		1,785		Power contract acquisition adjustment loss	1,586		1,638
Operating lease liabilities	Operating lease liabilities	20,624		20,398		Operating lease liabilities	20,254		20,342
Other	Other	87,814		62,406		Other	83,088		70,685
Total current liabilities	Total current liabilities	1,341,128		1,425,423		Total current liabilities	1,189,260		1,563,474
Other long-term and regulatory liabilities:	Other long-term and regulatory liabilities:					Other long-term and regulatory liabilities:
Deferred income taxes	Deferred income taxes	923,026		912,484		Deferred income taxes	928,320		985,947
Unrealized loss on derivative instruments	Unrealized loss on derivative instruments	22,373		40,965		Unrealized loss on derivative instruments	14,476		18,366
Purchased gas adjustment liability						Purchased gas adjustment liability	102,914		3,536
Regulatory liabilities	Regulatory liabilities	930,374		844,184		Regulatory liabilities	890,059		1,147,143
Regulatory liability for deferred income taxes	Regulatory liability for deferred income taxes	852,280		865,976		Regulatory liability for deferred income taxes	797,697		811,161
Regulatory liabilities related to power contracts	Regulatory liabilities related to power contracts	75,635		80,934		Regulatory liabilities related to power contracts	59,332		63,660
Power contract acquisition adjustment loss	Power contract acquisition adjustment loss	7,621		7,904		Power contract acquisition adjustment loss	6,035		6,266
Operating lease liabilities	Operating lease liabilities	168,637		172,510		Operating lease liabilities	177,516		181,265
Finance lease liabilities	Finance lease liabilities	104,539		105,303		Finance lease liabilities	101,717		102,518
Compliance obligation						Compliance obligation	94,626		—
Other deferred credits	Other deferred credits	667,539		649,119		Other deferred credits	679,154		676,716
Total long-term and regulatory liabilities	Total long-term and regulatory liabilities	3,752,024		3,679,379		Total long-term and regulatory liabilities	3,851,846		3,996,578
Commitments and contingencies (Note 8)	Commitments and contingencies (Note 8)	0		0		Commitments and contingencies (Note 8)
Total capitalization and liabilities	Total capitalization and liabilities	$	16,590,598	$	15,871,884	Total capitalization and liabilities	$	16,642,789	$	17,187,514

The accompanying notes are an integral part of the financial statements.

PUGET ENERGY, INC.

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY

(Dollars in Thousands)

(Unaudited)


		Common Stock			Additional Paid-in Capital								Accumulated Other Comprehensive Income (Loss)
		Shares	Amount				Retained Earnings								Total Equity
Balance at December 31, 2020		200	$	—			$	3,313,532			$	912,787			$	(86,437)			$	4,139,882
Net income (loss)		—	—		—				188,993				—				188,993
Common stock dividend paid		—	—		—				(22,939)				—				(22,939)
Other comprehensive income (loss)		—	—		—				—				2,385				2,385
Balance at March 31, 2021		200	$	—	$	3,313,532			$	1,078,841			$	(84,052)			$	4,308,321

																					Common Stock			Additional Paid-in Capital								Accumulated Other Comprehensive Income (Loss)
																					Shares	Amount				Retained Earnings								Total Equity
Balance at December 31, 2021	Balance at December 31, 2021	200	$	—	$	3,523,532			$	1,067,216			$	(27,432)			$	4,563,316	Balance at December 31, 2021		200	$	—			$	3,523,532			$	1,067,216			$	(27,432)			$	4,563,316
Net income (loss)	Net income (loss)	—	—		—				278,295				—				278,295		Net income (loss)		—	—		—				278,295				—				278,295
Common stock dividend paid	Common stock dividend paid	—	—		—				(939)				—				(939)		Common stock dividend paid		—	—		—				(939)				—				(939)
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—				1,831				1,831		Other comprehensive income (loss)		—	—		—				—				1,831				1,831
Balance at March 31, 2022	Balance at March 31, 2022	200	$	—	$	3,523,532			$	1,344,572			$	(25,601)			$	4,842,503	Balance at March 31, 2022		200	$	—	$	3,523,532			$	1,344,572			$	(25,601)			$	4,842,503
Balance at December 31, 2022																			Balance at December 31, 2022		200	$	—	$	3,523,532			$	1,465,331			$	(24,774)			$	4,964,089
Net income (loss)																			Net income (loss)		—	—		—				(31)				—				(31)
Common stock dividend paid																			Common stock dividend paid		—	—		—				(28,133)				—				(28,133)
Other comprehensive income (loss)																			Other comprehensive income (loss)		—	—		—				—				(658)				(658)
Balance at March 31, 2023																			Balance at March 31, 2023		200	$	—	$	3,523,532			$	1,437,167			$	(25,432)			$	4,935,267

The accompanying notes are an integral part of the consolidated financial statements.

PUGET ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating activities:	Operating activities:					Operating activities:
Net Income (loss)	Net Income (loss)	$	278,295	$	188,993	Net Income (loss)	$	(31)	$	278,295
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	164,576		208,431		Depreciation and amortization	188,717		164,576
Conservation amortization	Conservation amortization	30,141		34,060		Conservation amortization	38,219		30,141
Deferred income taxes and tax credits, net	Deferred income taxes and tax credits, net	(3,641)		6,622		Deferred income taxes and tax credits, net	(70,916)		(3,641)
Net unrealized (gain) loss on derivative instruments	Net unrealized (gain) loss on derivative instruments	(131,921)		(23,002)		Net unrealized (gain) loss on derivative instruments	192,123		(131,921)

AFUDC - equity	AFUDC - equity	(6,971)		(5,780)		AFUDC - equity	(7,594)		(6,971)
Production tax credit utilization		—		(45,178)

Other non-cash	Other non-cash	2,326		3,518		Other non-cash	12,098		2,326

Regulatory assets and liabilities	Regulatory assets and liabilities	4,470		(14,351)		Regulatory assets and liabilities	38,162		4,470
Purchased gas adjustment	Purchased gas adjustment	13,915		40,868		Purchased gas adjustment	123,594		13,915

Other long term assets and liabilities	Other long term assets and liabilities	(7,891)		(5,695)		Other long term assets and liabilities	(17,377)		(7,891)
Change in certain current assets and liabilities:	Change in certain current assets and liabilities:					Change in certain current assets and liabilities:
Accounts receivable and unbilled revenue	Accounts receivable and unbilled revenue	35,847		(19,743)		Accounts receivable and unbilled revenue	61,325		35,847
Materials and supplies	Materials and supplies	(7,077)		442		Materials and supplies	(4,573)		(7,077)
Fuel and natural gas inventory	Fuel and natural gas inventory	12,033		10,052		Fuel and natural gas inventory	37,513		12,033
Prepayments and other	Prepayments and other	(4,733)		(3,884)		Prepayments and other	(268)		(4,733)

Accounts payable	Accounts payable	(57,324)		(14,868)		Accounts payable	(270,077)		(57,324)
Taxes payable	Taxes payable	41,726		23,476		Taxes payable	83,952		41,726
Other	Other	18,615		(512)		Other	2,758		18,615
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	382,386		383,449		Net cash provided by (used in) operating activities	407,625		382,386
Investing activities:	Investing activities:					Investing activities:
Construction expenditures - excluding equity AFUDC	Construction expenditures - excluding equity AFUDC	(233,131)		(213,781)		Construction expenditures - excluding equity AFUDC	(229,040)		(233,131)
Other	Other	(532)		362		Other	9,113		(532)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(233,663)		(213,419)		Net cash provided by (used in) investing activities	(219,927)		(233,663)
Financing activities:	Financing activities:					Financing activities:
Change in short-term debt, net	Change in short-term debt, net	(70,250)		(182,800)		Change in short-term debt, net	(203,600)		(70,250)
Dividends paid	Dividends paid	(939)		(22,939)		Dividends paid	(28,133)		(939)

Proceeds from long-term debt and bonds issued	Proceeds from long-term debt and bonds issued	448,075		8,800		Proceeds from long-term debt and bonds issued	—		448,075
Redemption of bonds and notes		—		(66)

Other	Other	5,523		6,074		Other	6,553		5,523
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	382,409		(190,931)		Net cash provided by (used in) financing activities	(225,180)		382,409
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	531,132		(20,901)		Net increase (decrease) in cash, cash equivalents, and restricted cash	(37,482)		531,132
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	103,150		81,851		Cash, cash equivalents, and restricted cash at beginning of period	168,785		103,150
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	634,282	$	60,950	Cash, cash equivalents, and restricted cash at end of period	$	131,303	$	634,282
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash payments for interest (net of capitalized interest)	Cash payments for interest (net of capitalized interest)	$	65,238	$	77,160	Cash payments for interest (net of capitalized interest)	$	65,479	$	65,238

Non-cash financing and investing activities:	Non-cash financing and investing activities:					Non-cash financing and investing activities:
Accounts payable for capital expenditures eliminated from cash flows	Accounts payable for capital expenditures eliminated from cash flows	$	61,133	$	54,805	Accounts payable for capital expenditures eliminated from cash flows	$	71,823	$	61,133

The accompanying notes are an integral part of the financial statements.

PUGET SOUND ENERGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands)

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating revenue:	Operating revenue:					Operating revenue:
Electric	Electric	$	756,377	$	758,592	Electric	$	1,010,160	$	756,377
Natural gas	Natural gas	426,348		392,906		Natural gas	517,258		426,348
Other	Other	10,677		8,588		Other	9,233		10,677
Total operating revenue	Total operating revenue	1,193,402		1,160,086		Total operating revenue	1,536,651		1,193,402
Operating expenses:	Operating expenses:					Operating expenses:
Energy costs:	Energy costs:					Energy costs:
Purchased electricity	Purchased electricity	238,203		205,410		Purchased electricity	339,816		238,203
Electric generation fuel	Electric generation fuel	60,644		60,418		Electric generation fuel	150,254		60,644
Residential exchange	Residential exchange	(23,070)		(25,802)		Residential exchange	(23,531)		(23,070)
Purchased natural gas	Purchased natural gas	177,333		155,015		Purchased natural gas	235,482		177,333
Unrealized (gain) loss on derivative instruments, net	Unrealized (gain) loss on derivative instruments, net	(131,921)		(23,002)		Unrealized (gain) loss on derivative instruments, net	192,123		(131,921)
Utility operations and maintenance	Utility operations and maintenance	170,300		160,540		Utility operations and maintenance	194,991		170,300
Non-utility expense and other	Non-utility expense and other	12,814		9,418		Non-utility expense and other	8,014		12,814
Depreciation & amortization	Depreciation & amortization	163,704		208,362		Depreciation & amortization	187,043		163,704
Conservation amortization	Conservation amortization	30,141		34,060		Conservation amortization	38,219		30,141
Taxes other than income taxes	Taxes other than income taxes	121,116		110,310		Taxes other than income taxes	133,264		121,116
Total operating expenses	Total operating expenses	819,264		894,729		Total operating expenses	1,455,675		819,264
Operating income (loss)	Operating income (loss)	374,138		265,357		Operating income (loss)	80,976		374,138
Other income (expense):	Other income (expense):					Other income (expense):
Other income	Other income	10,968		11,034		Other income	12,820		10,968
Other expense	Other expense	(3,154)		(1,510)		Other expense	(2,477)		(3,154)
Interest charges:	Interest charges:					Interest charges:
AFUDC	AFUDC	4,129		3,586		AFUDC	5,608		4,129
Interest expense	Interest expense	(63,144)		(62,371)		Interest expense	(66,983)		(63,144)
Income (loss) before income taxes	Income (loss) before income taxes	322,937		216,096		Income (loss) before income taxes	29,944		322,937
Income tax (benefit) expense	Income tax (benefit) expense	34,856		16,626		Income tax (benefit) expense	2,409		34,856
Net income (loss)	Net income (loss)	$	288,081	$	199,470	Net income (loss)	$	27,535	$	288,081

The accompanying notes are an integral part of the financial statements.

PUGET SOUND ENERGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Net income (loss)	Net income (loss)	$	288,081	$	199,470	Net income (loss)	$	27,535	$	288,081
Other comprehensive income(loss):	Other comprehensive income(loss):					Other comprehensive income(loss):
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $953 and $1,185, respectively		3,588		4,458
Net unrealized gain (loss) from pension and postretirement plans, net of tax of $10 and $953, respectively						Net unrealized gain (loss) from pension and postretirement plans, net of tax of $10 and $953, respectively	36		3,588

Amortization of treasury interest rate swaps to earnings, net of tax of $26 and $26, respectively	Amortization of treasury interest rate swaps to earnings, net of tax of $26 and $26, respectively	97		96		Amortization of treasury interest rate swaps to earnings, net of tax of $26 and $26, respectively	97		97

Other comprehensive income (loss)	Other comprehensive income (loss)	3,685		4,554		Other comprehensive income (loss)	133		3,685
Comprehensive income (loss)	Comprehensive income (loss)	$	291,766	$	204,024	Comprehensive income (loss)	$	27,668	$	291,766

The accompanying notes are an integral part of the financial statements.

PUGET SOUND ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

(Unaudited)

ASSETS


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Utility plant (at original cost, including construction work in progress of $696,617 and $870,204, respectively):
Utility plant (at original cost, including construction work in progress of $943,177 and $861,801, respectively):						Utility plant (at original cost, including construction work in progress of $943,177 and $861,801, respectively):
Electric plant	Electric plant	$	11,633,462	$	11,535,976	Electric plant	$	12,194,280	$	12,071,531
Natural gas plant	Natural gas plant	5,109,791		5,054,622		Natural gas plant	5,332,181		5,276,156
Common plant	Common plant	1,142,049		1,177,598		Common plant	1,119,925		1,125,217
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(6,449,342)		(6,416,246)		Less: Accumulated depreciation and amortization	(6,785,725)		(6,688,033)
Net utility plant	Net utility plant	11,435,960		11,351,950		Net utility plant	11,860,661		11,784,871
Other property and investments:	Other property and investments:					Other property and investments:

Other property and investments	Other property and investments	76,507		74,602		Other property and investments	71,388		80,076
Total other property and investments	Total other property and investments	76,507		74,602		Total other property and investments	71,388		80,076
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	150,893		50,043		Cash and cash equivalents	108,117		102,840
Restricted cash	Restricted cash	30,525		46,204		Restricted cash	20,329		63,045
Accounts receivable, net of allowance for doubtful accounts of $41,233 and $34,958, respectively		420,726		402,602
Accounts receivable, net of allowance for doubtful accounts of $44,228 and $41,962, respectively						Accounts receivable, net of allowance for doubtful accounts of $44,228 and $41,962, respectively	602,300		671,071
Unbilled revenue	Unbilled revenue	215,299		271,606		Unbilled revenue	263,420		284,014

Materials and supplies, at average cost	Materials and supplies, at average cost	120,364		113,287		Materials and supplies, at average cost	136,745		132,172
Fuel and natural gas inventory, at average cost	Fuel and natural gas inventory, at average cost	45,795		58,129		Fuel and natural gas inventory, at average cost	54,433		91,783
Unrealized gain on derivative instruments	Unrealized gain on derivative instruments	293,884		128,210		Unrealized gain on derivative instruments	125,377		587,029
Prepaid expense and other	Prepaid expense and other	50,906		46,293		Prepaid expense and other	42,070		41,940

Total current assets	Total current assets	1,328,392		1,116,374		Total current assets	1,352,791		1,973,894
Other long-term and regulatory assets:	Other long-term and regulatory assets:					Other long-term and regulatory assets:

Power cost adjustment mechanism	Power cost adjustment mechanism	67,808		79,546		Power cost adjustment mechanism	101,577		112,207
Purchased gas adjustment receivable		44,020		57,935

Other regulatory assets	Other regulatory assets	809,414		815,058		Other regulatory assets	827,659		784,231
Unrealized gain on derivative instruments	Unrealized gain on derivative instruments	36,690		26,197		Unrealized gain on derivative instruments	64,498		94,621

Operating lease right-of-use asset	Operating lease right-of-use asset	182,077		184,957		Operating lease right-of-use asset	190,640		193,509
Other	Other	164,477		162,391		Other	193,267		176,833
Total other long-term and regulatory assets	Total other long-term and regulatory assets	1,304,486		1,326,084		Total other long-term and regulatory assets	1,377,641		1,361,401
Total assets	Total assets	$	14,145,345	$	13,869,010	Total assets	$	14,662,481	$	15,200,242

The accompanying notes are an integral part of the financial statements.

PUGET SOUND ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

(Unaudited)

CAPITALIZATION AND LIABILITIES

March 31,
2022 December 31, 2021
Capitalization:
Common shareholder’s equity:
Common stock $0.01 par value, 150,000,000 shares authorized, 85,903,791 shares outstanding $ 859 $ 859
Additional paid-in capital 3,485,105 3,485,105
Retained earnings 1,256,792 982,607
Accumulated other comprehensive income (loss), net of tax (109,456) (113,141)
Total common shareholder’s equity 4,633,300 4,355,430
Long-term debt:
First mortgage bonds and senior notes 4,662,000 4,662,000
Pollution control bonds 161,860 161,860
Debt discount, issuance costs and other (38,629) (39,141)
Total long-term debt 4,785,231 4,784,719
Total capitalization 9,418,531 9,140,149
Current liabilities:
Accounts payable 379,918 451,716
Short-term debt 69,750 140,000
Accrued expenses:
Taxes 180,568 133,406
Salaries and wages 43,489 47,936
Interest 58,264 51,832
Unrealized loss on derivative instruments 40,237 63,309
Operating lease liabilities 20,624 20,398
Other 87,814 62,406
Total current liabilities 880,664 971,003
Other long-term and regulatory liabilities:
Deferred income taxes 1,104,851 1,084,203
Unrealized loss on derivative instruments 22,373 40,965
Regulatory liabilities 929,110 842,920
Regulatory liabilities for deferred income tax 852,842 866,541
Operating lease liabilities 168,637 172,510
Finance lease liabilities 104,539 105,303
Other deferred credits 663,798 645,416
Total long-term and regulatory liabilities 3,846,150 3,757,858
Commitments and contingencies (Note 8) 0 0
Total capitalization and liabilities $ 14,145,345 $ 13,869,010


	March 31, 2023		December 31, 2022
Capitalization:
Common shareholder’s equity:
Common stock $0.01 par value, 150,000,000 shares authorized, 85,903,791 shares outstanding	$	859	$	859
Additional paid-in capital	3,535,105		3,535,105
Retained earnings	1,437,696		1,438,163
Accumulated other comprehensive income (loss), net of tax	(102,911)		(103,044)
Total common shareholder’s equity	4,870,749		4,871,083
Long-term debt:
First mortgage bonds and senior notes	4,662,000		4,662,000
Pollution control bonds	161,860		161,860


Debt discount, issuance costs and other	(36,619)		(37,095)
Total long-term debt	4,787,241		4,786,765
Total capitalization	9,657,990		9,657,848
Current liabilities:
Accounts payable	408,802		664,457
Short-term debt	137,000		357,000


Accrued expenses:
Taxes	206,507		116,472
Salaries and wages	47,616		60,537
Interest	58,702		52,170
Unrealized loss on derivative instruments	112,634		124,976

Operating lease liabilities	20,254		20,342
Other	83,088		70,685
Total current liabilities	1,074,603		1,466,639
Other long-term and regulatory liabilities:
Deferred income taxes	1,076,317		1,139,600
Unrealized loss on derivative instruments	14,476		18,366
Purchased gas adjustment liability	102,914		3,536
Regulatory liabilities	888,795		1,145,879
Regulatory liabilities for deferred income tax	798,257		811,724


Operating lease liabilities	177,516		181,265
Finance lease liabilities	101,717		102,518
Compliance obligation	94,626		—
Other deferred credits	675,270		672,867
Total long-term and regulatory liabilities	3,929,888		4,075,755
Commitments and contingencies (Note 8)
Total capitalization and liabilities	$	14,662,481	$	15,200,242

The accompanying notes are an integral part of the financial statements.

1312

PUGET SOUND ENERGY, INC.

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY

(Dollars in Thousands)

(Unaudited)


		Common Stock			Additional Paid-in Capital								Accumulated Other Comprehensive Income (Loss)									Common Stock				Additional Paid-in Capital					Accumulated Other Comprehensive Income (Loss)
		Shares	Amount				Retained Earnings								Total Equity				Shares				Amount					Retained Earnings					Total Equity
Balance at December 31, 2020		85,903,791	$	859			$	3,485,105			$	876,401			$	(180,956)				$	4,181,409
Balance at December 31, 2021																				Balance at December 31, 2021		85,903,791		$	859	$	3,485,105		$	982,607	$	(113,141)		$	4,355,430
Net income (loss)	Net income (loss)	—	—		—				199,470				—				199,470			Net income (loss)		—		—		—			288,081		—			288,081
Common stock dividend paid	Common stock dividend paid	—	—		—				(52,053)				—				(52,053)			Common stock dividend paid		—		—		—			(13,896)		—			(13,896)
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—				4,554				4,554			Other comprehensive income (loss)		—		—		—			—		3,685			3,685
Balance at March 31, 2021		85,903,791	$	859	$	3,485,105			$	1,023,818			$	(176,402)			$	4,333,380

Balance December 31, 2021		85,903,791	$	859	$	3,485,105			$	982,607			$	(113,141)			$	4,355,430
Balance at March 31, 2022																				Balance at March 31, 2022		85,903,791		$	859	$	3,485,105		$	1,256,792	$	(109,456)		$	4,633,300
Balance at December 31, 2022																				Balance at December 31, 2022		85,903,791		$	859	$	3,535,105		$	1,438,163	$	(103,044)		$	4,871,083
Net income (loss)	Net income (loss)	—	—		—				288,081				—				288,081			Net income (loss)		—		—		—			27,535		—			27,535
Common stock dividend paid	Common stock dividend paid	—	—		—				(13,896)				—				(13,896)			Common stock dividend paid		—		—		—			(28,002)		—			(28,002)
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—				3,685				3,685			Other comprehensive income (loss)		—		—		—			—		133			133
Balance March 31, 2022		85,903,791	$	859	$	3,485,105			$	1,256,792			$	(109,456)			$	4,633,300
Balance at March 31, 2023																				Balance at March 31, 2023		85,903,791		$	859	$	3,535,105		$	1,437,696	$	(102,911)		$	4,870,749

The accompanying notes are an integral part of the consolidated financial statements.

1413

PUGET SOUND ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating activities:	Operating activities:					Operating activities:
Net Income (loss)	Net Income (loss)	$	288,081	$	199,470	Net Income (loss)	$	27,535	$	288,081
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	163,704		208,362		Depreciation and amortization	187,043		163,704
Conservation amortization	Conservation amortization	30,141		34,060		Conservation amortization	38,219		30,141
Deferred income taxes and tax credits, net	Deferred income taxes and tax credits, net	5,970		21,044		Deferred income taxes and tax credits, net	(76,785)		5,970
Net unrealized (gain) loss on derivative instruments	Net unrealized (gain) loss on derivative instruments	(131,921)		(23,002)		Net unrealized (gain) loss on derivative instruments	192,123		(131,921)

AFUDC - equity	AFUDC - equity	(6,971)		(5,780)		AFUDC - equity	(7,594)		(6,971)
Production tax credit utilization		—		(45,178)

Other non-cash	Other non-cash	(328)		885		Other non-cash	9,472		(328)

Regulatory assets and liabilities	Regulatory assets and liabilities	4,470		(14,351)		Regulatory assets and liabilities	38,162		4,470
Purchased gas adjustment	Purchased gas adjustment	13,915		40,868		Purchased gas adjustment	123,594		13,915

Other long term assets and liabilities	Other long term assets and liabilities	(5,558)		(3,077)		Other long term assets and liabilities	(16,498)		(5,558)
Change in certain current assets and liabilities:	Change in certain current assets and liabilities:					Change in certain current assets and liabilities:
Accounts receivable and unbilled revenue	Accounts receivable and unbilled revenue	38,183		(17,957)		Accounts receivable and unbilled revenue	60,796		38,183
Materials and supplies	Materials and supplies	(7,077)		442		Materials and supplies	(4,573)		(7,077)
Fuel and natural gas inventory	Fuel and natural gas inventory	12,334		10,052		Fuel and natural gas inventory	37,350		12,334
Prepayments and other	Prepayments and other	(4,733)		(3,884)		Prepayments and other	(130)		(4,733)

Accounts payable	Accounts payable	(61,531)		(14,853)		Accounts payable	(269,112)		(61,531)
Taxes payable	Taxes payable	47,162		23,527		Taxes payable	90,035		47,162
Other	Other	11,300		3,549		Other	(5,765)		11,300
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	397,141		414,177		Net cash provided by (used in) operating activities	423,872		397,141
Investing activities:	Investing activities:					Investing activities:
Construction expenditures - excluding equity AFUDC	Construction expenditures - excluding equity AFUDC	(232,868)		(205,927)		Construction expenditures - excluding equity AFUDC	(228,986)		(232,868)
Other	Other	(532)		362		Other	9,113		(532)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(233,400)		(205,565)		Net cash provided by (used in) investing activities	(219,873)		(233,400)
Financing activities:	Financing activities:					Financing activities:
Change in short-term debt, net	Change in short-term debt, net	(70,250)		(182,800)		Change in short-term debt, net	(220,000)		(70,250)
Dividends paid	Dividends paid	(13,896)		(52,053)		Dividends paid	(28,002)		(13,896)

Redemption of bonds and notes		—		(66)

Other	Other	5,576		6,080		Other	6,564		5,576
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(78,570)		(228,839)		Net cash provided by (used in) financing activities	(241,438)		(78,570)
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	85,171		(20,227)		Net increase (decrease) in cash, cash equivalents, and restricted cash	(37,439)		85,171
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	96,247		80,721		Cash, cash equivalents, and restricted cash at beginning of period	165,885		96,247
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	181,418	$	60,494	Cash, cash equivalents, and restricted cash at end of period	$	128,446	$	181,418
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash payments for interest (net of capitalized interest)	Cash payments for interest (net of capitalized interest)	$	51,357	$	47,749	Cash payments for interest (net of capitalized interest)	$	53,568	$	51,357

Non-cash financing and investing activities:	Non-cash financing and investing activities:					Non-cash financing and investing activities:
Accounts payable for capital expenditures eliminated from cash flows	Accounts payable for capital expenditures eliminated from cash flows	$	61,133	$	54,805	Accounts payable for capital expenditures eliminated from cash flows	$	71,823	$	61,133

The accompanying notes are an integral part of the financial statements.

1514

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1)Summary of Consolidation and Significant Accounting Policy

Basis of Presentation

Puget Energy is an energy services holding company that owns PSE. PSE 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, LLC (Puget LNG), which has the sole purpose of owning, developing and financing the non-regulated activity of the Tacoma liquefied natural gas (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, LLC (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 Financial Accounting Standards Board (FASB) Accounting Standards Codification (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”~~ purchase accounting adjustments. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (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.

Emission Allowances

PSE is required to obtain emission allowances or offset credits for greenhouse gas (GHG) emissions associated with electricity it generates or imports into Washington State and natural gas supplied to customers in accordance with the cap-and- invest program included in the Climate Commitment Act (CCA). PSE records allocated and purchased emission allowances at cost, similar to an inventory method. PSE measures the compliance obligation at the weighted average cost of allowances held plus the fair value of additional allowances required to satisfy the obligation after adjustment for applicable no-cost allowances received. PSE includes the obligation in current liabilities and long-term liabilities on the Consolidated Balance Sheets based on the dates the allowances are to be surrendered. PSE balances costs and revenues associated with the cap-and-invest program through regulatory assets and liabilities.

Allowance for Credit Losses

~~Management~~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 allowance increased during both periods due to both an increase in the provision combined with a reduction in receivables charged-off during the period. T~~
he Ratepayer Assistance and Preservation of Essential Services proclamation issued by the Washington State governor in April 2020 included a moratorium on disconnecting customers, which resulted in a cessation of account receivable write-offs for non-payment. This moratorium ended on September 30, 2021, however, customer disconnects are only performed with approval from the WUTC.

The following table presents the activity in the allowance for credit losses for accounts receivable for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy	Three Months Ended March 31,				Puget Energy and Puget Sound Energy	Three Months Ended March 31,
(Dollars in Thousands)	(Dollars in Thousands)	2022		2021		(Dollars in Thousands)	2023		2022
Allowance for credit losses:	Allowance for credit losses:					Allowance for credit losses:
Beginning balance	Beginning balance	$	34,958	$	20,080	Beginning balance	$	41,962	$	34,958
Provision for credit loss expense 1	Provision for credit loss expense 1	9,767		12,452		Provision for credit loss expense 1	9,482		9,767
Receivables charged-off	Receivables charged-off	(3,492)		(2,140)		Receivables charged-off	(7,216)		(3,492)

Total ending allowance balance	Total ending allowance balance	$	41,233	$	30,392	Total ending allowance balance	$	44,228	$	41,233

_______________

1 $~~4.7~~11.1 million and ~~$0.0~~$4.7 million of provision were deferred as cost specific to COVID-19 for the three months ended March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Tacoma LNG Facility

On February 1, 2022, the Tacoma LNG facility at the Port of Tacoma completed commissioning and commenced commercial operations. The Tacoma LNG facility provides peak-shaving services to PSE's natural gas customers, and provides LNG as fuel to transportation customers, mainly the marine market.

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 will provide peak-shaving services to PSE’s natural gas customers,~~This decision was appealed with the Pierce County Superior Court by the Puyallup Tribe of Indians and ~~provide LNG as fuel to transportation customers, particularly in~~nonprofit law firm Earthjustice and the ~~marine market at a lower cost due to~~case was granted direct review by the ~~facility's scale.~~Pierce County Court of Appeals Division II where it is currently pending.

Pursuant to an order by the Washington ~~Utilities and Transportation~~ Commission, ~~(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, ~~$244.8~~$244.9 million and ~~$244.7~~$249.1 million of non-utility plant ~~and construction work in progress related to Puget LNG's portion of the Tacoma LNG facility~~operating cost is reported in the Puget Energy "Other property and investments" line item as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Additionally, ~~$2.2~~$7.8 million and ~~$0.2~~$2.2 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, ~~2022,~~2023, and March 31, ~~2021,~~2022, respectively. Further, ~~$241.7~~$242.5 million and ~~$239.6~~$245.7 million of natural gas plant ~~and construction work in progress~~operating cost 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, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, as PSE is a regulated entity.

Variable Interest Entities

OnIn April ~~12,~~ 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 ~~once completed,~~ 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. PSE has no equity investment in Skookumchuck but is Skookumchuck’s only customer. Based on the terms of the contract, PSE will receive all of the output of the facility, subject to curtailment rights. PSE has concluded that Skookumchuck is a variable interest entity (VIE) and that PSE is not the primary beneficiary of this VIE since it does not control the commercial and operating activities of the facility. Additionally, PSE does not have the obligation to absorb losses or receive benefits. Therefore, PSE will not consolidate the VIE. Purchased energy of $3.9 million and $5.7 million were recognized in purchased electricity on the Company's consolidated statements of income for the three months ended March 31, 2022 and March 31, 2021, respectively. Additionally, $2.7 million was included in accounts payable on the Company's balance sheet as of both March 31, 2022 and December 31, 2021.

OnIn May ~~28,~~ 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 ~~once completed,~~ 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 8th, 2022, Clearwater commenced commercial operations. For each of the aforementioned PPAs, PSE has no equity investment in ~~Golden Hills~~the generation facilities, but is ~~Golden Hills’s~~the only ~~customer. Based on the terms~~customer of ~~the contract, PSE will receive all of the output of the facility, subject to curtailment rights.~~each facility. PSE has concluded that Skookumchuck, Golden Hills, ~~is a VIE~~and Clearwater represent variable interest entities (VIE) and that PSE is not the primary beneficiary of ~~this VIE~~these VIEs since it does not control the commercial and operating activities of the ~~facility.~~facilities. Additionally, PSE does not have the obligation to absorb losses or receive benefits. ~~Therefore,~~As a result, PSE ~~will~~does not consolidate the ~~VIE.~~VIEs.

Purchased energy of $29.7 million and $3.9 million were recognized in purchased electricity on the Company's consolidated statements of income for the three months ended March 31, 2023 and March 31, 2022, respectively. Additionally, $7.0 million and $3.9 million were included in accounts payable on the Company's balance sheet as of March 31, 2023 and December 31, 2022, respectively.

(2) New Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued Accounting Standards Update (ASU) 2020-04, ~~"Reference~~"Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting” (Issued March 2020)~~Reporting”. ASU 2020-04 provides temporary optional expedients and exceptions to the current guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848". ASU 2022-06 postpones the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company has ~~term loans, credit agreements, and~~ promissory notes that reference LIBOR. As of March 31, ~~2022,~~2023, the Company has not utilized any of the expedients discussed within this ASU; however, it continues to assess other agreements to determine if LIBOR is included and if the expedients would be utilized through the allowed period of December ~~2022.~~

2024.

(3) Revenue

The following tables present disaggregated revenue from contracts with customers, and other revenue by major source for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021:~~2022:

Puget Energy and
Puget Sound Energy
(Dollars in Thousands) Three Months Ended March 31, 2022
Revenue from contracts with customers: Electric Natural Gas
Other1
Total
Retail
Residential $ 416,260 $ 292,596 $ — $ 708,856
Commercial 257,019 120,979 — 377,998
Industrial 30,073 8,085 — 38,158
Other 4,761 — — 4,761
Wholesale 13,147 — — 13,147
Transmission and transportation 11,222 5,446 — 16,668
Miscellaneous 1,150 309 10,712 12,171
Total revenue from contracts with customers $ 733,632 $ 427,415 $ 10,712 $ 1,171,759
Total other revenue2
22,745 (1,067) — 21,678
Total operating revenue $ 756,377 $ 426,348 $ 10,712 $ 1,193,437


Puget Energy and Puget Sound Energy
(Dollars in Thousands)	Three Months Ended March 31, 2023
Revenue from contracts with customers:	Electric		Natural Gas		Other1		Total
Retail
Residential	$	470,855	$	350,024	$	—	$	820,879
Commercial	291,489		152,237		—		443,726
Industrial	33,847		11,091		—		44,938
Other	5,501		—		—		5,501
Wholesale	142,260		—		—		142,260
Transmission and transportation	14,486		5,694		—		20,180
Miscellaneous	3,991		(368)		13,769		17,392
Total revenue from contracts with customers	$	962,429	$	518,678	$	13,769	$	1,494,876
Total other revenue2	47,731		(1,420)		—		46,311
Total operating revenue	$	1,010,160	$	517,258	$	13,769	$	1,541,187

_____________

1 Other includes ~~$0.1~~$4.5 million of Puget LNG revenues recorded at Puget Energy.

2 Total other revenue includes revenues from derivatives and alternative revenue programs that are not considered revenues from contracts with customers.

Puget Energy and
Puget Sound Energy
(Dollars in Thousands) Three Months Ended March 31, 2021
Revenue from contracts with customers: Electric Natural Gas Other Total
Retail
Residential $ 401,510 $ 276,687 $ — $ 678,197
Commercial 229,639 103,387 — 333,026
Industrial 27,533 7,535 — 35,068
Other 5,420 254 — 5,674
Wholesale 23,676 — — 23,676
Transmission and transportation 9,226 5,161 — 14,387
Miscellaneous 8,401 1,077 8,588 18,066
Total revenue from contracts with customers $ 705,405 $ 394,101 $ 8,588 $ 1,108,094
Total other revenue1
53,187 (1,195) — 51,992
Total operating revenue $ 758,592 $ 392,906 $ 8,588 $ 1,160,086


Puget Energy and Puget Sound Energy
(Dollars in Thousands)	Three Months Ended March 31, 2022
Revenue from contracts with customers:	Electric		Natural Gas		Other1		Total
Retail
Residential	$	416,260	$	292,596	$	—	$	708,856
Commercial	257,019		120,979		—		377,998
Industrial	30,073		8,085		—		38,158
Other	4,761		—		—		4,761
Wholesale	13,147		—		—		13,147
Transmission and transportation	11,222		5,446		—		16,668
Miscellaneous	1,150		309		10,712		12,171
Total revenue from contracts with customers	$	733,632	$	427,415	$	10,712	$	1,171,759
Total other revenue2	22,745		(1,067)		—		21,678
Total operating revenue	$	756,377	$	426,348	$	10,712	$	1,193,437

_____________

1Other includes $0.1 million of Puget LNG revenues recorded at Puget Energy.

2 Total other revenue includes revenues from derivatives ~~PTC deferral revenue~~ and alternative revenue programs that are not considered revenues from contracts with customers.

Transaction Price Allocated to Remaining Performance Obligations

In December 2020, Puget LNG entered into a contract with one customer where Puget LNG is selling LNG over a 10-year delivery period beginning ~~no later than~~April 2024. The contract requires the customer to purchase a minimum annual quantity even if the customer does not take delivery. The price of the LNG includes a fixed charge, a fuel charge that includes both a market index and fixed margin component and other variable consideration. The fixed transaction price is allocated to the remaining performance obligations which is determined by the fixed charge components multiplied by the outstanding minimum annual quantity. Based on management’s best estimate of commencement, the Company expects to recognize this revenue over the following time periods:


Puget Energy	Puget Energy															Puget Energy
(Dollars in Thousands)	(Dollars in Thousands)	2024		2025		2026		2027		2028		Thereafter		Total		(Dollars in Thousands)	2024		2025		2026		2027		2028		Thereafter		Total
Remaining Performance Obligations		$	15,359	$	19,710	$	19,454	$	19,454	$	19,454	$	102,135	$	195,566
Remaining performance obligations																Remaining performance obligations	$	15,359	$	19,710	$	19,454	$	19,454	$	19,454	$	102,135	$	195,566

The Company has elected the optional exemption in ASC 606, "Revenues from Contracts with Customers", under which the Company does not disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. The primary sources of variability are (a) fluctuations in market index prices of natural gas used to determine aspects of variable pricing and (b) variation in volumes that may be delivered to the customer. Both sources of variability are expected to be resolved at or shortly before delivery of each unit of LNG or natural gas. As each unit of LNG or natural gas represents a separate performance obligation, future volumes are wholly unsatisfied.

(4) Accounting for Derivative Instruments and Hedging Activities

PSE employs various energy portfolio optimization strategies but is not in the business of assuming risk for the purpose of realizing speculative trading revenue. The nature of serving regulated electric customers with its portfolio of owned and contracted electric generation resources exposes PSE and its customers to some volumetric and commodity price risks within the sharing mechanism of the ~~power cost adjustment (PCA).~~Power Cost Adjustment. Therefore, wholesale market transactions and PSE's related hedging strategies are focused on reducing costs and risks where feasible, thus reducing volatility in costs in the portfolio. In order to manage its exposure to the variability in future cash flows for forecasted energy transactions, PSE utilizes a programmatic hedging strategy which extends out three years. PSE's hedging strategy includes a risk-responsive component for the core natural gas portfolio, which utilizes quantitative risk-based measures with defined objectives to balance both portfolio risk and

hedge costs.

PSE's energy risk portfolio management function monitors and manages these risks using analytical models and tools. In order to manage risks effectively, PSE enters into forward physical electric and natural gas purchase and sale agreements, fixed-for-floating swap contracts, and commodity call/put options. Currently, the Company does not apply cash flow hedge accounting and therefore records all mark-to-market gains or losses through earnings.

The Company manages its interest rate risk through the issuance of mostly fixed-rate debt with varied maturities. The Company utilizes internal cash from operations, borrowings under its commercial paper program and its credit facilities to meet short-term funding needs. The Company may enter into swap instruments or other financial hedge instruments to manage the interest rate risk associated with these debts.

The following table presents the volumes, fair values and classification of the Company's derivative instruments recorded on the balance sheets:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy											Puget Energy and Puget Sound Energy
		March 31, 2022					December 31, 2021						March 31, 2023					December 31, 2022
(Dollars in Thousands)	(Dollars in Thousands)	Volumes (millions)	Assets1		Liabilities2		Volumes	Assets1		Liabilities2		(Dollars in Thousands)	Volumes (millions)	Assets1		Liabilities2		Volumes (millions)	Assets1		Liabilities2
Electric portfolio derivatives	Electric portfolio derivatives	*	$	173,481	$	52,154	*	$	74,829	$	85,424	Electric portfolio derivatives	*	$	135,643	$	77,182	*	$	337,703	$	87,120
Natural gas derivatives (MMBtus)3	Natural gas derivatives (MMBtus)3	320	157,093		10,456		347	79,578		18,850		Natural gas derivatives (MMBtus)3	285	54,232		49,928		322	343,947		56,222
Total derivative contracts	Total derivative contracts		$	330,574	$	62,610		$	154,407	$	104,274	Total derivative contracts		$	189,875	$	127,110		$	681,650	$	143,342
Current	Current		$	293,884	$	40,237		$	128,210	$	63,309	Current		$	125,377	$	112,634		$	587,029	$	124,976
Long-term	Long-term		36,690		22,373			26,197		40,965		Long-term		64,498		14,476			94,621		18,366
Total derivative contracts	Total derivative contracts		$	330,574	$	62,610		$	154,407	$	104,274	Total derivative contracts		$	189,875	$	127,110		$	681,650	$	143,342

_______________

1 Balance sheet classification: Current and Long-term Unrealized gain on derivative instruments.

2 Balance sheet classification: Current and Long-term Unrealized loss on derivative instruments.

3 All fair value adjustments on derivatives relating to the natural gas business have been deferred in accordance with ASC 980, “Regulated Operations,” due to the ~~PGA~~purchased gas adjustment (PGA) mechanism. The net derivative asset or liability and offsetting regulatory liability or asset are related to contracts used to economically hedge the cost of physical gas purchased to serve natural gas customers.

* Electric portfolio derivatives consist of electric generation fuel of ~~231.2~~227.9 million British Thermal Units (MMBtu) and purchased electricity of

~~6.0~~ 3.9 million Megawatt ~~Hours~~hours (MWhs) at March 31, ~~2022,~~2023, and ~~238.0~~234.9 million MMBtus and ~~8.1~~5.3 million MWhs at December 31, ~~2021.~~2022.

It is the Company's policy to record all derivative transactions on a gross basis at the contract level without offsetting assets or liabilities. The Company generally enters into transactions using the following master agreements: WSPP, Inc. (WSPP) agreements, which standardize physical power contracts; International Swaps and Derivatives Association (ISDA) agreements, which standardize financial natural gas and electric contracts; and North American Energy Standards Board (NAESB) agreements, which standardize physical natural gas contracts. The Company believes that such agreements reduce credit risk exposure because such agreements provide for the netting and offsetting of monthly payments as well as the right of set-off in the event of counterparty default. The set-off provision can be used as a final settlement of accounts which extinguishes the mutual debts owed between the parties in exchange for a new net amount. For further details regarding the fair value of derivative instruments, see Note 5, "Fair Value Measurements," in the Combined Notes to ~~the consolidated financial statements~~Consolidated Financial Statements included in Item 1 of this report.

The following tables present the potential effect of netting arrangements, including rights of set-off associated with the Company's derivative assets and liabilities:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy													Puget Energy and Puget Sound Energy
		At March 31, 2022													At March 31, 2023
		Gross Amount Recognized in the Statement of Financial Position1		Gross Amounts Offset in the Statement of Financial Position		Net of Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position							Gross Amount Recognized in the Statement of Financial Position1		Gross Amounts Offset in the Statement of Financial Position		Net of Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
(Dollars in Thousands)	(Dollars in Thousands)							Commodity Contracts		Cash Collateral Received/Posted		Net Amount		(Dollars in Thousands)							Commodity Contracts		Cash Collateral Received/Posted		Net Amount
Assets:	Assets:													Assets:
Energy derivative contracts	Energy derivative contracts	$	330,574	$	—	$	330,574	$	(31,515)	$	—	$	299,059	Energy derivative contracts	$	189,875	$	—	$	189,875	$	(78,345)	$	—	$	111,530
Liabilities:	Liabilities:													Liabilities:
Energy derivative contracts	Energy derivative contracts	$	62,610	$	—	$	62,610	$	(31,515)	$	—	$	31,095	Energy derivative contracts	$	127,110	$	—	$	127,110	$	(78,345)	$	(976)	$	47,789


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy	At December 31, 2021												Puget Energy and Puget Sound Energy	At December 31, 2022
		Gross Amount Recognized in the Statement of Financial Position1		Gross Amounts Offset in the Statement of Financial Position		Net of Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position							Gross Amount Recognized in the Statement of Financial Position1		Gross Amounts Offset in the Statement of Financial Position		Net of Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position
(Dollars in Thousands)	(Dollars in Thousands)							Commodity Contracts		Cash Collateral Received/Posted		Net Amount		(Dollars in Thousands)							Commodity Contracts		Cash Collateral Received/Posted		Net Amount
Assets:	Assets:													Assets:
Energy derivative contracts	Energy derivative contracts	$	154,407	$	—	$	154,407	$	(40,833)	$	—	$	113,574	Energy derivative contracts	$	681,650	$	—	$	681,650	$	(125,334)	$	—	$	556,316
Liabilities:	Liabilities:													Liabilities:
Energy derivative contracts	Energy derivative contracts	$	104,274	$	—	$	104,274	$	(40,833)	$	(1,743)	$	61,698	Energy derivative contracts	$	143,342	$	—	$	143,342	$	(125,334)	$	(5,661)	$	12,347

_______________

1 All derivative contract deals are executed under ISDA, NAESB, and WSPP master agreements with right of set-off.

2120

The following table presents the effect and classification of the realized and unrealized gains (losses) of the Company's derivatives recorded on the statements of income:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy		Three Months Ended March 31,				Puget Energy and Puget Sound Energy		Three Months Ended March 31,
(Dollars in Thousands)	(Dollars in Thousands)	Classification	2022		2021		(Dollars in Thousands)	Classification	2023		2022
Gas for power derivatives:	Gas for power derivatives:						Gas for power derivatives:
Unrealized	Unrealized	Unrealized gain (loss) on derivative instruments, net	$	86,873	$	1,628	Unrealized	Unrealized gain (loss) on derivative instruments, net	$	(104,646)	$	86,873
Realized	Realized	Electric generation fuel	27,091		8,313		Realized	Electric generation fuel	88,267		27,091
Power derivatives:	Power derivatives:						Power derivatives:
Unrealized	Unrealized	Unrealized gain (loss) on derivative instruments, net	45,048		21,374		Unrealized	Unrealized gain (loss) on derivative instruments, net	(87,477)		45,048
Realized	Realized	Purchased electricity	2,591		(13,303)		Realized	Purchased electricity	51,017		2,591
Total gain (loss) recognized in income on derivatives	Total gain (loss) recognized in income on derivatives		$	161,603	$	18,012	Total gain (loss) recognized in income on derivatives		$	(52,839)	$	161,603

The Company is exposed to credit risk primarily through buying and selling electricity and natural gas to serve its customers. Credit risk is the potential loss resulting from a counterparty's non-performance under an agreement. The Company manages credit risk with policies and procedures for, among other things, counterparty credit analysis, exposure measurement, and exposure monitoring and mitigation.

The Company monitors counterparties for significant swings in credit default swap rates, credit rating changes by external rating agencies, ownership changes or financial distress. Where deemed appropriate, the Company may request collateral or other security from its counterparties to mitigate potential credit default losses. Criteria employed in this decision include, among other things, the perceived creditworthiness of the counterparty and the expected credit exposure.

It is possible that volatility in energy commodity prices could cause the Company to have material credit risk exposure with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, the Company could suffer a material financial loss. However, as of March 31, ~~2022,~~2023, approximately 99.4% of the Company's energy portfolio exposure, excluding normal purchase normal sale (NPNS) transactions, is with counterparties that are rated investment grade by rating agencies and 0.6% are either rated below investment grade or not rated by rating agencies. The Company assesses credit risk internally for counterparties that are not rated by the major rating agencies.

The Company computes credit reserves at a master agreement level by counterparty. The Company considers external credit ratings and market factors in the determination of reserves, such as credit default swaps and bond spreads. The Company recognizes that external ratings may not always reflect how a market participant perceives a counterparty's risk of default. The Company uses both default factors published by Standard & Poor's and factors derived through analysis of market risk, which reflect the application of an industry standard recovery rate. The Company selects a default factor by counterparty at an aggregate master agreement level based on a weighted average default tenor for that counterparty's deals. The default tenor is determined by weighting the fair value and contract tenors for all deals for each counterparty to derive an average value. The default factor used is dependent upon whether the counterparty is in a net asset or a net liability position after applying the master agreement levels.

The Company applies the counterparty's default factor to compute credit reserves for counterparties that are in a net asset position. The Company calculates a non-performance risk on its derivative liabilities by using its estimated incremental borrowing rate over the risk-free rate. Credit reserves are netted against the unrealized gain (loss) positions. The majority of the Company's derivative contracts are with financial institutions and other utilities operating within the Western Electricity Coordinating Council. PSE also transacts power futures contracts on the Intercontinental Exchange (ICE), and natural gas contracts on the ICE natural gas exchange (NGX) platform. Execution of contracts on ICE requires the daily posting of margin calls as collateral through a futures and clearing agent. As of March 31, ~~2022,~~2023, PSE had cash posted as collateral of ~~$6.1~~$6.3 million related to contracts executed on the ICE platform. ~~Also, as of March 31,~~In August 2022, PSE ~~had $17.0 million in cash posted as collateral and 0~~entered into a standby letter of credit ~~posted~~agreement with TD Bank allowing standby letter of credit postings of up to $50.0 million as a condition of transacting on the ICE NGX platform. As of March 31, 2023, PSE had no cash posted with ICE NGX and $6.0 million issued under the standby letter of credit agreement. PSE did not trigger any collateral requirements with any of its counterparties nor were any of PSE's counterparties required to post collateral resulting from credit rating downgrades during the three months ended March 31, ~~2022.~~2023.

2221

The following table presents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position and the amount of additional collateral the Company could be required to post:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy													Puget Energy and Puget Sound Energy
(Dollars in Thousands)	(Dollars in Thousands)	At March 31, 2022						At December 31, 2021						(Dollars in Thousands)	At March 31, 2023						At December 31, 2022
		Fair Value1		Posted		Contingent		Fair Value1		Posted		Contingent			Fair Value1		Posted		Contingent		Fair Value1		Posted		Contingent
Contingent Feature	Contingent Feature	Liability		Collateral		Collateral		Liability		Collateral		Collateral		Contingent Feature	Liability		Collateral		Collateral		Liability		Collateral		Collateral
Credit rating2	Credit rating2	$	23,484	$	—	$	23,484	$	52,537	$	—	$	52,537	Credit rating2	$	1,878	$	—	$	1,878	$	3,157	$	—	$	3,157
Requested credit for adequate assurance	Requested credit for adequate assurance	7,024		—		—		9,380		—		—		Requested credit for adequate assurance	28,717		—		—		4,157		—		—
Forward value of contract3	Forward value of contract3	—		—		N/A		1,743		12,782		N/A		Forward value of contract3	976		6,284		N/A		5,661		56,200		N/A
Total	Total	$	30,508	$	—	$	23,484	$	63,660	$	12,782	$	52,537	Total	$	31,571	$	6,284	$	1,878	$	12,975	$	56,200	$	3,157

_______________

1 Represents the derivative fair value of contracts with contingent features for counterparties in net derivative liability positions. Excludes NPNS, accounts

payable and accounts receivable.

2 Failure by PSE to maintain an investment grade credit rating from each of the major credit rating agencies provides counterparties a contractual right to

demand collateral.

3 Collateral requirements may vary based on changes in the forward value of underlying transactions relative to contractually defined collateral thresholds.

(5) Fair Value Measurements

ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy categorizes the inputs into three levels with the highest priority given to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority given to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Level 1 primarily consists of financial instruments such as exchange-traded derivatives and listed equities. Equity securities that are also classified as cash equivalents are considered Level 1 if there are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. Instruments in this category include non-exchange-traded derivatives such as over-the-counter forwards and options.

Level 3 - Pricing inputs include significant inputs that have little or no observability as of the reporting date. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value.

Financial assets and liabilities measured at fair value are classified in their entirety in the appropriate fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy. The Company primarily determines fair value measurements classified as Level 2 or Level 3 using a combination of the income and market valuation approaches. The process of determining the fair values is the responsibility of the derivative accounting department, which reports to the Controller and Principal Accounting Officer. Inputs used to estimate the fair value of forwards, swaps and options include market-price curves, contract terms and prices, credit-risk adjustments, and discount factors. Additionally, for options, the Black-Scholes option valuation model and implied market volatility curves are used. Inputs used to estimate fair value in industry-standard models are categorized as Level 2 inputs as substantially all assumptions and inputs are observable in active markets throughout the full term of the instruments. On a daily basis, the Company obtains quoted forward prices for the electric and natural gas markets from an independent external pricing service.

The Company considers its electric and natural gas contracts as Level 2 derivative instruments as such contracts are commonly traded as over-the-counter forwards with indirectly observable price quotes. However, certain energy derivative instruments with maturity dates falling outside the range of observable price quotes or that are transacted at illiquid delivery

2322

locations are classified as Level 3 in the fair value hierarchy. Management's assessment is based on the trading activity in real-time and forward electric and natural gas markets. Each quarter, the Company confirms the validity of pricing-service quoted prices used to value Level 2 commodity contracts with the actual prices of commodity contracts entered into during the most recent quarter. The Company’s environmental compliance obligation is categorized in Level 2 of the fair value hierarchy and is measured at fair value using a market approach based on quoted prices from an independent pricing service.

Assets and Liabilities with Estimated Fair Value

The carrying values of cash and cash equivalents, restricted cash, and short-term debt as reported on the balance sheet are reasonable estimates of their fair value due to the short-term nature of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value of other investments of ~~$53.4~~$47.2 million and ~~$53.2~~$55.0 million at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 respectively, are included in "Other property and investments" on the balance sheet. These values are also reasonable estimates of their fair value and classified as Level 2 in the fair value hierarchy as they are valued based on market rates for similar transactions.

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	Puget Energy		March 31, 2022				December 31, 2021				Puget Energy		March 31, 2023				December 31, 2022
(Dollars in Thousands)	(Dollars in Thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value		(Dollars in Thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Liabilities:	Liabilities:										Liabilities:
Long-term debt (fixed-rate), net of discount1	Long-term debt (fixed-rate), net of discount1	2	$	6,620,643	$	7,338,267	$	6,170,466	$	7,769,896	Long-term debt (fixed-rate), net of discount1	2	$	6,632,116	$	6,377,432	$	6,629,073	$	6,149,797
Long-term debt (variable-rate)	Long-term debt (variable-rate)	2	34,300		34,300		33,300		33,300		Long-term debt (variable-rate)	2	34,300		34,300		34,300		34,300
Total liabilities	Total liabilities		$	6,654,943	$	7,372,567	$	6,203,766	$	7,803,196	Total liabilities		$	6,666,416	$	6,411,732	$	6,663,373	$	6,184,097


Puget Sound Energy	Puget Sound Energy		March 31, 2022				December 31, 2021				Puget Sound Energy		March 31, 2023				December 31, 2022
(Dollars in Thousands)	(Dollars in Thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value		(Dollars in Thousands)	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Liabilities:	Liabilities:										Liabilities:
Long-term debt (fixed-rate), net of discount2	Long-term debt (fixed-rate), net of discount2	2	$	4,785,231	$	5,382,446	$	4,784,719	$	6,145,639	Long-term debt (fixed-rate), net of discount2	2	$	4,787,241	$	4,547,348	$	4,786,765	$	4,379,010
Total liabilities	Total liabilities		$	4,785,231	$	5,382,446	$	4,784,719	$	6,145,639	Total liabilities		$	4,787,241	$	4,547,348	$	4,786,765	$	4,379,010

_______________

1 The carrying value includes debt issuances costs of ~~$22.1~~$21.1 million and ~~$22.7~~$21.5 million for March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, which are not included in fair value.

2 The carrying value includes debt issuances costs of ~~$22.5~~$21.0 million and ~~$22.8~~$21.4 million for March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, which are not included in fair value.

2423

Assets and Liabilities Measured at Fair Value on a 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 March 31, 2022 Fair Value
At December 31, 2021
(Dollars in Thousands) Level 2 Level 3 Total Level 2 Level 3 Total
Assets:
Electric derivative instruments $ 160,220 $ 13,261 $ 173,481 $ 68,011 $ 6,818 $ 74,829
Natural gas derivative instruments 156,674 419 157,093 79,526 52 79,578
Total assets $ 316,894 $ 13,680 $ 330,574 $ 147,537 $ 6,870 $ 154,407
Liabilities:
Electric derivative instruments $ 32,883 $ 19,271 $ 52,154 $ 35,854 $ 49,570 $ 85,424
Natural gas derivative instruments 8,825 1,631 10,456 16,678 2,172 18,850
Total liabilities $ 41,708 $ 20,902 $ 62,610 $ 52,532 $ 51,742 $ 104,274


Puget Energy and Puget Sound Energy	Fair Value At March 31, 2023						Fair Value At December 31, 2022
(Dollars in Thousands)	Level 2		Level 3		Total		Level 2		Level 3		Total
Assets:
Electric derivative instruments	$	53,252	$	82,391	$	135,643	$	218,610	$	119,093	$	337,703
Natural gas derivative instruments	53,322		910		54,232		342,988		959		343,947
Total assets	$	106,574	$	83,301	$	189,875	$	561,598	$	120,052	$	681,650
Liabilities:
Electric derivative instruments	$	64,525	$	12,657	$	77,182	$	84,105	$	3,015	$	87,120
Natural gas derivative instruments	49,233		695		49,928		55,136		1,086		56,222
Compliance obligations	79,203		—		79,203		—		—		—
Total liabilities	$	192,961	$	13,352	$	206,313	$	139,241	$	4,101	$	143,342

The following ~~table presents~~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 March 31,
(Dollars in Thousands) 2022 2021
Level 3 Roll-Forward Net Asset/(Liability) Electric Natural Gas Total Electric Natural Gas Total
Balance at beginning of period $ (42,752) $ (2,120) $ (44,872) $ (23,718) $ (1,135) $ (24,853)
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings1
38,820 — 38,820 820 — 820
Included in regulatory assets / liabilities — 415 415 — (888) (888)
Settlements (2,254) 324 (1,930) 1,728 189 1,917
Transferred into Level 3 — — — — — —
Transferred out of Level 3 176 169 345 — — —
Balance at end of period $ (6,010) $ (1,212) $ (7,222) $ (21,170) $ (1,834) $ (23,004)


Puget Energy and Puget Sound Energy	Three Months Ended March 31,
(Dollars in Thousands)	2023						2022
Level 3 Roll-Forward Net Asset/(Liability)	Electric		Natural Gas		Total		Electric		Natural Gas		Total
Balance at beginning of period	$	116,078	$	(127)	$	115,951	$	(42,752)	$	(2,120)	$	(44,872)
Changes during period:
Realized and unrealized energy derivatives:
Included in earnings1	(18,766)		—		(18,766)		38,820		—		38,820
Included in regulatory assets / liabilities	—		(91)		(91)		—		415		415
Settlements	(27,795)		263		(27,532)		(2,254)		324		(1,930)
Transferred into Level 3	—		—		—		—		—		—
Transferred out of Level 3	217		170		387		176		169		345
Balance at end of period	$	69,734	$	215	$	69,949	$	(6,010)	$	(1,212)	$	(7,222)

_______________

1 Income Statement locations: Unrealized ~~(gain) loss~~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 ~~$38.6~~$(9.1) million and ~~$0.8~~$38.6 million for three months ended March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Realized gains and losses on energy derivatives for Level 3 recurring items are included in energy costs in the Company's consolidated statements of income under purchased electricity, electric generation fuel or purchased natural gas when settled. Unrealized gains and losses on energy derivatives for Level 3 recurring items are included in net unrealized (gain) loss on derivative instruments in the Company's consolidated statements of income.

The Company does not use internally developed models to make adjustments to significant unobservable pricing inputs. The only significant unobservable input into the fair value measurement of the Company's Level 3 assets and liabilities is the forward price for electric and natural gas contracts. The weighted average price is calculated as the total market value divided by the total volume of the Company's Level 3 electric and gas commodity contracts, respectively, as of the reporting date.

2524

The following table presents the forward price ranges for the Company's Level 3 commodity contracts as of March 31, ~~2022:~~2023:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy	Fair Value						Range						Puget Energy and Puget Sound Energy	Fair Value						Range
(Dollars in Thousands)	(Dollars in Thousands)	Assets1		Liabilities1		Valuation Technique	Unobservable Input	Low		High		Weighted Average		(Dollars in Thousands)	Assets1		Liabilities1		Valuation Technique	Unobservable Input	Low		High		Weighted Average
Electric	Electric	$	13,261	$	19,271	Discounted cash flow	Power prices (per MWh)	$	28.75	$	161.09	$	76.95	Electric	$	82,391	$	12,657	Discounted cash flow	Power prices (per MWh)	$	50.46	$	232.35	$	118.08
Natural gas	Natural gas	$	419	$	1,631	Discounted cash flow	Natural gas prices (per MMBtu)	$	3.99	$	6.44	$	5.55	Natural gas	$	910	$	695	Discounted cash flow	Natural gas prices (per MMBtu)	$	1.33	$	7.58	$	3.91

_______________

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, ~~2021:~~2022:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy	Fair Value						Range						Puget Energy and Puget Sound Energy	Fair Value						Range
(Dollars in Thousands)	(Dollars in Thousands)	Assets1		Liabilities1		Valuation Technique	Unobservable Input	Low		High		Weighted Average		(Dollars in Thousands)	Assets1		Liabilities1		Valuation Technique	Unobservable Input	Low		High		Weighted Average
Electric	Electric	$	6,818	$	49,570	Discounted cash flow	Power prices (per MWh)	$	21.88	$	119.38	$	61.51	Electric	$	119,093	$	3,015	Discounted cash flow	Power prices (per MWh)	$	55.79	$	291.03	$	131.51
Natural gas	Natural gas	$	52	$	2,172	Discounted cash flow	Natural gas prices (per MMBtu)	$	3.65	$	7.54	$	5.89	Natural gas	$	959	$	1,086	Discounted cash flow	Natural gas prices (per MMBtu)	$	3.84	$	7.00	$	4.87

___________

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

The significant unobservable inputs listed above would have a direct impact on the fair values of the above instruments if they were adjusted. Consequently, significant increases or decreases in the forward prices of electricity or natural gas in isolation would result in a significantly higher or lower fair value for Level 3 assets and liabilities. Generally, interrelationships exist between market prices of natural gas and power. As such, an increase in natural gas pricing would potentially have a similar impact on forward power markets. As of March 31, ~~2022,~~2023, and December 31, ~~2021,~~2022, a hypothetical 10% increase or decrease in market prices of natural gas and electricity would change the fair value of the Company's derivative portfolio, classified as Level 3 within the fair value hierarchy, by ~~$20.3~~$29.0 million and ~~$17.9~~$37.6 million, respectively.

Long-Lived Assets Measured at Fair Value on a Nonrecurring Basis

Puget Energy records the fair value of its intangible assets in accordance with ASC 360, “Property, Plant, and Equipment,” (ASC 360). The fair value assigned to the power contracts was determined using an income approach comparing the contract rate to the market rate for power over the remaining period of the contracts incorporating non-performance risk. Management also incorporated certain assumptions related to quantities and market presentation that it believes market participants would make in the valuation. The fair value of the power contracts is amortized as the contracts settle.

ASC 360 requires long-lived assets to be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. One such triggering event is a significant decrease in the forward market prices of power.

As of March 31, ~~2022,~~2023, Puget Energy completed valuation and impairment testing of its power purchase contracts classified as intangible assets and determined that no impairment was needed. These intangible assets exist as a result of the merger in 2009, at which time the consolidated assets and liabilities were revalued in accordance with ASC 805, "Business Combinations."

(6) Retirement Benefits

PSE has a defined benefit pension plan (Qualified Pension Benefits) covering a substantial majority of PSE employees. For employees hired prior to 2014, pension benefits earned are a function of age, salary, years of service and, in the case of employees in the cash balance formula plan, the applicable annual interest crediting rates. Effective January 1, 2014, all new

UA represented employees hired or rehired receive annual pay credits of 4.0% of eligible pay each year in the cash balance formula of the defined pension plan. Effective January 1, 2014 for non-represented employees, and December 12, 2014 for employees represented by the IBEW, newly hired or rehired employees receive annual employer contributions of 4.0% of eligible pay each year into the cash balance formula of the defined benefit pension or 401k plan account. PSE also has a non-qualified Supplemental Executive Retirement Plan (SERP) for certain key senior management employees that closed to new participants in 2019. Effective 2019, PSE has an officer restoration benefit for new officers who join PSE or are promoted, such that company contributions under PSE’s applicable tax-qualified plan, which otherwise would have been credited if not for the IRS limitations, are credited at 4.0% of earnings to an account with the Deferred Compensation ~~Plan~~Plan.

In addition to providing pension benefits, PSE provides legacy group health care and life insurance benefits (Plan) for certain retired employees. These benefits are provided principally through an insurance company. The insurance premiums, paid primarily by retirees, are based on the benefits provided during the prior year. On June 11, 2019, the Company's Welfare Benefits Committee approved the termination of the Plan effective December 31, 2019, and the creation of a Retiree Health Reimbursement Account (HRA) Plan effective January 1, 2020.

Puget Energy's retirement plans were remeasured as a result of the merger in 2009, which represents the difference between Puget Energy and PSE's retirement plans. The components of service cost are included within utility operations and maintenance for PSE and within non-utility expense and other for Puget Energy while all non-service cost components are included in other income.

For further information, see Note 13, "Retirement Benefits" in the Combined Notes to ~~the consolidated financial statements~~Consolidated Financial Statements included in Item 8 of the Company's Form 10-K for the period ended December 31, ~~2021.~~

2022.

The following tables summarize the Company’s net periodic benefit cost for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


Puget Energy	Puget Energy	Qualified Pension Benefits				SERP Pension Benefits				Other Benefits				Puget Energy	Qualified Pension Benefits				SERP Pension Benefits				Other Benefits
		Three Months Ended March 31,													Three Months Ended March 31,
(Dollars in Thousands)	(Dollars in Thousands)	2022		2021		2022		2021		2022		2021		(Dollars in Thousands)	2023		2022		2023		2022		2023		2022
Components of net periodic benefit cost:	Components of net periodic benefit cost:													Components of net periodic benefit cost:
Service cost	Service cost	$	6,797	$	6,711	$	139	$	115	$	55	$	41	Service cost	$	4,632	$	6,797	$	71	$	139	$	47	$	55
Interest cost	Interest cost	6,087		5,578		313		293		81		77		Interest cost	7,929		6,087		424		313		115		81
Expected return on plan assets	Expected return on plan assets	(12,777)		(12,081)		—		—		(99)		(91)		Expected return on plan assets	(12,652)		(12,777)		—		—		(79)		(99)
Amortization of prior service cost	Amortization of prior service cost	—		(476)		72		87		6		2		Amortization of prior service cost	—		—		73		72		7		6
Amortization of net loss (gain)	Amortization of net loss (gain)	1,628		2,830		618		587		(4)		(10)		Amortization of net loss (gain)	(862)		1,628		—		618		(51)		(4)
Net periodic benefit cost	Net periodic benefit cost	$	1,735	$	2,562	$	1,142	$	1,082	$	39	$	19	Net periodic benefit cost	$	(953)	$	1,735	$	568	$	1,142	$	39	$	39


Puget Sound Energy	Qualified Pension Benefits				SERP Pension Benefits				Other Benefits

	Three Months Ended March 31,
(Dollars in Thousands)	2023		2022		2023		2022		2023		2022
Components of net periodic benefit cost:
Service cost	$	4,632	$	6,797	$	71	$	139	$	47	$	55
Interest cost	7,929		6,087		424		313		115		81
Expected return on plan assets	(12,652)		(12,777)		—		—		(79)		(99)
Amortization of prior service cost	—		—		73		72		7		6
Amortization of net loss (gain)	—		3,806		22		663		(54)		(6)
Net periodic benefit cost	$	(91)	$	3,913	$	590	$	1,187	$	36	$	37

2726

Puget Sound Energy Qualified
Pension Benefits SERP
Pension Benefits Other
Benefits
Three Months Ended March 31,
(Dollars in Thousands) 2022 2021 2022 2021 2022 2021
Components of net periodic benefit cost:
Service cost $ 6,797 $ 6,711 $ 139 $ 115 $ 55 $ 41
Interest cost 6,087 5,578 313 293 81 77
Expected return on plan assets (12,777) (12,081) — — (99) (91)
Amortization of prior service cost — (378) 72 87 6 2
Amortization of net loss (gain) 3,806 5,311 663 635 (6) (15)
Net periodic benefit cost $ 3,913 $ 5,141 $ 1,187 $ 1,130 $ 37 $ 14

The following table summarizes the Company’s change in benefit obligation for the periods ended March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy	Qualified Pension Benefits				SERP Pension Benefits				Other Benefits				Puget Energy and Puget Sound Energy	Qualified Pension Benefits				SERP Pension Benefits				Other Benefits
		Three Months Ended		Year Ended		Three Months Ended		Year Ended		Three Months Ended		Year Ended			Three Months Ended		Year Ended		Three Months Ended		Year Ended		Three Months Ended		Year Ended
(Dollars in Thousands)	(Dollars in Thousands)	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021		(Dollars in Thousands)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Change in benefit obligation:	Change in benefit obligation:													Change in benefit obligation:
Benefit obligation at beginning of period	Benefit obligation at beginning of period	$	834,960	$	849,383	$	43,155	$	46,742	$	11,654	$	12,114	Benefit obligation at beginning of period	$	589,278	$	834,960	$	32,046	$	43,155	$	9,015	$	11,654
Amendments	Amendments	—		—		—		—		—		205		Amendments	—		—		—		—		—		38
Service cost	Service cost	6,797		26,888		139		456		55		155		Service cost	4,632		26,351		71		557		47		217
Interest cost	Interest cost	6,087		22,381		313		1,183		81		302		Interest cost	7,929		24,263		424		1,253		115		311

Actuarial loss (gain)	Actuarial loss (gain)	—		(6,826)		—		828		—		(514)		Actuarial loss (gain)	—		(215,005)		—		(5,260)		—		(2,397)
Benefits paid	Benefits paid	(11,723)		(55,831)		(494)		(6,054)		(227)		(803)		Benefits paid	(11,625)		(80,226)		(485)		(7,659)		(438)		(808)
Medicare part D subsidy received		—		—		—		—		—		195

Administrative Expense	Administrative Expense	—		(1,035)		—		—		—		—		Administrative Expense	—		(1,065)		—		—		—		—
Benefit obligation at end of period	Benefit obligation at end of period	$	836,121	$	834,960	$	43,113	$	43,155	$	11,563	$	11,654	Benefit obligation at end of period	$	590,214	$	589,278	$	32,056	$	32,046	$	8,739	$	9,015

The aggregate expected contributions by the Company to fund the qualified pension plan, SERP and the other postretirement plans for the year ending December 31, ~~2022,~~2023, are expected to be at least $18.0 million, ~~$2.8~~$3.5 million and $0.3 million, respectively. The Company contributed $0.5 million to fund the SERP during each of the three months ended March 31, ~~2022~~2023 and ~~2021.~~the three months ended March 31, 2022. The Company contributed an immaterial amount to fund the other postretirement plans.

(7) Regulation and Rates

General Rate Case

~~PSE filed a~~On December 22, 2022, the Washington Commission issued an order on PSE’s 2022 general rate case (GRC), which ~~includes a three year multiyear rate plan with the Washington Commission~~was filed on January 31, 2022 ~~requesting an overall increase~~that approved a weighted cost of capital of 7.16%, or 6.62% after-tax, a capital structure of 49.0% in ~~electric~~common equity in 2023 and ~~natural gas rates of 13.6%~~2024, and ~~13.0% respectively in 2023; 2.5% and 2.3%, respectively in 2024; and 1.2% and 1.8%, respectively, in 2025. PSE requested~~ a return on equity of 9.9% in all three rate years. PSE requested an overall rate of return of 7.39% in 2023; 7.44% in 2024; and 7.49% in 2025. The filing requests recovery of forecasted plant additions through 2022 as required by Revised Code of Washington (RCW) 80.28.425 as well as forecasted plant additions through 2025, the final year of the multiyear rate plan. The Washington Commission issued a procedural schedule and the case is pending. The Company cannot predict the outcome of the case at this time.

~~PSE filed a GRC with~~9.4%. On January 6, 2023, the Washington Commission ~~on June 20, 2019 requesting an overall increase in electric and~~approved PSE’s natural gas rates in its compliance filing with an overall net revenue change of ~~6.9%~~$70.8 million or 6.4% in 2023 and ~~7.9% respectively.~~$19.5 million or 1.7% in 2024, with an effective date of January 7, 2023. On ~~July 8, 2020,~~January 10, 2023, the Washington Commission ~~issued~~approved PSE’s electric rates in its ~~order on PSE’s GRC. The ruling provided for~~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, power cost only rate case (PCORC) rates were set to zero as of January 11, 2023 and PSE agreed not to file a PCORC during 2023 and 2024, 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~~and a return on equity of 9.4%. The order also resulted in a combined net increase to electric of $29.5 million, or 1.6%, and to natural gas of $36.5 million, or 4.0%. However, the Washington Commission extended the amortization of certain regulatory assets, PSE’s electric decoupling deferral, and PSE’s PGA deferral to mitigate the impact of theannualized overall rate ~~increase in response to the economic instability created by the COVID-19 pandemic. This reduced the~~impacts were an electric revenue increase ~~to approximately $0.9 million, or 0.05%, and the natural gas increase to $1.3 million, or 0.15%, and became effective October 15, 2020 and October 1, 2020, respectively.~~

On July 30, 2021, the IRS issued a Private Letter Ruling (PLR) to PSE which concluded that in the 2019 GRC the Washington Commission’s methodology for reversing plant-related excess deferred income taxes was an impermissible methodology under the IRS normalization and consistency rules. The PLR required adjustments to PSE's rates to bring PSE back into compliance with IRS rules. Accordingly, on September 28, 2021, the Washington Commission issued an order amending their order previously issued on July 8, 2020, to correct for items which were determined to be impermissible under IRS normalization and consistency rules as detailed in the PLR. To reflect the impact of the PLR, PSE recorded a regulatory asset and additional revenues of $24.5 million in its operating results through December 31, 2021. The annualized overall rate impact is an increase of $15.8 million, or 0.7%, for electric and $3.1 million, or 0.3%, for natural gas for a total of $18.9 million with rates effective October 1, 2021. This led to a combined annualized net increase to electric rates of $77.1 million, or 3.7%, an increase of $17.5 million above the $59.6 million granted in the revised final order. The order also led to a combined annualized net increase to natural gas rates of $45.3 million, or 5.9%, an increase of $2.4 million above the $42.9 million granted in the revised final order. The Washington Commission maintained adjustments that mitigated the impacts of the rate increases in response to the economic instability created by the COVID-19 pandemic, which reduced the electric revenue increase to approximately $48.3 million, or 2.3%, and ~~the~~a natural gas increase toof $4.9 million, or 0.6%., effective October 1, 2021. For further information, see Note 4, "Regulation and Rates" in the Combined Notes to Consolidated Financial Statements included in Item 8 of the Company's Form 10-K for the period ended December 31, 2022.

~~Power Cost Only Rate Case~~Climate Commitment Act Deferral

On December ~~9, 2020,~~29, 2022, PSE filed its 2020 power cost only rate case (PCORC). The filing proposed an increase of $78.5 million (or an average of approximately 3.7%) in the Company's overall power supply costs with an anticipated effective date in June 2021. On February 2, 2021, PSE supplemented the PCORC to update its power costs, leading to a requested increase from $78.5 million to $88.0 million (or an average of approximately 4.1%).

~~Decoupling Filings~~

Washington (RCW) 70A.65. On ~~July 8, 2020,~~February 28, 2023, in Order 01 under Docket No. UE-220974 and UG-220975, the Washington Commission ~~issued~~granted PSE approval to defer the ~~final~~cost of carbon allowances to comply with the CCA and the proceeds from no-cost allowances consigned to auction beginning January 1, 2023. This accounting treatment is necessary in order ~~in Dockets UE-190529 and UG-190530, which instructed~~for PSE to ~~extend the collection~~defer and seek recovery of amortization balances for electric decoupling delivery and fixed power cost sections originally filed through the annual May 2020 decoupling filing. The extension requires PSE to move amortization balances for electric decoupling asCCA costs that are not currently included in rates. As of ~~August~~March 31, 2020 to be collected from customers for a two-year period, instead of the originally approved one-year period. Additionally, through approving the electric cost of service, the final order approved the re-allocation of decoupling balances from Schedule 40 to the remaining electric decoupling groups.

2927

~~On December 23, 2020, the Washington Commission approved PSE’s filing to update Schedule 142 decoupling amortization rates, with an effective date~~2023, PSE deferred $83.3 million and $11.3 million of January 1, 2021, by zeroing out rates still effective past October 15, 2020 on tariff sheet Schedule 142-H, which was replaced by rates on tariff sheet Schedule 142-I effective October 15, 2020. PSE included a true up of the over-collection amountsCCA compliance costs for ~~the period of October 15, 2020 through December 31, 2020 in PSE’s annual May 2021 decoupling filing.~~natural gas and electric liabilities, respectively.

Revenue Decoupling Adjustment Mechanism

On June 1, 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. The changes~~requirement and took effect on July 1, 2021.

On September 28, 2021, the Washington Commission approved the 2019 GRC ~~filing updated to PLR changes.~~filing. As part of this filing, the annual electric and 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 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 March 31, ~~2022,~~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 corresponding 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. ~~The analysis indicated that electric and natural gas deferred revenue will be collected within 24 months of~~Based on the ~~annual period; therefore,~~analyses, no reserve adjustment was ~~booked to 2022 electric or natural gas decoupling revenue. At~~recorded as of March 31, 2021, the analysis estimated $0.9 million of electric deferred revenue not to be collected within 24 months of the annual period in 2021; therefore, a reserve adjustment was booked to 2021 electric decoupling revenue. At March 31, 2021, natural gas deferred revenue was estimated to be collected within 24 months of the annual period in 2021; therefore, no reserve adjustment was booked to 2021 natural gas decoupling revenue.2023 and 2022.

Power Cost Adjustment Mechanism

PSE currently has a ~~PCA~~power cost adjustment (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 by up to $17 million 100 % 100 % — % — %
Over or Under Collected by between $17 million - $40 million 35 50

65 50
Over or Under Collected beyond $40 + million 10 10

90 90


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

For the three months ended March 31, ~~2022,~~2023, in its PCA mechanism, PSE ~~under~~over recovered its allowable costs by ~~$10.6~~$12.9 million of which zero was apportioned to customers and ~~$0.3~~$1.1 million of interest was accrued on the deferred customer balance. This compares to an under recovery of allowable costs of ~~$11.4~~$10.6 million for the three months ended March 31, ~~2021,~~2022, of which zero was apportioned to customers and accrued $0.3 million of interest on the total deferred customer balance.

Power Cost Adjustment Clause ~~Filing~~

On July 8, 2020, the Washington Commission issued the final order in Dockets UE-190529 and UG-190530, which instructed PSE to remove Schedule 95 collection on decoupling allowed rates for Microsoft Special Contracts, which will be included in allowed rates under the Decoupling Schedule 142 effective October 15, 2020.

PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in ~~2020. The surcharging of deferrals can be triggered by the Company when the balance in the deferral account is a credit of $20.0 million or more.~~2022. During ~~2020,~~2022, actual power costs were higher than baseline power ~~costs;~~costs, thereby, creating an under-recovery of ~~$76.1~~$110.1 million. Under the terms of the PCA’s sharing mechanism for under-recovered power costs, PSE absorbed ~~$32.1~~$35.5 million of the under-recovered amount, and customers were responsible for the remaining ~~$44.0~~$74.6 million, or ~~$46.0~~$76.1 million including interest. On April 28, 2023, PSE filed the 2022 PCA report with the Washington Commission and proposed to recover the 2022 deferred balance ~~in Docket UE-210300, and the Washington Commission allowed the recovery effective~~from December 1, ~~2021.~~2023 through December 31, 2024.

~~Additionally,~~ PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2021. During 2021, actual power costs were higher than baseline power ~~costs;~~costs, thereby, creating an under-recovery of $68.0 million. Under the terms of the PCA’s sharing mechanism for under-recovered power costs, 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. On ~~April 30,~~October 27, 2022, ~~PSE filed a~~the Washington Commission approved PSE's 2021 PCA report ~~with the Washington Commission~~ that ~~proposes~~proposed to recover the deferred balance for the 2021 PCA period by keeping the current rates and allowing recovery from January 1, 2023 through November 30, 2023.

Purchased Gas Adjustment Mechanism

On October 28, 2021, the Washington Commission approved PSE's request for ~~November 2021~~ PGA rates in Docket UG-210721, effective November 1, 2021. As part of that filing, PSE requested an annual revenue increase of $59.1 ~~million;~~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 will be 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.

On October 27, 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.

On November 15, 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.

The following table presents the PGA mechanism balances and activity at March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:

Puget Sound Energy
(Dollars in Thousands) At March 31, At December 31,
PGA receivable balance and activity 2022 2021
PGA receivable beginning balance $ 57,935 $ 87,655
Actual natural gas costs 161,647 364,775
Allowed PGA recovery (175,930) (396,236)
Interest 368 1,741
PGA receivable ending balance $ 44,020 $ 57,935

~~Get to Zero Depreciation Deferral~~

On April 10, 2019, PSE filed an accounting petition with the Washington Commission, requesting authorization to defer depreciation expense associated with Get to Zero (GTZ) projects that were placed in service after June 30, 2018. The GTZ project consists of a number of short-lived technology upgrades. The depreciation expense associated with the GTZ projects with lives of 10 years or less that were placed in service after June 30, 2018, were deferred beginning May 1 per the petition request. At March 31, 2022 and December 31, 2021, PSE deferred $7.9 million and $6.6 million of depreciation expense for GTZ, respectively. In addition to the deferral of depreciation expense, PSE had also requested to defer carrying charges on the GTZ deferral, to be calculated utilizing the Company’s currently authorized after tax rate of return, or 6.89%. The ruling authorized PSE to amortize deferred GTZ expenses as proposed in the original GRC filing. The ruling also allows continued deferral of the depreciation expense associated with GTZ investments not already approved for recovery with a book life of 10 years or less, through PSE's then-next GRC, which PSE filed on January 31, 2022, and is currently pending. Finally, the final order set the rate at which PSE could defer and recover carrying charges from PSE’s authorized rate of return to the quarterly interest rate established by the FERC.

~~Crisis Affected Customer Assistance Program~~

On April 6, 2020, PSE filed CACAP-1 (dockets UE-200331 and UG-200332) with the Washington Commission revisions to its currently effective electric and natural gas service tariffs. The purpose of this filing was to incorporate into PSE’s low-income tariff a new temporary bill assistance program, Crisis Affected Customer Assistance Program (CACAP), to mitigate the economic impact of the COVID-19 pandemic on PSE’s customers. CACAP would allow PSE customers facing financial hardship due to COVID-19 to receive up to $1,000 in bill assistance. The program made available $11.0 million in unspent low income funds from prior years, therefore resulting in no rate impact, and supplemented other forms of financial assistance. CACAP-1 ran from April 13, 2020, to September 30, 2020.

On March 28, 2021, the Washington Commission approved PSE’s CACAP-2 (dockets UE-210137 and UG-210138), effective April 12, 2021. With a program budget of $20.0 million for electric customers and $7.7 million for natural gas customers, CACAP-2 would provide up to $2,500 in bill assistance in arrearages per year for each qualifying low-income household. PSE stopped taking new applications for the COVID-19 Bill Assistance Program at 7:00 AM Pacific Standard Time on March 29, 2022. Estimates indicated that the electric funds would be exhausted once the current applications are completed.

~~On October 15, 2021, PSE submitted for the Washington Commission’s review and approval a Supplemental CACAP~~(dockets UE-210792 and UG-210793) filing to continue assistance for PSE customers facing financial hardship due to COVID-19. The Washington Commission approved the Supplemental CACAP program to be effective on November 15, 2021. The Supplemental CACAP would utilize carry-over funds not expended in any prior years under PSE’s Schedule 129 Home Energy Lifeline Program (HELP). With a combined total budget of $34.5 million for both electric and natural gas residential customers (capped at $23.7 million and $10.8 million, respectively). Supplemental CACAP benefits would cover a qualifying residential customer’s past due balance, up to $2,500. PSE applied the Supplemental CACAP benefits automatically, with an opt-out option, in December 2021. Supplemental CACAP will be administered until funds are exhausted.


Puget Energy and Puget Sound Energy
(Dollars in Thousands)	At March 31,		At December 31,
PGA (liability)/receivable balance and activity	2023		2022
PGA (liability)/receivable beginning balance	$	(3,536)	$	57,935
Actual natural gas costs	138,178		457,950
Allowed PGA recovery	(234,372)		(496,879)
Interest	(348)		1,674
Refund/interest from counterparty settlement	(2,836)		(24,216)
PGA (liability)/receivable ending balance	$	(102,914)	$	(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 three months ended March 31, ~~2022,~~2023, PSE incurred ~~$2.2~~$6.1 million in weather-related electric transmission and distribution system restoration costs related to 2023 and 2022 storms, of which the company deferred zero and ~~$0.1~~$2.3 million ~~was deferred~~ as regulatory assets related to storms that occurred in ~~2022~~2023 and ~~2021,~~2022, respectively. This compares to ~~$23.3~~$2.2 million incurred in weather-related electric transmission and distribution system restoration costs for the three months ended March 31, ~~2021,~~2022, of which the Company deferred ~~$12.9 million~~zero and ~~$0.2~~$0.1 million as regulatory assets related to storms that occurred in ~~2021~~2022 and ~~2020,~~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.

(8) Commitments and Contingencies

Legal Matters

Washington Climate Commitment Act

In 2021, the Washington Legislature adopted the CCA, which establishes a GHG emissions cap-and-invest program that caps GHG emissions beginning on January 1, 2023 and makes further reductions to the cap annually through 2050. The Washington Department of Ecology (WDOE) published final regulations to implement the program on September 29, 2022,

which became effective on October 30, 2022. WDOE also indicated that they will have subsequent rulemakings that will build off initial rulemaking as program implementation gets underway and progress with Washington State carbon goals are evaluated. One component of the CCA rules stipulates the WDOE shall provide electric utilities, such as PSE, with no-cost allowances based on the cost burden of the program to electric customers. As of the date of this report, Management’s interpretation of the methodology in determining the no-cost allowance amount provided to electric utilities differs from the WDOE’s. Although the Company is actively engaged in discussions with WDOE and other stakeholders with respect to the rulemaking process and believes that further changes in the interpretation of methodologies could be forthcoming, as of the date of this disclosure it is reasonably possible that the Company did not accrue sufficient compliance obligation based upon receiving less no-cost allowances from the WDOE due to the difference in interpretation of the methodology. The Company estimates the reasonably possible loss is up to $45.7 million depending on whether additional no-cost allowances are received. Any change in compliance costs as a result of such estimated losses would increase the electric deferred CCA compliance costs consistent with Docket No. UE-220974.

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 carbon allowances to comply with the CCA and the proceeds from no-cost allowances consigned to auction beginning January 1, 2023. This accounting treatment is necessary in order for PSE to defer and seek recovery of CCA costs that are not currently included in rates.

Additional risks associated with CCA compliance include: the evolving nature of the CCA rulemaking as indicated by WDOE, market uncertainty based on rule interpretation during implementation, unresolved recovery methodology for CCA’s impact on energy costs, company costs, customer rate impacts, and cash, liquidity and credit volatility. Such risks associated with the CCA are evaluated by Management for potential impacts to the estimated liability to comply with the program as well as the likelihood that may make a loss contingency both probable and reasonably estimable. Management’s assessment to determine whether a loss is probable or reasonably possible and to whether a loss or range of losses is estimable often involves judgement.

Colstrip

PSE has a 50% ownership interest in Colstrip Units 1 and 2 and a 25% interest in each of Colstrip Units 3 and 4, which are coal-fired generating units located in Colstrip, Montana. PSE has accelerated the depreciation of Colstrip Units 3 and 4 ~~per the terms of the 2017 GRC settlement, to December 31, 2027, which was subsequently updated~~ to December 31, 2025 as part of the 2019 GRC. The 2017 GRC ~~also~~ repurposed PTCs and hydro-related treasury grants to recover unrecovered plant costs and to fund and recover decommissioning and remediation costs for Colstrip Units 1 through 4. On September 2, 2022, PSE and Talen Energy reached an agreement to transfer PSE's ownership interest in Colstrip Units 3 and 4 to Talen Energy on December 31, 2025. Management evaluated Colstrip Units 3 and 4 and determined that the applicable held for sale accounting criteria were not met as of March 31, 2023 and December 31, 2022. As such, Colstrip Units 3 and 4 are classified as electric utility plant on the Company's balance sheet as of March 31, 2023 and December 31, 2022.

Consistent with a June 2019 announcement, Talen permanently shut down Units 1 and 2 at the end of 2019 due to operational losses associated with the Units. Colstrip Units 1 and 2 were retired effective December 31, 2019. The Washington Clean Energy Transformation Act requires the Washington Commission to provide recovery of the investment, decommissioning, and remediation costs associated with the facilities that are not recovered through the repurposed PTCs and hydro-related treasury grants. The full scope of decommissioning activities and costs may vary from the estimates that are available at this time.

On May 19, 2021, PSE along with the Colstrip owners, Avista Corporation, PacifiCorp and Portland General Electric Company, filed a lawsuit against the Montana Attorney General challenging the constitutionality of Montana Senate Bill 266. On ~~October 13, 2021,~~September 28, 2022, the ~~United States~~magistrate judge in the District Court ~~for the District of Montana~~proceeding issued a ~~preliminary~~recommendation to the presiding U.S. District Court Judge that a permanent injunction ~~finding it likely that~~against enforcement of Senate Bill 266 ~~unconstitutionally violates~~be granted. In October 2022, the ~~Commerce Clause and Contract Clause of~~U.S. District Court Judge accepted in full the ~~United States Constitution. Since then, a motion~~magistrate judge's recommendation for ~~summary judgment was filed requesting~~ a permanent injunction against enforcement of Senate Bill 266. AsThe Court entered judgment and a permanent injunction in favor of ~~March 31, 2022,~~PSE and the ~~Company is not able to predict the outcome, nor an amount or range~~Colstrip owners on November 15, 2022. No party filed a notice of ~~potential impact in the event of an outcome that is adverse to the Company’s interests.~~appeal.

Other Commitments and Contingencies

~~There have been no material changes~~In addition to the contractual obligations and consolidated commercial commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, during the three months ended March 31, 2023, the Company entered into new Electric Portfolio and Electric Wholesale Market Transaction contracts with estimated payment obligations totaling $3.3 billion through 2051.

For further information, see Part II, Item 8, Note 16, "Commitments and Contingencies" toin the ~~consolidated financial statements included in Item 8 of the Company's~~Company’s Annual Report on Form 10-K for the ~~period~~year ended December 31, ~~2021.~~2022.

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(9) Leases

As of March 31, ~~2022,~~2023, there have been no material changes regarding the Company's leases. For further information, see Part II, Item 8, Note 9, "Leases" in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

(10) Other

Long-Term Debt

On June 14, 2021, Puget Energy issued $500.0 million of senior secured notes at an interest rate of 2.379%. The notes were issued for a period of 7 years, mature on June 15, 2028, and pay interest semi-annually on June 15 and December 15. Proceeds from the issuance of the notes were invested in short-term money market funds, and then used to repay the Company’s $500.0 million 6.00% notes that matured on September 1, 2021.

On June 23, 2021, Puget Energy received an equity contribution from Puget Equico, LLC, Puget Energy’s parent company. The proceeds from the equity contribution were used to pay off Puget Energy’s $210.0 million term loan.

On September 15, 2021, PSE issued $450.0 million of senior secured notes at an interest rate of 2.893%. The notes were issued for a period of 30 years, mature on September 15, 2051, and pay interest semi-annually on March 15 and September 15~~of each year. The proceeds from the issuance will be used for repayment of commercial paper as well as general corporate purposes.~~

On March 17, 2022, Puget Energy issued $450.0 million of senior secured notes at an interest rate of 4.224%. The notes ~~were issued for a period of 10 years,~~ mature on March 15, 2032, and pay interest semi-annually on March 15 and September 15 of each year. ~~The proceeds~~Proceeds from the issuance of the notes were invested in short-term money market funds, and then used ~~for repayment of~~to repay Puget ~~Energy~~Energy's $450.0 million 5.625% notes that were originally scheduled to mature in July ~~2022 and for general corporate purposes.~~2022.

On April 28, 2022, Puget Energy redeemed the $450.0 million 5.625% senior secured notes due July 2022 and paid related expenses for a total redemption price of $457.2 million, which includes repayment of the $450.0 million principal amount and $7.2 million of accrued interest expense.

Short-Term Debt

As of March 31, 2023, $137.0 million was outstanding under the commercial paper program at PSE. For further information, see Part II, Item 8, Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Credit Facilities

On May 16, 2022, Puget Energy ~~maintained~~entered into an $800.0 million credit facility to replace the existing facility. The terms and conditions, including fees, financial covenant, expansion feature and credit spreads remain substantially the same. The base interest rate on loans has changed to the Secured Overnight Financing Rate (SOFR), as the LIBOR is being discontinued in 2023. The proceeds of ~~which $34.3~~the Puget Energy credit facility are to be used for general corporate purposes. The maturity date of the credit facility is May 14, 2027. As of March 31, 2023, $135.0 million was drawn and outstanding under the facility, of which $34.3 million was classified as long-term debt and $100.7 million was classified as short-term debt.

On May 16, 2022, PSE entered into an $800.0 million credit facility to replace the existing facility. The terms and conditions, including fees, financial covenant, expansion feature and credit spreads remain substantially the same. The base interest rate on loans has changed to the SOFR, as the LIBOR is being discontinued in 2023. The proceeds of the PSE credit facility are to be used for general corporate purposes. The maturity date of the credit facility is May 14, 2027. As of March 31, 2023, no amount was drawn under PSE's credit facility.

On September 26, 2022, Puget Energy borrowed $50.0 million on the credit facility and contributed the proceeds to PSE as an equity contribution. The equity proceeds will be used for general corporate purposes.

For further information, see Part II, Item 8, Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's ~~most recent~~ Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

~~Short-Term Debt~~

As of March 31, 2022, no amount was drawn under PSE's credit facility and $69.8 million was outstanding under the commercial paper program at PSE. For further information, see Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2021.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to promote understanding of the results of operations and financial condition, is provided as a supplement to, and should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report on Form 10-Q. This section generally discusses the results of operations and changes in financial condition for the period ended March 31, ~~2022~~2023 compared to ~~2021.~~2022. For discussion related to the results of operations and changes in financial condition for the period ended March 31, ~~2021~~2022 compared to ~~2020~~2021 refer to Part ~~II,~~I, Item 7,2, Management's Discussion and Analysis of Financial Condition and Results of Operations in our period ended March 31, ~~2021,~~2022, Form 10-Q, which was filed with the United States Securities and Exchange commission (SEC). The discussion contains forward-looking statements that involve risks and uncertainties, such as Puget Energy, Inc. (Puget Energy) and Puget Sound Energy, Inc. (PSE) objectives, expectations and intentions. Words or phrases such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “future,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “should,” “will likely result,” “will continue” and similar expressions are intended to identify certain of these forward-looking statements. However, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Puget Energy's and PSE's actual results could differ materially from results that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Forward-Looking Statements” included elsewhere in this report and in the section entitled "Risk Factors" included in Part I, Item 1A in Puget Energy's and ~~Puget Sound Energy's~~PSE's Form 10-K for the period ended December 31, ~~2021.~~2022. Except as required by law, neither Puget Energy nor PSE undertakes any obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in Puget Energy's and PSE's other reports filed with the ~~U.S. Securities and Exchange Commission (SEC)~~SEC that attempt to advise interested parties of the risks and factors that may affect Puget Energy's and PSE's business, prospects and results of ~~operations, including the Coronavirus disease 2019 (COVID-19) pandemic.~~operations.

Overview

Puget Energy is an energy services holding company and substantially all of its operations are conducted through its wholly-owned subsidiary PSE, a regulated electric and natural gas utility company. PSE is the largest electric and natural gas utility in the state of Washington, primarily engaged in the business of electric transmission, distribution and generation and natural gas distribution. Puget Energy's business strategy is to generate stable cash flows by offering reliable electric and natural gas service in a cost-effective manner through PSE. Puget Energy also has a wholly-owned non-regulated subsidiary, Puget LNG, LLC (Puget LNG), which has the sole purpose of owning, developing and financing the non-regulated activity of the Tacoma liquefied natural gas (LNG) ~~facility which is under construction.~~facility. All of Puget Energy's common stock is indirectly owned by Puget Holdings, LLC (Puget Holdings). Puget Holdings is owned by a consortium of long-term infrastructure investors including the British Columbia Investment Management Corporation (BCIMC), the Alberta Investment Management Corporation (AIMCo), Ontario Municipal Employee Retirement System (OMERS), PGGM Vermogensbeheer B.V., Macquarie Washington Clean Energy Investment, L.P., and Ontario Teachers’ Pension Plan Board. Puget Energy and PSE are collectively referred to herein as “the Company.”

PSE generates revenue and cash flow primarily from the sale of electric and natural gas services to residential and commercial customers within a service territory covering approximately 6,000 square miles, principally in the Puget Sound region of the state of Washington. PSE continually balances its load requirements, generation resources, purchase power agreements, and market purchases to meet customer demand. The Company's external financing requirements principally reflect the cash needs of its construction program, its schedule of maturing debt and certain operational needs. PSE requires access to bank and capital markets to meet its financing needs.

~~COVID-19 Update~~

The outbreak of COVID-19 has resulted in a global pandemic. The Company continues to monitor the impact of the pandemic and take steps to mitigate known risks. The Company provides a critical and essential service to its customers and the health and safety of its employees and customers is its first priority. The Company is continuously monitoring its supply chain and is working closely with essential vendors to understand the impact of COVID-19 to its business and does not currently expect service disruptions to customers.

Due to business disruptions caused by the COVID-19 pandemic, the Company incurred increased costs and partially offset cost savings. On September 3, 2020, the Company filed an accounting petition with the Washington Commission, requesting authorization to defer the costs and foregone revenue net of offsets associated with the COVID-19 public health emergency. On November 6, 2020, PSE filed a revised petition which was approved on December 10, 2020 by the Washington Commission granting PSE's accounting petition in part by allowing the deferral of COVID-19 incremental costs and foregone revenue net of offsets. As of March 31, 2022, PSE deferred $27.6 million specific to COVID-19 net of offsets.

On March 27, 2020, the U.S. Government enacted the CARES Act, which provided approximately $2 trillion of economic relief and stimulus to support the national economy during the COVID-19 pandemic. This package included support for individuals, large corporations, small business, and health care entities, among other affected groups. Among other provisions, the CARES Act includes modifications to corporate income tax provisions, including temporary suspension of certain payment requirements for the employer portion of social security taxes. As a result of these modifications, the Company deferred payroll taxes totaling $6.8 million as of March 31, 2022.

Further detail regarding the factors and trends affecting performance of the Company during the three months ended March 31, 2022, is set forth below in this "Overview" section as well as in other sections of Management's Discussion and Analysis.

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Factors and Trends Affecting PSE's Performance

PSE’s ongoing regulatory requirements and operational needs necessitated the investment of substantial capital in ~~2022~~2023 and will continue to do so in future years. Because PSE intends to seek recovery of such investments through the regulatory process, its financial results depend heavily upon favorable outcomes from that process. The principal business, economic and other factors that affect PSE’s operations and financial performance include:

•The rates PSE is allowed to charge for its services;

•PSE’s ability to recover power costs that are included in rates which are based on volume;

•Weather conditions, including the impact of temperature on customer load; the impact of extreme weather events on budgeted maintenance costs; meteorological conditions such as snow-pack, stream-flow and wind-speed which affect power generation, supply and price;

•The effects of climate change, including changes in the environment that may affect energy costs or consumption, increase the Company’s costs, or adversely affect its operations;

•Regulatory decisions allowing PSE to recover purchased power and fuel costs, on a timely basis;

•PSE’s ability to supply electricity and natural gas, either through company-owned generation, purchase power contracts or by procuring natural gas or electricity in wholesale markets;

•~~Equal sharing between PSE and its customers~~Deferral of excess revenues if earnings ~~which~~ exceed PSE's authorized rate of return (ROR) by more than 0.5%;

•Availability and access to capital and the cost of capital;

•Regulatory compliance costs, including those related to new and developing federal regulations of electric system reliability, state regulations of natural gas pipelines and federal, state and local environmental laws and ~~regulations;~~regulations, such as the Climate Commitment Act (CCA);

•Wholesale commodity prices of electricity and natural gas;

•Increasing capital expenditures with additional depreciation and amortization;

•Failure to complete capital projects on schedule and within budget or the abandonment of capital projects, either of which could result in the Company’s inability to recover project costs;

•Tax reform, the effect of lower tax rates, and regulatory treatment of excess deferred tax balances on rate base and customer rates;

•General economic conditions, such as inflation, in PSE's service territory and its effects on customer growth and use-per-customer;

•Federal, state, and local taxes;

•Employee workforce factors, including potential strikes, work stoppages, transitions in senior management, and loss or retirement of key personnel and availability of qualified personnel;

•The effectiveness of PSE’s risk management policies and procedures;

•Cyber security attacks, data security breaches, or other malicious acts that cause damage to the Company’s generation and transmission facilities or information technology systems, or result in the release of confidential customer, employee, or Company information;

•Acts of war or terrorism locally or abroad, or the impact of civil unrest to infrastructure or preventing access to infrastructure and its impact on the supply chain and prices of goods and services; and

•Risks due to pandemics, including supply shortages, rising costs, disruption to vendor or customer relationships, the potential for reputational harm, the impact of government, business and company closure of facilities, customer or contract defaults; concerns of safety to employees and customers, potential costs due to quarantining of employees and work-from-home policies, and the Company's and vendor staffing levels resulting from vaccination mandates.

•Legislative, regulatory, code, and/or ordinance changes that impact natural gas availability, delivery systems, and/or restrictions.

Regulation of PSE Rates and Recovery of PSE Costs

PSE's regulatory requirements and operational needs require the investment of substantial capital in ~~2022~~2023 and future years. As PSE intends to seek recovery of these investments through the regulatory process, its financial results depend heavily upon outcomes from that process. The rates that PSE is allowed to charge for its services influence its financial condition, results of operations and liquidity. PSE is highly regulated and the rates that it charges its retail customers are approved by the Washington ~~Commission.~~Utilities and Transportation Commission (Washington Commission). The Washington Commission has traditionally required these rates be determined based, to a large extent, on historic test year costs plus weather normalized assumptions about hydroelectric conditions and power costs in the relevant rate year. Incremental customer growth and sales typically have not provided sufficient revenue to cover general cost increases over time due to the combined effects of

regulatory lag and attrition. Absent a resolution for the impact of lag and attrition, the Company will need to seek rate relief through a rate case with the Washington Commission. The Washington Commission determines whether the Company's expenses and capital investments are reasonable and prudent for the provision of cost-effective, reliable and safe electric and natural gas service. If the Washington Commission determines that a capital investment is not reasonable or prudent, the costs (including return on any resulting rate base) related to such capital investment may be disallowed, partially or entirely, and not recovered in rates.

Washington state law also requires PSE to pursue electric conservation that is cost-effective, reliable and feasible. PSE’s mandate to pursue electric conservation initiatives may have a negative impact on the electric business financial performance due to lost margins from lower sales volumes as variable power costs are not part of the decoupling mechanism. The Washington Commission and Washington state law also set natural gas conservation achievement standards for PSE. The effects of achieving these standards will, however, have only a slight negative impact on natural gas business financial performance due to the natural gas business being almost fully decoupled.

In May 2021, the Washington Governor signed legislation passed by the state legislature that would require investor-owned utilities to file a multiyear rate plan for two, three, or four years as part of a general rate case (GRC) filed with the Washington Commission on or after January 1, 2022. For the initial rate year, the legislation requires the Washington Commission to ascertain and determine the fair value for rate-making purposes of the property in service as of the date that rates go into effect. Utilities would be bound to the first and second year of a multiyear rate plan and can file for a new rate plan in years three or four. If a company earns greater than a half percent above its authorized rate of return on a regulated basis, revenues above the level must be deferred for funds to customers or another determination by the Washington Commission in a subsequent adjudicative proceeding. The Washington Commission must also set performance measurements to assess a natural gas or electric company operating under a multiyear rate plan.

General Rate Case Filing

PSE filed a ~~general rate case (GRC)~~GRC which ~~includes~~included a ~~three year~~three-year multiyear rate plan, with the Washington Commission on January 31, 2022, requesting an overall increase in electric and natural gas rates of 13.6% and 13.0% respectively in 2023; 2.5% and 2.3%, respectively in 2024; and 1.2% and 1.8%, respectively, in 2025. PSE requested a return on equity of 9.9% in all three rate years. PSE requested an overall rate of return of 7.39% in ~~2023;~~2023, 7.44% in ~~2024;~~2024, and 7.49% in 2025. The filing ~~requests~~requested recovery of forecasted plant additions through 2022 as required by RCW 80.28.425 as well as forecasted plant additions through 2025, the final year of the multiyear rate plan. ~~The Washington Commission issued a procedural schedule and~~

In August 2022, three separate partial multiparty settlement agreements were reached. On August 5, 2022, parties filed an unopposed partial multiparty settlement agreement relating to the ~~case is pending. The Company cannot predict~~Voluntary Long Term Renewable Energy Purchase rider, known as Green Direct, resolving the ~~outcome~~method for calculating the energy credit Green Direct customers receive, among other matters. On August 26, 2022, six of the ~~case at this time.~~

sixteen parties, including PSE, filed a ~~GRC~~partial multiparty settlement agreement with the Washington Commission determining that the regulated portion of the Tacoma LNG Facility will be included in rates, as a tracker, beginning in November 2023. Also, on ~~June 20, 2019 requesting~~August 26, 2022, twelve of the sixteen parties, including PSE, filed a partial multiparty settlement agreement with the Washington Commission for the remaining items in the GRC. The GRC settlement agreement set a two-year rate plan instead of a three-year plan as originally filed, provided a capital structure of 49.0% equity and 51.0% debt, and a return on equity of 9.4% with an overall ~~increase in electric and natural gas rates~~rate of ~~6.9% and 7.9% respectively.~~ return of 7.16%.

On ~~July 8, 2020,~~December 22, 2022, the Washington Commission issued ~~its~~an order on PSE’s ~~GRC.~~2022 GRC which approved, with conditions, three settlement agreements which cover a two-year period beginning January 1, 2023. The ruling provided for a weighted cost of capital of ~~7.39%~~7.16%, or ~~6.8%~~6.62% after-tax, and a capital structure of ~~48.5%~~49.0% in common equity in 2023 and 2024, with a return on equity of 9.4%. The order also ~~resulted~~provided for an update to power costs in ~~a combined net increase~~2023 and 2024 and authorizes PSE to ~~electric~~seek recovery of ~~$29.5 million, or 1.6%,~~the costs related to the Tacoma LNG Facility concurrent with its 2023 purchased gas adjustment (PGA) filing. PSE was also allowed to file two additional trackers that will request to recover all rate base, depreciation, and operations and maintenance (O&M) expenses related to ~~natural gas~~investments under the Company’s Clean Energy Implementation Plan (CEIP) and Transportation Electrification Plan. The Transportation Electrification Plan was filed and had an effective date of ~~$36.5 million, or 4.0%. However,~~March 1, 2023.

On December 27, 2022 PSE submitted compliance filings, including an update to power costs, and revised tariff sheets to comply with the order. On January 6, 2023, the Washington Commission ~~extended~~rejected the ~~amortization~~compliance filing, in part, and required a revised compliance filing specific to electric rates to remove an additional $135.8 million related to PSE’s recovery of certain regulatory assets, PSE’s electric decoupling deferral, and PSE’s purchases gas adjustment (PGA) deferral to mitigate the impact of the rate increase in response to the economic uncertainty created by the COVID-19 pandemic. This reduced the electric revenue increase to approximately $0.9 million, or 0.05% and the natural gas increase to $1.3 million, or 0.15% and became effective October 15, 2020 and October 1, 2020, respectively.

On August 6, 2020, PSE filed a petition for judicial review with the Superior Court of the State of Washington for King County challenging the portion of the final order that requires PSE to pass back to customers the reversal of plant-related excess deferred income taxes in a manner that may deviate from the Internal Revenue Service (IRS) normalization and consistency rules.

PSE requested a Private Letter Ruling (PLR) from the IRS regarding this matter. On October 7, 2020, PSE, the Washington Commission and interveners agreed to dismiss the petition for judicial review. The agreement was based on a commitment from the Washington Commission that if the IRS ruling finds that the Washington Commission’s methodology for reversing plant-related excess deferred income taxes is impermissible, the Washington Commission would open a proceeding to review and enact the changes required by the IRS ruling. There was approximately $25.6 million in annual revenue requirementprojected costs related to the ~~2019 GRC, which PSE requested it be allowed~~modeling of the CCA impacts on PSE’s use of natural gas and coal-fired resources that had been included as part of PSE's update to ~~track and recover.~~power costs in the compliance filing.

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Natural gas rates became effective on January 7, 2023, resulting in an overall net revenue change of $70.8 million in 2023 and $19.5 million in 2024, representing increases of 6.4% and 1.65%, respectively. On July 30, 2021, the IRS issued a PLR to PSE which concluded that the Washington Commission’s methodology for reversing plant-related excess deferred income taxes was an impermissible methodology under the IRS normalization and consistency rules. On September 28, 2021,January 10, 2023, the Washington Commission ~~issued~~accepted the revised compliance filing with electric rates going into effect on January 11, 2023. The revisions reflected an ~~order amending its order previously issued on July 8, 2020~~overall net revenue change of $247.0 million in 2023 and $33.1 million in 2024, which represents an increase of 10.75% and 1.33%, respectively. Per the 2022 GRC Final Order in Docket No. UE-220066, PCORC rates were set to ~~correct for items which were determined~~zero as of January 11, 2023 and PSE agreed not to ~~be impermissible under IRS normalization~~file a PCORC during 2023 and ~~consistency rules as detailed~~2024, the two-year rate plan agreed to in the ~~PLR. To reflect~~GRC settlement.

Prior rates were subject to the ~~impact~~2019 GRC and included a weighted cost of ~~the PLR, PSE recorded~~capital of 7.39% or 6.8% after-tax, a ~~regulatory asset~~capital structure of 48.5% in common equity, and ~~additional revenues~~a return on equity of ~~$24.5 million in its operating results through December 31, 2021.~~9.4%. The annualized overall rate ~~impact for this element is~~impacts were an increase of $15.8 million, or 0.7%, for electric and $3.1 million, or 0.3%, for natural gas for a total of $18.9 million with rates effective October 1, 2021. This led to an overall annualized net increase to electric rates of $77.1 million, or 3.7%, an increase of $17.5 million above the $59.6 million granted in the revised final order. The order also led to an overall annualized net increase to natural gas rates of $45.3 million, or 5.9%, an increase of $2.4 million above the $42.9 million granted in the revised final order. The Washington Commission maintained adjustments that mitigated the impacts of the rate increases in response to the economic instability created by the COVID-19 pandemic, which reduced the electric revenue increase ~~to approximately~~of $48.3 million, or 2.3%, and ~~the~~a natural gas increase toof $4.9 million, or 0.6%., effective October 1, 2021. For further information, see Note 4, "Regulation and Rates" in the Combined Notes to Consolidated Financial Statements included in Item 8 of the Company's Form 10-K for the period ended December 31, 2022.

~~Power Cost Only Rate Case~~

A power cost only rate case (PCORC) is a limited-scope proceeding to reset power cost rates. In addition to providing the opportunity to reset all power costs, the PCORC proceeding also provides for timely review of new resource acquisition costs and inclusion of such costs in rates at the time the new resource goes into service. To achieve this objective, the Washington Commission is not required to but historically has used an expedited six-month PCORC decision timeline rather than the statutory 11-month timeline for a GRC.Climate Commitment Act Deferral

On March 2, 2021, several of the parties to the PCORC reached a multiparty settlement in principle, which was unopposed. The settlement resulted in an estimated revenue increase of $65.3 million or 3.1%. A term of the settlement requires PSE to include in its next GRC (or another proceeding in 2022) the issue of whether the PCORC should continue, and further prohibits PSE from filing another PCORC before this issue is litigated. On June 1, 2021, the Washington Commission issued its Final Order approving and adopting the settlement and authorizing and requiring a power cost update through a compliance filing. On June 17, 2021, PSE filed a compliance filingaccounting petitions with the Washington Commission requesting authorization to defer costs and revenues associated with ~~a revenue increase~~the Company’s compliance with the Climate Commitment Act (CCA) codified in law within Revised Code of ~~$70.9~~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 carbon allowances to comply with the CCA and the proceeds from no-cost allowances consigned to auction beginning January 1, 2023. This accounting treatment is necessary in order for PSE to defer and seek recovery of CCA costs that are not currently included in rates. As of March 31, 2023, PSE deferred $83.3 and $11.3 million ~~or 3.3% due to the update on power~~of CCA compliance costs ~~with rates effective July 1, 2021.~~for natural gas and electric liabilities, respectively.

Revenue Decoupling ~~Filings~~Adjustment Mechanism

While fluctuations in weather conditions will continue to affect PSE's billed revenue and energy supply expenses from month to month, PSE's decoupling mechanisms assist in mitigating the impact of weather on operating revenue and net income. The Washington Commission has allowed PSE to record a monthly adjustment to its electric and natural gas operating revenues related to electric transmission and distribution, natural gas operations and general administrative costs and fixed production costs from most residential, commercial and industrial customers to mitigate the effects of abnormal weather, conservation impacts and changes in usage patterns per customer. As a result, these electric and natural gas revenues are recovered on a per customer basis regardless of actual consumption levels. PSE's energy supply costs, which are part of the power cost adjustment (PCA) and PGA mechanisms, are not included in the decoupling mechanism. The revenue recorded under the decoupling mechanisms will be affected by customer growth and not actual consumption except for fixed production costs, which are held at the level of cost from the most recent rate proceeding and are not impacted by customer growth. Following each calendar year, PSE will recover from, or refund to, customers the difference between allowed decoupling revenue and the corresponding actual revenue during the following May to April time period.

On ~~December 23, 2020,~~January 6, 2023, the Washington Commission approved ~~PSE’s~~the natural gas 2022 GRC filing. As part of this filing the annual gas delivery allowed revenue was updated to update Schedule 142 decoupling amortization rates, with an effective date of January 1, 2021, by zeroing out rates still effective past October 15, 2020 on tariff sheet Schedule 142-H, which was replaced by rates on tariff sheet Schedule 142-I effective October 15, 2020. PSE included a true upreflect changes in the approved revenue requirement. Additionally, the Commission approved the removal of the ~~over-collection amounts for~~earnings test from the ~~period of October 15, 2020 through December 31, 2020~~decoupling mechanism in ~~PSE’s annual May 2021 decoupling filing.~~accordance with RCW 80.28.425(6). The changes took effect on January 7, 2023.

On ~~June 1, 2021,~~January 10, 2023, the Washington Commission approved ~~a multi-party settlement agreement in PSE's PCORC that was originally filed on December 9, 2020.~~the electric 2022 GRC filing. As part of this ~~settlement agreement,~~filing the annual electric ~~annual~~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 ~~July 1, 2021.~~

On September 28, 2021, the Washington Commission approved 2019 GRC filing updated to PLR changes. As part of this filing, the annual electric and gas delivery cost allowed revenue was updated to reflect changes in the approved revenue requirement. The changes took effect on October 1, 2021.

January 11, 2023.

On March 31, ~~2022,~~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 U.S. Generally Accepted Accounting Principles (GAAP) purposes only, PSE would need to record a reserve against the decoupling revenue and corresponding 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. The analysis indicated that electric and natural gas deferred revenue will be collected within 24 months of the annual period; therefore, no reserve adjustment was booked to ~~2022~~2023 electric or natural gas decoupling revenue. At March 31, ~~2021,~~2022, the analysis ~~estimated $0.9 million of~~indicated that electric ~~deferred revenue not to be collected within 24 months of the annual period in 2021; therefore, a reserve adjustment was booked to 2021 electric decoupling revenue. Whereas, at March 31, 2021,~~and natural gas deferred revenue was estimated to be collected within 24 months of the annual period in ~~2021;~~2022; therefore, no reserve adjustment was booked to ~~2021~~2022 electric or natural gas decoupling revenue.

The Washington Commission approved the following PSE requests to change rates for prior deferrals under its electric and natural gas decoupling mechanisms:


Effective Date	Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)1	Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)1
Electric:	Electric:			Electric:
May 1, 2023				May 1, 2023	(1.5)%	$(37.6)
May 1, 20222	May 1, 20222	(1.0)%	$(23.5)	May 1, 20222	(1.0)	(23.5)
May 1, 20213	May 1, 20213	1.0	21.4	May 1, 20213	1.0	21.4
January 1. 2021		(1.0)	(20.6)
January 1, 2021				January 1, 2021	(1.0)	(20.6)
October 15, 20204	October 15, 20204	(0.5)	(10.2)	October 15, 20204	(0.5)	(10.2)
May 1, 2020		0.2	2.0
Natural Gas:	Natural Gas:			Natural Gas:
May 1, 2023				May 1, 2023	(1.3)%	$(16.4)
May 1, 2022	May 1, 2022	(0.7)%	$(7.4)	May 1, 2022	(0.7)	(7.4)
May 1, 2021	May 1, 2021	1.5	15.0	May 1, 2021	1.5	15.0
May 1, 2020		(0.5)	(4.8)

__________________

1 For electric and natural gas rates effective May 1, ~~2022,~~2023, May 1, ~~2021~~2022 and May 1, ~~2020,~~2021, there were no excess earnings that impacted the approved revenue change.

2 For the electric rates effective May 1, 2022, there was $8.0 million of excess deferred revenues for delivery and fixed power costs which could not be set in rates until May 1, 2023 due to the 3% rate cap.

3 For the electric rates effective May 1, 2021, there was $24.1 million of excess deferred revenues for delivery and fixed power costs which could not be set in rates until May 1, ~~202~~2022 due to the 3% rate cap.

4 The 2019 GRC final order lengthened the recovery period from the original one-year recovery to a two-year recovery of April 2022. The remaining decoupling amortization balances for delivery and fixed power costs of $1.7 million were included in electric decoupling mechanism tariff rates, effective May 1, 2022.

Electric Rates

~~Power Cost Adjustment Mechanism~~

~~PSE currently has a power cost adjustment (PCA) mechanism that provides~~The following electric rate schedules were filed with the Washington Commission or approved by the Washington Commission after the Form 10-K for the ~~deferral of power costs that vary from~~period ended December 31, 2022 was filed on February 23, 2023 along with 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,~~comparison period, if applicable. Additionally, 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 by up to $17 million 100% 100% —% —%
Over or Under Collected by between $17 million - $40 million 35 50 65 50
Over or Under Collected beyond $40 + million 10 10 90 90

~~For the~~electric rate schedules include details for three months ended March 31, ~~2022,~~2023 as compared to 2022. For further information on prior filings, see Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in ~~its PCA mechanism, PSE under recovered its allowable costs by $10.6 million~~Item 7 of ~~which zero was apportioned to customers and $0.3 million of interest was accrued on~~ the ~~deferred customer balance. This compares to an under recovery of allowable costs of $11.4 million~~Company's Form 10-K for the ~~three months~~period ended ~~March 31, 2021, of which zero was apportioned to customers and $0.3 million of interest was accrued on the total deferred customer balance.~~

~~Power Cost Adjustment Clause Filing~~

PSE updated its Schedule 95 rates in the Power Cost Adjustment Clause tariff to reflect the transition fee as required by Section 12 of the Microsoft Special Contract. Additionally, Schedule 95 rates also include portions of fixed power cost adjustments per the allowed decoupling rate re-allocation resulting from Microsoft becoming a transportation customer as well as small variable power cost adjustments.

PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2020. The surcharging of deferrals can be triggered by the Company when the balance in the deferral account is a credit of $20.0 million or more. During 2020, actual power costs were higher than baseline power costs, thereby creating an under-recovery of $76.1 million. Under the terms of the PCA’s sharing mechanism for under-recovered power costs, PSE absorbed $32.1 million of the under-recovered amount, and customers were responsible for the remaining $44.0 million, or $46.0 million including interest. PSE filed to recover the deferred balance in Docket UE-210300, and the Washington Commission allowed the recovery effective December 1, 2021.

Additionally, PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2021. During 2021, actual power costs were higher than baseline power costs; thereby, creating an under-recovery of $68.0 million. Under the terms of the PCA’s sharing mechanism for under-recovered power costs, 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. On April 30, 2022, PSE filed a 2021 PCA report with the Washington Commission 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.

~~The following table sets forth power cost adjustment clause filing approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:~~

Effective Date Average
Percentage
Increase (Decrease)
in Rates Increase
(Decrease)
in Revenue
(Dollars in Millions)
December 1, 20201
2.1% $43.9
October 15, 2020 (0.2) (3.3)
July 3, 20202
1.2 23.9

~~______________~~

1 ~~The Schedule 95 PCA mechanism rates from the prior year that recover the 2019 imbalance (effective December 1, 2020) have been extending through~~ December 31, ~~2022 to recover the imbalance attributable to 2020.~~

2 The rates for the Electric Special Contract were zeroed out effective July 3, 2020 following the July 2019 through June 2020 period. The actual residual amount resulting at July 31, 2020 were included in the electric Schedule 129 Low Income Program rates that became effective October 1, 2020.

2022.

Conservation Service Rider

The electric conservation rider collects revenue to cover the costs incurred in providing services and programs for conservation. Rates change annually on May 1 to collect the annual budget that started the prior January and to true-up for actual compared to forecast conservation expenditures from the prior year, as well as actual compared to the forecasted load set in rates.

The following table sets forth conservation rider rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:


Effective Date	Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)	Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)
May 1, 2023				May 1, 2023	(0.2)%	$(6.3)
May 1, 2022	May 1, 2022	1.0%	$21.6	May 1, 2022	1.0	21.6
May 1, 2021		(0.6)	(12.3)
May 1, 2020		0.9	17.8

Power Cost Adjustment Clause

PSE updated its Schedule 95 rates in the Power Cost Adjustment Clause tariff to reflect the transition fee as required by Section 12 of the Special Contract, a non-prescribed commercial/industrial rate contract. Additionally, Schedule 95 rates also

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include portions of fixed power cost adjustments per the allowed decoupling rate re-allocation resulting from a Special Contract customer becoming a transportation customer as well as small variable power cost adjustments.

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 $35.5 million of the under-recovered amount, and customers were responsible for the remaining $74.6 million, or $76.1 million including interest. On April 28, 2023, PSE filed the 2022 PCA report with the Washington Commission and proposed to recover the 2022 deferred balance from December 1, 2023 through December 31, 2024.

PSE exceeded the $20.0 million cumulative deferral balance in its PCA mechanism in 2021. During 2021, actual power costs were higher than baseline power costs, thereby, creating an under-recovery of $68.0 million. Under the terms of the PCA’s sharing mechanism for under-recovered power costs, 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. On October 27, 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.

The following table sets forth power cost adjustment clause filing approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:


Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)
December 1, 20201	2.1%	$43.9

______________

1 The Schedule 95 PCA mechanism rates from the prior year that recover the 2019 imbalance (effective December 1, 2020) have been extending through December 31, 2022 to recover the imbalance attributable to 2020. PSE filed the PCA imbalance rate extension with the Washington Commission to recover PCA imbalance attributable to 2021 from January 1, 2023 to November 30, 2023.

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 by up to $17 million	100%	100%	—%	—%
Over or under collected by between $17 million - $40 million	35	50	65	50
Over or under collected beyond $40 + million	10	10	90	90

For the three months ended March 31, 2023, in its PCA mechanism, PSE over recovered its allowable costs by $12.9 million of which zero was apportioned to customers and $1.1 million of interest was accrued on the deferred customer balance. This compares to an under recovery of allowable costs of $10.6 million for the three months ended March 31, 2022, of which zero was apportioned to customers and $0.3 million of interest was accrued on the total deferred customer balance.

Property Tax Tracker ~~Mechanism~~

The purpose of the property tax tracker ~~mechanism~~ is to pass through the cost of all property taxes incurred by the Company. The ~~mechanism removed property taxes from general rates and included those costs for recovery in an adjusting tariff rate. After the implementation, the~~ mechanism acts as a tracker rate schedule and collects the total amount of property taxes assessed. The tracker is adjusted each year in May based on that year's assessed property taxes and true-up from the prior year.

The following table sets forth property tax tracker mechanism rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:
Effective Date Average
Percentage
Increase (Decrease)
in Rates Increase (Decrease)
in Revenue
(Dollars in Millions)
May 1, 2022 (0.3)% $(5.8)
May 1, 2021 (0.1) (1.7)
May 1, 2020 0.07 1.4

~~Federal Incentive Tracker Tariff~~

The Federal Incentive Tracker Tariff passes through to customers the benefits associated with the wind-related treasury grants. The filing results in a credit back to customers for pass-back of treasury grant amortization and pass-through of interest and any related true-ups. The filing is adjusted annually for new federal benefits, actual versus forecast interest and to true-up for actual load being different than the forecasted load set in rates. Rates change annually on January 1.

The following table sets forth the federal incentive tracker tariff revenue requirement approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:

Effective Date Average
Percentage
Increase (Decrease)
in Rates from prior year Total credit to be passed back to eligible customers
(Dollars in Millions)
January 1, 2022 0.1% $(28.2)
January 1, 2021 0.3 (29.5)
January 1, 2020 (0.04) (37.8)

~~Low Income Program Tracker Tariff~~

The Low Income Tracker Tariff recovers changes in costs for the low income bill payment assistance program (as approved in Washington Commission Docket No. UE-011570). The annual filing requests these changes through the existing low income program funding mechanism previously approved by the Washington Commission. The mechanism allows PSE to periodically adjust its electric and natural gas rates to reflect changes in actual sales and costs. Rates change annually on October 1.

The following table sets forth the low income program funding adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE's revenue based on the effective dates:

Effective Date

Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)
October 1, 2021 0.3% $5.8

~~Residential Exchange Benefit~~

~~The residential exchange program passes through the residential exchange program benefits that PSE receives from the Bonneville Power Administration (BPA). Rates change biennially on October 1.~~

The following table sets forth residential exchange benefit adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:

Effective Date Average
Percentage
Increase (Decrease)
in Rates Total credit to be passed back to eligible customers
(Dollars in Millions)
November 1, 2021 0.4% $(75.7)
October 12, 2019 0.01 (81.8)


Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)
May 1, 2023	(0.2)%	$(4.4)
May 1, 2022	(0.3)	(5.8)

Natural Gas Rates

The following natural gas rate schedules were filed with the Washington Commission or approved by the Washington Commission after the Form 10-K for the period ended December 31, 2022 was filed on February 23, 2023 along with the comparison period, if applicable. Additionally, the following natural gas rate schedules include details for the three months ended March 31, 2023 as compared to 2022. For further information on prior filings, see Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in Item 7 of the Company's Form 10-K for the period ended December 31, 2022.

Conservation Service Rider

The natural gas conservation rider collects revenue to cover the costs incurred in providing services and programs for conservation. Rates change annually on May 1 to collect the annual budget that started the prior January and to true-up for actual compared to forecast conservation expenditures from the prior year, as well as actual compared to the forecasted load set in rates.

The following table sets forth ~~conversation~~conservation rider rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE's revenue based on the effective dates:

Effective Date

Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)

Effective Date

Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)

Effective Date

Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)

May 1, 2023

0.4%

$4.7

May 1, 2022

0.3%

$3.2

May 1, 2022

0.3

3.2

May 1, 2021

(0.2)

(1.5)

May 1, 2020

0.4

3.5

Property Tax Tracker ~~Mechanism~~

The purpose of the property tax tracker mechanism is to pass through the cost of all property taxes incurred by the Company. The mechanism removed property taxes from general rates and included those costs for recovery in an adjusting tariff rate. After the implementation, the mechanism acts as a tracker rate schedule and collects the total amount of property taxes assessed. The tracker is adjusted each year in May based on that year's assessed property taxes and true-up from the prior year.

The following table sets forth property tax tracker mechanism rate adjustments approved by the Washington Commission and the corresponding impact on PSE's revenue based on the effective dates:


Effective Date	Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)	Effective Date	Average Percentage Increase (Decrease) in Rates	Increase (Decrease) in Revenue (Dollars in Millions)
May 1, 2023				May 1, 2023	(0.02)%	$(0.2)
May 1, 2022	May 1, 2022	0.02%	$0.2	May 1, 2022	0.02	0.2
May 1, 2021		0.3	3.2
May 1, 2020		(0.3)	(2.8)

~~Cost Recovery Mechanism~~

The purpose of the cost recovery mechanism (CRM) is to recover costs related to projects included in PSE's pipeline replacement program plan on file with the Washington Commission with the intended effect of enhancing the safety of the natural gas distribution system. Rates change annually on November 1.

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~~The following table sets forth CRM rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective dates:~~

Effective Date Average
Percentage
Increase (Decrease)
in Rates Increase (Decrease)
in Revenue
(Dollars in Millions)
November 1, 2021 0.5% $4.9
November 1, 2020 1.2 10.6

Purchased Gas Adjustment

PSE has a PGA mechanism that allows PSE to recover expected natural gas supply and transportation costs and defer, as a receivable or liability, any natural gas supply and transportation costs that exceed or fall short of this expected natural gas cost amount in PGA mechanism rates, including accrued interest. PSE is authorized by the Washington Commission to accrue carrying costs on PGA receivable and payable balances. A receivable or payable balance in the PGA mechanism reflects an under recovery or over recovery, respectively, of natural gas cost through the PGA mechanism. Rates typically change annually on November 1, although out-of-cycle rate changes are allowed at other times of the year if needed.

On October 28, 2021, the Washington Commission approved PSE's request for November 2021 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.

The annual 2021 PGA rate increases ~~will be set~~were 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.

On October 27, 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.

On November 15, 2022, the Federal Energy Regulatory Commission (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 in the table 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.

The following table presents the PGA mechanism balances and activity at March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


(Dollars in Thousands)	(Dollars in Thousands)	March 31,		December 31,		(Dollars in Thousands)	March 31,		December 31,
PGA receivable balance and activity	PGA receivable balance and activity	2022		2021		PGA receivable balance and activity	2023		2022
PGA receivable beginning balance	PGA receivable beginning balance	$	57,935	$	87,655	PGA receivable beginning balance	$	(3,536)	$	57,935
Actual natural gas costs	Actual natural gas costs	161,647		364,775		Actual natural gas costs	138,178		457,950
Allowed PGA recovery	Allowed PGA recovery	(175,930)		(396,236)		Allowed PGA recovery	(234,372)		(496,879)
Interest	Interest	368		1,741		Interest	(348)		1,674
PGA receivable ending balance		$	44,020	$	57,935
Refund/interest from counterparty settlement						Refund/interest from counterparty settlement	(2,836)		(24,216)
PGA (liability)/ receivable ending balance						PGA (liability)/ receivable ending balance	$	(102,914)	$	(3,536)

~~The following table sets forth the PGA rate adjustments approved by the Washington Commission and the corresponding expected annual impact on PSE’s revenue based on the effective date:~~

Effective Date Average
Percentage
Increase (Decrease)
in Rates Increase (Decrease)
in Revenue
(Dollars in Millions)
November 1, 2021 5.8% $59.1
November 1, 2020 7.7 70.0
October 1, 2020 (3.9) (35.5)

~~Low Income Program Tracker Tariff~~

The Low Income Tracker Tariff recovers changes in costs for the low income bill payment assistance program (as approved in Washington Commission Docket No. UG-011571). The annual filing requests these changes through the existing low income program funding mechanism previously approved by the Washington Commission. The mechanism allows PSE to periodically adjust its electric and natural gas rates to reflect changes in actual sales and costs. Rates change annually on October 1.

Effective Date

Average
Percentage
Increase (Decrease)
in Rates

Increase (Decrease)
in Revenue
(Dollars in Millions)
October 1, 2021 (0.3)% $(3.0)

~~Other Proceedings~~

~~Voluntary Long-Term Renewable Energy~~

PSE offers Green Direct to larger customers (aggregated annual loads greater than 10,000 megawatt hours (MWh)) and government customers. The initial resource option offered under this rate schedule is a new wind generation facility with the capacity of approximately 136.8 MW which went into operation on November 7, 2020. The project is fully subscribed and the twenty-one customers under phase 1 of the program began taking service in November 2020.

The Washington Commission approved a second phase of the Green Direct product in 2018. The phase 2 project is the 150 MW Lund Hill Solar facility located in Klickitat County, Washington. The solar facility is expected to achieve full commercial operation in 2022 and will serve an additional twenty customers who enrolled in 2018. On March 1, 2021, the associated power purchase agreement went into effect under an interim supply agreement for renewable energy delivered to PSE’s system; and thus, the phase 2 customers began receiving renewable energy under their agreement on March 1, 2021. All Green Direct customers are now receiving a blend of the phase 1 wind and the renewable energy delivered under the phase 2 power purchase agreement.

~~Crisis Affected Customer Assistance Program~~

For additional information, see Note 7, "Regulation and Rates" in the Combined Notes to ~~the consolidated financial statements~~Consolidated Financial Statements included in Item 1 of this report.

Access to Debt Capital

PSE relies on access to bank borrowings and short-term money markets as sources of liquidity and longer-term capital markets to fund its utility construction program, to meet maturing debt obligations and other capital expenditure requirements not satisfied by cash flow from its operations or equity investment from its parent, Puget Energy. Neither Puget Energy nor PSE have any debt outstanding whose maturity would accelerate upon a credit rating downgrade. However, a ratings downgrade could adversely affect the Company's ability to refinance existing or issue new long-term debt, obtain access to new or renew existing credit facilities and ~~could~~ increase the cost of issuing long-term debt and maintaining credit facilities. For example, under Puget Energy's and PSE's credit facilities, the borrowing costs increase as their respective credit ratings decline due to increases in credit spreads and commitment fees. If PSE is unable to access debt capital on reasonable terms, its ability to pursue improvements or generating capacity acquisitions, which may be relied on for future growth and to otherwise implement its strategy, could be adversely affected. PSE monitors the credit environment and expects to continue to be able to access the capital markets to meet its short-term and long-term borrowing needs.

Regulatory Compliance Costs and Expenditures

PSE's operations are subject to extensive federal, state and local laws and regulations. These regulations cover electric system reliability, natural gas pipeline system safety and energy market transparency, among other areas. Environmental laws and regulations related to air and water quality, including climate change and endangered species protection, waste handling

and disposal (including generation by-products such as coal ash), remediation of contamination and siting new facilities also impact the Company's operations. PSE must spend a significant ~~amount of~~ resources to fulfill requirements set by regulatory agencies, many of which have greatly expanded mandates on measures including resource planning, remediation, monitoring, pollution control equipment and emissions-related abatement and fees.

In 2021, the Washington Legislature adopted the CCA, which establishes a greenhouse gases (GHG) emissions cap-and-invest program that caps GHG emissions beginning on January 1, 2023 and makes further reductions to the cap annually through 2050. The Washington Department of Ecology (WDOE) published final regulations to implement the program on September 29, 2022, which became effective on October 30, 2022. WDOE also indicated that it will have subsequent rulemakings that will build off initial rulemaking as program implementation gets underway and progress with Washington State carbon goals are evaluated. For further details on the CCA see Part I Item 1 "Recent and Future Environmental Law and Regulation" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Based on the rules passed in 2022, there is potential for PSE’s compliance with the CCA to result in increased costs to customers or amounts that PSE may not be able to recover through electric and natural gas rates. Potential risks associated with CCA compliance could include: the evolving nature of the CCA rulemaking as indicated by WDOE, market uncertainty based on rule interpretation during implementation, unresolved recovery methodology for CCA’s impact on energy costs, company costs, customer rate impacts, and cash, liquidity and credit volatility.

Compliance with these or other future ~~laws and~~ regulations, such as those pertaining to climate change, could require significant capital expenditures by PSE and may adversely affect PSE's financial position, results of operations, cash flows and liquidity.

Other Challenges and Strategies

Competition

PSE’s electric and natural gas utility retail customers generally do not have the ability to choose their electric or natural gas supplier; therefore, PSE’s business has historically been recognized as a natural and regulated monopoly. However, PSE faces competition from public utility districts and municipalities or efforts by citizens organizing to form such entities that want to establish their own government-owned utility, as a result of which PSE may lose a number of customers. PSE also faces increasing competition for sales to its retail customers through alternative methods of electric energy generation, including solar and other self-generation methods. In addition, PSE’s natural gas customers may elect to use heating oil, propane or other fuels instead of using and purchasing natural gas from PSE.

Results of Operations

Puget Sound Energy

The following discussion should be read in conjunction with the ~~audited~~unaudited consolidated financial statements and the related notes included elsewhere in this document. The following discussion provides the significant items that impacted PSE’s results of operations for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021.~~2022.

Non-GAAP Financial Measures - Electric and Natural Gas Margins

The following discussion includes financial information prepared in accordance with GAAP, as well as two other financial measures, electric margin and natural gas margin, that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that includes adjustments that result in a presentation that is not defined by GAAP. The presentation of electric margin and natural gas margin is intended to supplement an understanding of PSE’s operating performance. Electric margin and natural gas margin are used by PSE to determine whether PSE is collecting the appropriate amount of revenue from its customers in order to provide adequate recovery of operating costs, including interest and equity returns. PSE’s electric margin and natural gas margin measures may not be comparable to other companies’ electric margin and natural gas margin measures. Furthermore, these measures are not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

4540

The following table presents operating income and a reconciliation of ~~utility~~ electric and natural gas margins to the most directly comparable GAAP measure, operating income:


Puget Sound Energy	Puget Sound Energy					Puget Sound Energy
(Dollars in Thousands)	(Dollars in Thousands)	Three Months Ended March 31,				(Dollars in Thousands)	Three Months Ended March 31,
		2022		2021			2023		2022
Operating income (loss)	Operating income (loss)	$	374,138	$	265,357	Operating income (loss)	$	80,976	$	374,138
Electric operating revenue	Electric operating revenue	756,377		758,592		Electric operating revenue	1,010,160		756,377
Purchased electricity	Purchased electricity	(238,203)		(205,410)		Purchased electricity	(339,816)		(238,203)
Electric generation fuel	Electric generation fuel	(60,644)		(60,418)		Electric generation fuel	(150,254)		(60,644)
Residential exchange	Residential exchange	23,070		25,802		Residential exchange	23,531		23,070
Utility electric margin (non-GAAP)		$	480,600	$	518,566
Electric margin (non-GAAP)						Electric margin (non-GAAP)	$	543,621	$	480,600
Natural gas operating revenue	Natural gas operating revenue	426,348		392,906		Natural gas operating revenue	517,258		426,348
Purchased natural gas	Purchased natural gas	(177,333)		(155,015)		Purchased natural gas	(235,482)		(177,333)
Utility natural gas margin (non-GAAP)		$	249,015	$	237,891
Natural gas margin (non-GAAP)						Natural gas margin (non-GAAP)	$	281,776	$	249,015
Other operating revenue	Other operating revenue	10,677		8,588		Other operating revenue	9,233		10,677
Unrealized gain (loss) on derivative instruments, net	Unrealized gain (loss) on derivative instruments, net	131,921		23,002		Unrealized gain (loss) on derivative instruments, net	(192,123)		131,921
Utility operation and maintenance	Utility operation and maintenance	(170,300)		(160,540)		Utility operation and maintenance	(194,991)		(170,300)
Non-utility expense and other	Non-utility expense and other	(12,814)		(9,418)		Non-utility expense and other	(8,014)		(12,814)
Depreciation and amortization	Depreciation and amortization	(193,845)		(242,422)		Depreciation and amortization	(225,262)		(193,845)
Taxes other than income taxes	Taxes other than income taxes	(121,116)		(110,310)		Taxes other than income taxes	(133,264)		(121,116)
Operating income (loss)	Operating income (loss)	$	374,138	$	265,357	Operating income (loss)	$	80,976	$	374,138

4641

Electric Margin

Electric margin represents electric sales to retail and transportation customers less the cost of generating and purchasing electric energy sold to customers, including transmission costs, to bring electric energy to PSE's service territory.

The following chart displays the details of PSE's electric margin changes for the three months ended March 31, ~~2021~~2022 and ~~2022:~~2023:

______________

* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.

Three Months Ended March 31, ~~2021~~2023 Compared to 2022

Electric Operating Revenue

Electric operating revenues ~~decreased $2.3~~increased $253.8 million from the prior year primarily due to ~~a decrease in transportation and other revenues of $37.9 million, a decrease in other decoupling revenue of $9.6 million, and a decrease~~an increase in sales to other utilities of ~~$3.4 million; partially offset by~~$127.9 million, an increase in electric retail sales of ~~$44.3~~$93.6 million, an increase in transportation and other revenue of $46.2 million and an increase in other decoupling revenue of ~~$4.3~~$4.8 million, .partially offset by a decrease in decoupling revenue of $18.8 million. These items are discussed in detail below.

•Electric retail sales increased ~~$44.3~~$93.6 million due to an increase of ~~$41.4~~$80.3 million in rates compared to the prior year and ~~an increase of $3.0~~$13.3 million from an increase in retail electricity usage of ~~0.5%~~1.7%. The increase in rates is primarily due to the tariffs filed pursuant to the Company's most recent ~~PCORC~~GRC effective ~~July 1, 2021.~~January 11, 2023. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report and Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and ~~Rates"~~Recovery of PSE Costs" included in ~~Item 2 of this report~~the Company's Annual Report on Form 10-K for the period ended December 31, 2022 for electric rate changes. The ~~slight~~ increase in retail usage was due to an increase in residential and commercial usage of ~~3.6%~~2.1% and 1.1%, ~~which was partially offset by~~respectively. Customer usage increased due to an increase in retail customers of 1.1% and a ~~decrease~~slight increase in ~~usage~~heating degree days of ~~1.3% for residential customers. The COVID-19 pandemic caused business shut downs~~1.0% due to lower than normal temperatures in ~~2021 resulting in reduced commercial usage. In March 2022, businesses began returning to work resulting in higher commercial usage and lower residential usage for~~ the three months ended March 31, ~~2022~~2023 as compared to ~~2021.~~2022.

•Sales to other utilities ~~decreased $3.4~~increased $127.9 million primarily due to ~~lower~~a 229.0% increase in wholesale sales volume ~~of 26.9%, which~~and a 161.3% increase in electric wholesale sales price. Higher wholesale sales volumes were the result of ~~decreased~~increased volume from ~~PSE's~~PSE gas-fired generation, ~~of 37.0%,~~which increased 149.6% in 2023 compared to 2022, particularly in March 2023, driven

by ~~decreased~~greater value in the market. The ~~decrease was partially offset by a 13.8%~~ increase in ~~market prices~~wholesale sales price was driven by ~~an increase~~increases in natural gas prices ~~nationwide~~that fuel natural gas-fired electric generation, following constrained supply along with increased ~~demand from overseas markets.~~

demand.

•Decoupling revenue ~~increased $4.3~~decreased $18.8 million primarily attributable to a ~~$4.0~~$16.1 million and ~~$0.3~~$2.7 million ~~increase~~decrease in delivery and fixed production cost deferral revenues, respectively. This was driven ~~mainly~~primarily by ~~a decrease in average consumption per customer~~higher rates and usage in the current ~~period.~~period compared to the same period in 2022. This resulted in ~~allowed~~actual electric revenues being ~~greater~~higher than ~~actual~~allowed decoupling deferral revenues by a greater margin in the current year ~~whereas in~~compared to the prior ~~year allowed revenues were lower compared to actual revenues.~~year.

•Other decoupling revenue ~~decreased $9.6~~increased $4.8 million primarily due to ~~a $5.4 million increase in year-over-year amortization of prior year undercollections due to an increase~~changes in amortization rates. ~~Additionally, there~~In the current period, overcollections from residential customers were amortized, whereas undercollections from residential customers were amortized in the prior period. This was partially offset by a ~~$4.2~~$3.0 million decrease related to GAAP alternative revenue program recognition guidelines. As of quarter ended March 31, 2021, there were $8.0 million of deferred 2020 GAAP alternative decoupling revenues that were recognized, which was partially offset by $0.9 million in deferred 2021 GAAP alternative decoupling revenues. As of quarterthe three months ended March 31, 2022, there were $3.0 million of deferred 2021 GAAP alternative decoupling revenues that were ~~recognized.~~recognized, whereas none were recognized in the current period.

•Transportation and other revenue ~~decreased $37.9~~increased $46.2 million primarily due to the following: (i) no production tax credit (PTC) deferral revenue for the re-purpose of the PTCs in 2022 compared to $45.2 million in 2021; partially offset by: (ii) an increase in net wholesale non-core gas sales of $13.0 million due to a ~~$14.1~~$39.8 million increase in ~~gains on~~non-core natural gas financial hedging ~~transactions due~~gains driven by an average price of natural gas sold that was 85.4% higher in 2023 compared to ~~higher gas prices, which was~~2022, partially offset by ~~$1.0 million net increase in cost of gas sold. The net increase in cost of gas sold was driven by~~ a $40.9 million increase in sales dollars driven by a 60.9% increase in sales volume and a 53.7% increase in the average price of the non-core gas sold in 2022 compared to 2021. This was offset by a $41.9total $35.1 million increase in the cost of the natural gas sold due to higher natural gas prices. Also contributing to the ~~higher volume and a 75.7% increase~~change in the ~~average price of~~net whole non-core gas ~~purchases that were then sold; (ii)~~sales was a $16.1 million increase in natural gas financial hedging gains. Additionally, an increase of $4.8 million was due to an Internal Revenue Service Private Letter Ruling in 2022, which included amortization ~~of the PLR~~ to offset recovery through rates in 2022. The increases were partially offset by a $2.6 million deferral for over recovery of ~~$4.8 million as a result of~~2023 Green Direct energy credits approved in the ~~IRS PLR, see Management's Discussion and Analysis, "Regulation and Rates" included in Item 2 of this report.~~2022 GRC.

Electric Power Costs

Electric power costs increased ~~$35.7~~$190.8 million primarily due to an increase of ~~$32.8~~$101.6 million of purchased electricity costs and ~~a decrease~~an increase of ~~$2.7 million~~electric generation fuel costs of ~~residential exchange credits.~~$89.6 million. These items are discussed in detail below.

•Purchased electricity expense increased ~~$32.8~~$101.6 million primarily due to increased wholesale purchase prices, which were 59.2% higher than in 2022, driven by open market purchases as well as PPA contracts added after March 31, 2022. The increase from wholesale purchase prices were partially offset by a 10.4% decrease in wholesale electricity purchase volumes.

•Electric generation fuel increased $89.6 million primarily due to a ~~13.6%~~$89.0 million increase in ~~wholesale electricity purchases and a 2.1% increase~~natural gas-fired generation fuel costs due to increased PSE gas-fired generation, which increased 149.6% in ~~wholesale prices driven by higher pricing trends in 2022~~2023 compared to ~~2021 when~~2022 and 13.6% higher unit production costs from higher natural gas prices, ~~were down due~~as discussed above in sales to ~~higher production, mild weather and a surplus due to decreased demands caused by COVID-19.~~other utilities

•~~Residential Exchange~~ credits decreased by $2.7 million due to a 0.4% change to the amount of credits to be passed back to customers effective November 1, 2021, see Management's Discussion and Analysis, "Regulation and Rates" included in Item 2 of this report

4843

Natural Gas Margin

Natural gas margin is natural gas sales to retail and transportation customers less the cost of natural gas purchased, including transportation costs to bring natural gas to PSE’s service territory. The PGA mechanism passes through increases or decreases in the natural gas supply portion of the natural gas service rates to customers based upon changes in the price of natural gas purchased from producers and wholesale marketers or changes in natural gas pipeline transportation costs. PSE's margin or net income is not affected by changes under the PGA mechanism because over- and under- recoveries of natural gas costs included in baseline PGA rates are deferred and either refunded to or collected from customers in future periods.

The following chart displays the details of PSE's natural gas margin changes for the three months ended March 31, ~~2021~~2022 and ~~2022:~~2023:

______________

* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.

Three Months Ended March 31, ~~2021~~2023 Compared to 2022

Natural Gas Operating Revenue

Natural gas operating revenue increased ~~$33.4~~$90.9 million ~~primarily~~ due to ~~an increase of $34.2 million~~increases in ~~total~~ retail sales ~~an increase~~ of ~~$2.9~~$91.7 million, inother decoupling revenue ~~and a $1.9~~of $2.7 million ~~increase in~~and transportation and other ~~revenue;~~revenue of $1.9 million, partially offset by a decrease in decoupling revenue of ~~$5.6 million in other decoupling revenue.~~$5.4 million. These items are discussed in detail below.

•Natural gas retail sales revenue increased ~~$34.2~~$91.7 million primarily due to an increase in rates of ~~$37.4~~$78.3 million ~~partially offset by a $3.2~~and an increase of $13.3 million ~~decrease~~ due to ~~a decrease~~an increase in natural gas load of ~~0.3%~~2.5%. The increase in rates is primarily due to the ~~PGA increase effective November 1, 2021 and the~~ tariffs ~~effective October 1, 2020~~ filed pursuant to the Company's ~~2019 GRC.~~most recent PGA and GRC effective and November 1, 2022 and January 7, 2023, respectively. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report and Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and ~~Rates"~~Recovery of PSE Costs" included in ~~Item 2 of this report~~the Company's Annual Report on Form 10-K for the period ended December 31, 2022 for natural gas rate changes. The increase in load is primarily driven by a 1.9% and 2.8% increase in residential and commercial usage, respectively. Customer usage increased due to an increase in retail customers of 0.7% and an increase in heating degree days of 1.0% due to lower than normal temperatures in the three months ended March 31, 2023 as compared to 2022.

4944

•Decoupling revenue ~~increased $2.9~~decreased $5.4 million primarily attributable to ~~decreased usage~~higher rates in the current period compared to the same period in ~~2021, as noted above in the retail revenue section.~~2022. This resulted in actual natural gas revenues being ~~lower~~higher than allowed natural gas revenues in the current period, whereas in the same period in ~~2021, allowed~~2022, actual revenues were ~~closer to actual~~lower than allowed revenues.

•Other decoupling revenue ~~decreased $5.6~~increased $2.7 million due to ~~an increase~~a decrease in current period amortization of prior year decoupling revenues compared to the same period in ~~2021.~~2022. This is attributable to ~~an increase in~~decreased amortization rates, ~~from increased cumulative~~which decreases the rate at which deferral revenues are passed back to ~~recover from~~ customers.

Natural Gas Energy Costs

•Purchased natural gas expense increased ~~$22.3~~$58.1 million due to an increase in the PGA rates in November ~~2021 partially offset by a decrease~~2022 and an increase in natural gas usage of ~~0.3%~~2.5% as stated in the natural gas retail sales section above. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report for natural gas rate changes and details on the PGA.

Other Operating Expenses and Other Income (Deductions)

The following chart displays the details of PSE's operating expenses and other income (deductions) for the three months ended March 31, ~~2021~~2022 and ~~2022:~~2023:

Three Months Ended March 31, ~~2021~~2023 Compared to 2022

•Net unrealized (gain) loss on derivative instruments decreased ~~$108.9~~$324.0 million to a net ~~gain~~loss of ~~$131.9~~$192.1 million for the ~~quarter~~three months ended March 31, ~~2022. One of the drivers for the change related to~~2023. The primary driver was the change in the weighted average forward prices for electric and natural gas. Specifically, electric prices ~~increased 6.0%~~decreased 22.1% resulting in ~~a $39.6~~an $84.1 million ~~gain~~loss for electric. Natural gas prices ~~increased 48.4%~~decreased 63.3% resulting in a ~~$104.0~~$130.3 million ~~gain~~loss for natural gas. The other driver is related to the net settlements of electric trades previously recorded as ~~$15.9~~$48.4 million in gain and of natural gas trades previously recorded ~~as $18.8~~at a $61.2 million in gain. For further details, see Note 4, "Accounting for Derivative Instruments and Hedging" in the Combined Notes to ~~the consolidated financial statements~~Consolidated Financial Statements included in Item 1 of this report.

•Utility operations and maintenance expense increased ~~$9.8~~$24.7 million primarily due to increases in the following: (i) ~~$4.3 million in regulatory commission and GRC expense, (ii) $3.9~~$6.9 million of ~~administrative and general~~customer service expenses due to ~~employees returning~~increased low-income assistance, (ii) $3.5 million in outside consulting fees related to ~~work, resumed travel~~strategic planning and ~~higher IT costs,~~execution of management's initiatives, (iii) ~~$4.0~~$2.5 million of injuries and damages expense, (iv) $2.4 million in electric ~~distribution expenses due to higher engineering costs, emergent non-outage and outage repairs, travel~~first response, safety, and training expenses, ~~and residential disconnects and connects, (iv) $1.3~~(v) $2.0 million in ~~natural gas leak inspections and repairs, (v) $1.3~~Colstrip decommissioning expenses, (vi) $1.8 million of pension related expenses, ~~and (vi) $1.1~~(vii) $1.5 million of ~~Colstrip~~overhead line maintenance ~~expense. These increases were partially offset by decreases of (vii) $6.4 million~~ due to ~~fewer~~ storm ~~events in 2022~~related activities, (viii) $1.3 million of other generation maintenance costs due to higher wind turbine maintenance and ~~(viii)~~(ix) $1.2 million of ~~injuries and damages~~steam plant maintenance costs due to higher major maintenance amortization expense.

•Non-utility expense and other expense ~~increased $3.4~~decreased $4.8 million primarily due to ~~an increase~~a decrease of ~~$1.7~~$2.3 million ~~related to~~in biogas purchase expense and ~~an increase for~~a decrease of $3.1 million in the long-term incentive plan, ~~of $1.4 million due to estimated performance results,~~ as compared to ~~the prior year.~~2022, due to an increase in 2022 funding as of March 31, 2022.

•Depreciation and amortization expense ~~decreased $48.6~~increased $31.4 million due to: (i) $12.5 million increase in electric amortization ~~decreased by $44.2 million or 81.1% from 2021. This decrease is~~ primarily driven by $45.2 million less PTC amortization in 2022 as PSE fully utilized its PTC balance in 2021, (ii) common amortization decreased by $6.0 million or 24.5% from 2021, primarily driven by $18.0 million in net retirements of common technology assets, and (iii) conservation amortization decreased by $3.9 million due to a ~~decrease~~$6.2 million reduction in the Lower Snake River treasury grant amortization from 2022 to 2023 and a $2.8 million addition of 2022 storm cost amortization, (ii) $8.1 million increase in conservation amortization due to an increase in conservation rider rates effective May 1, ~~2021, see Management's Discussion~~2022, (see "Regulation of PSE Rates and ~~Analysis, "Regulation and Rates"~~Recovery of PSE Costs" included in this Item 2 of this ~~report. The decreases were partially offset by (iv)~~report), (iii) $6.5 million increase in natural gas distribution depreciation ~~increased $1.5 million or 4.9% from 2021~~ primarily due to ~~$19.8~~$211.2 million in net additions into natural gas distribution assets and ~~(v)~~due to the increase in depreciation rates per the 2022 GRC, (iv) $2.7 million increase in electric distribution depreciation ~~increased a net of $1.3 million or 3.5% from 2021~~primarily due to ~~$38.7~~$278.1 million in net additions of electric distribution ~~assets.~~assets and due to the increase in depreciation rates per the 2022 GRC and (v) $2.1 million increase in electric production depreciation primarily due to $27.8 million in net additions of electric production assets and due to the increase in depreciation rates per the 2022 GRC. The increases were partially offset by a decrease in electric general plant and other depreciation of $1.2 million primarily due to decreased asset retirement costs.

•Taxes other than income taxes increased ~~$10.8~~$12.1 million primarily due to ~~an $5.6~~a $7.3 million ~~related to municipal taxes~~increase in state excise tax and an increase of ~~$3.3~~$6.3 million ~~related to the state excise tax~~in municipal taxes, both of which were driven by the increase in retail revenue in ~~2022~~2023 as compared to ~~2021.~~2022. The increases were partially offset by a decrease of $1.4 million in property taxes.

Other Income, Interest Expense and Income Tax Expense

•Other income/expense changed$2.5 million from net other income of $7.8 million in 2022 to net other income of $10.3 million in 2023. Other expenses decreased $0.6 million and other income increased $1.9 million, which was primarily due to (i) $2.2 million in taxable interest and dividend income, (ii) $1.8 million in the non-service cost component of the qualified pension net periodic benefit cost for 2023 compared to 2022 and (iii) $1.4 million in gain on corporate life insurance policies. The increase in other income was partially offset by a decrease of $2.5 million in Advanced Metering Infrastructure (AMI) due to a change in AMI return deferral per the 2022 GRC.

•Interest expense increased $2.4 million primarily due to an increase of $1.6 million in common interest expense due to an increase in interest rates on commercial paper borrowings in 2023 compared to 2022, and an increase of $1.2 million related to interest expense recognized in conjunction with PSE's deferred compensation liability.

•Income tax expense ~~increased $18.2~~decreased $32.4 million primarily driven by ~~an increase~~a decrease in pre-tax book income.

Puget Energy

Primarily, all operations of Puget Energy are conducted through PSE. Puget Energy's net income (loss) for the three months ended March 31, ~~2021~~2022 and ~~2022~~2023 is as follows:

Three Months Ended March 31, ~~2021~~2023 compared to 2022

Summary Results of Operation

Puget Energy’s net income ~~increased~~decreased by ~~$89.3~~$278.3 million, which is primarily attributable to ~~an increase~~(i) a decrease in PSE's net income of ~~$88.6 million. Additional drivers include~~$260.5 million, (ii) a decrease in ~~interest expense~~income tax benefit of ~~$4.2~~$16.0 million due to the timing of net settlements on electric and natural gas trades, which ~~is a result of lower interest rates on outstanding debt which was partially offset by~~decreased Puget Energy's effective tax rate more in 2022 compared to 2023, and (iii) an increase in net loss of ~~$2.9~~$4.2 million at ~~PLNG~~Puget LNG due to additional operational ~~expenses.~~expenses as Puget LNG commenced commercial operations in February 2022. These decreases were partially offset by less interest expense of $3.6 million.

Capital Requirements

Contractual Obligations and Commercial Commitments

~~During the three months ended March 31, 2022, there have been no changes~~In addition to the contractual obligations and consolidated commercial commitments disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022, during the three months ended March 31, 2023, the Company entered into new Electric Portfolio and Electric Wholesale Market Transaction contracts with estimated payment obligations totaling $3.3 billion through 2051.

For further information, see Part II, Item 8, Note 16, "Commitments and Contingencies" toin the ~~consolidated financial statements included in Item 8 of the~~ Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

5248

The following are the Company's aggregate ~~availability under~~ commercial commitments as of March 31, ~~2022:~~2023:


Puget Energy and Puget Sound Energy	Puget Energy and Puget Sound Energy	Amount of Available Commitments Expiration Per Period										Puget Energy and Puget Sound Energy	Amount of Commitments Expiration Per Period
(Dollars in Thousands)	(Dollars in Thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years		Thereafter		(Dollars in Thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years		Thereafter
Commercial commitments:	Commercial commitments:											Commercial commitments:
PSE revolving credit facility		$	800,000	$	—	$	800,000	$	—	$	—
Inter-company short-term debt		30,000		—		—		—		30,000
PSE revolving credit facility1												PSE revolving credit facility1	$	800,000	$	—	$	—	$	800,000	$	—
Inter-company short-term debt2												Inter-company short-term debt2	30,000		—		—		—		30,000
Total PSE commercial commitments	Total PSE commercial commitments	830,000		—		800,000		—		30,000		Total PSE commercial commitments	830,000		—		—		800,000		30,000
Puget Energy revolving credit facility		765,700		—		765,700		—		—
Puget Energy revolving credit facility3												Puget Energy revolving credit facility3	800,000		—		—		800,000		—
Less: Inter-company short-term debt elimination	Less: Inter-company short-term debt elimination	(30,000)		—		—		—		(30,000)		Less: Inter-company short-term debt elimination	(30,000)		—		—		—		(30,000)
Total Puget Energy commercial commitments	Total Puget Energy commercial commitments	$	1,565,700	$	—	$	1,565,700	$	—	$	—	Total Puget Energy commercial commitments	$	1,600,000	$	—	$	—	$	1,600,000	$	—

_______________

1.As of March 31, 2023, PSE had a credit facility which provides $800.0 million of short-term liquidity needs and includes a backstop to the Company's commercial paper program. The credit facility matures in May 2027. The credit facility also includes a swingline feature allowing same day availability on borrowings up to $75.0 million and an expansion feature that, upon the banks' approval, would increase the total size of the facility to $1.4 billion. As of March 31, 2023, no loans or letters of credit were outstanding under the credit facility and $137.0 million was outstanding under the commercial paper program. The credit agreement is syndicated among numerous lenders. Outside of the credit agreement, PSE has a $2.3 million letter of credit in support of a long-term transmission contract and had $6.0 million issued under a standby letter of credit with TD Bank in support of natural gas purchases.

~~For further discussion, see Management's Discussion~~2.As of March 31, 2023, PSE had a revolving credit facility with Puget Energy in the form of a promissory note to borrow up to $30.0 million.

3.As of March 31, 2023, Puget Energy had a revolving senior secured credit facility totaling $800.0 million, which matures in May 2027. The revolving senior secured credit facility is syndicated among numerous lenders. The revolving senior secured credit facility also has an expansion feature that, upon the banks' approval, would increase the size of the facility to $1.3 billion. As of March 31, 2023, there was $135.0 million drawn and ~~Analysis, "Financing Program" in Item 2~~ outstanding under the Puget Energy credit facility,of ~~this report.~~which $34.3 million was classified as long-term debt and $100.7 million was classified as short-term debt.

Off-Balance Sheet Arrangements

As of March 31, ~~2022,~~2023, the Company had no off-balance sheet arrangements that have or are reasonably likely to have a material effect on the Company's financial condition.

Utility Construction Program

The Company’s construction programs for generating facilities, the electric transmission system, the natural gas and electric distribution systems and the Tacoma LNG facility are designed to meet regulatory requirements, support customer growth and to improve energy system reliability. The Company had adjusted capital expenditures, resulting in a decrease of ~~$23.8~~$47.6 million compared to forecasted amounts for the three months ended March 31, ~~2022.~~2023. The decrease was primarily due to (i) ~~project and~~ permitting delays ~~for the Lower Baker Dam grouting project, which is being pursued in order to comply~~ with the ~~Federal Energy Regulatory Commission (FERC) dam safety standards~~Energize Eastside substation and ~~to extend the life of the~~transmission upgrade project, ~~to meet the 50 year FERC license;~~ (ii) timing ~~related variances with IT Data Center hardware refresh,~~of thermal and wind generation maintenance, and (iii) timing of ~~the Dupont pipe replacement program.~~technology expenditures offset by higher gas new customer construction and public improvement work. Construction expenditures, excluding equity ~~allowance for funds used during construction (AFUDC),~~AFUDC, totaled ~~$233.1~~$229.0 million for the three months ended March 31, ~~2022.~~2023. Presently planned utility construction expenditures, excluding equity AFUDC, are as follows:

Capital Expenditure Projections
(Dollars in Millions) 2022 2023 2024
Total energy delivery, technology and facilities expenditures $973.9 $1,293.1 $1,292.1


Capital Expenditure Projections
(Dollars in Millions)	2023	2024	2025
Total energy delivery, technology and facilities expenditures	$1,146.7	$1,311.9	$1,304.2

The program is subject to change based upon general business, economic and regulatory conditions. Utility construction expenditures and any new generation resource expenditures may be funded from a combination of sources which may include cash from operations, short-term debt, long-term debt and/or equity. PSE’s planned capital expenditures may result in a level of spending that will exceed its cash flow from operations. As a result, execution of PSE’s strategy is dependent in part on continued access to capital markets.

5349

Capital Resources

Cash from Operations


Puget Sound Energy	Puget Sound Energy	Three Months Ended March 31,						Puget Sound Energy	Three Months Ended March 31,
(Dollars in Thousands)	(Dollars in Thousands)	2022		2021		Change		(Dollars in Thousands)	2023		2022		Change
Net income	Net income	$	288,081	$	199,470	$	88,611	Net income	$	27,535	$	288,081	$	(260,546)
Non-cash items1	Non-cash items1	60,595		190,391		(129,796)		Non-cash items1	342,478		60,595		281,883
Changes in cash flow resulting from working capital2	Changes in cash flow resulting from working capital2	35,638		876		34,762		Changes in cash flow resulting from working capital2	(91,399)		35,638		(127,037)

Regulatory assets and liabilities	Regulatory assets and liabilities	4,470		(14,351)		18,821		Regulatory assets and liabilities	38,162		4,470		33,692
Purchased gas adjustment	Purchased gas adjustment	13,915		40,868		(26,953)		Purchased gas adjustment	123,594		13,915		109,679

Other non-current assets and liabilities3	Other non-current assets and liabilities3	(5,558)		(3,077)		(2,481)		Other non-current assets and liabilities3	(16,498)		(5,558)		(10,940)
Net cash provided by operating activities	Net cash provided by operating activities	$	397,141	$	414,177	$	(17,036)	Net cash provided by operating activities	$	423,872	$	397,141	$	26,731

_______________

1 Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity, ~~PTCs~~production tax credits (PTCs) and

other miscellaneous non-cash items.

2 Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayment, PGA, accounts

payable and accrued expenses.

3 Other non-current assets and liabilities include funding of pension liability.

Three Months Ended March 31, ~~2022~~2023 compared to ~~2021~~2022

Cash generated from operations for the three months ended March 31, ~~2022 decreased~~2023 increased by ~~$17.0~~$26.7 million including a net income ~~increase~~decrease of ~~$88.6~~$260.5 million. The following are significant factors that impacted PSE's cash flows from operations:

•Cash flow adjustments resulting from non-cash items ~~decreased $129.8~~increased $281.9 million primarily due toto: (i) a ~~$108.9~~$324.0 million change from a net unrealized gain on derivative instruments of ~~$23.0~~$131.9 million to a net unrealized ~~gain~~loss on derivative instruments of ~~$131.9~~$192.1 million, ~~a decrease~~(ii) an increase in depreciation and amortization of ~~$44.7~~$23.3 million, (iii) a $10.8 million increase due to deferral of energy exchange cost and (iv) an increase of $8.1 million in conservation amortization. The increases were partially offset by a decrease in ~~conservation amortization of $3.9 million,~~ deferred income taxes of ~~$15.1 million and equity AFUDC of $1.2 million; partially offset by a $45.2 million change in PTC utilization.~~$82.8 million. For further details, see ~~Management's Discussion and Analysis,~~ "Other Operating Expenses" in this Item 2 of this report.

•Cash flows resulting from changes in working capital ~~increased $34.8~~decreased $127.0 million primarily due to accounts payable decreased faster than the ~~change~~same period last year that led to increased cash outflows of $207.6 million and an increased cash outflow of $8.5 million related to higher incentive payments. The cash outflows were partially offset by: (i) an increase of $42.9 million due to higher tax payable balance, (ii) higher balances in ~~accounts receivable, which contributed to~~fuel inventory added cash inflows of $25.0 million, and (iii) a cash inflow of ~~$56.1 million. Accounts~~$22.6 million due to the timing of accounts receivable collections, as the balance of account receivable decreased ~~$38.1~~$60.8 million in the three months ended March 31, ~~2022~~2023 compared to ~~an increase~~a decrease of ~~$18.0~~$38.2 million during the same period of 2021. Additionally, increased taxes payable added cash inflow of $23.6 million. The cash inflows were partially offset by $46.7 million cash outflow in accounts payable and $1.8 million increase in accrued expenses.2022.

•Cash flows resulting from regulatory assets and liabilities increased ~~$18.8~~$33.7 million primarily due ~~a deferral~~to: (i) lower decoupling deferrals and higher decoupling cash collection in the first three months of ~~$12.9 million of storm excess costs~~2023 compared to the same period in ~~2021. Amortizing IRS PLR deferral balances contributed an addition of $5.9~~2022, which resulted in $11.1 million cash inflow ~~see Management's Discussion~~together, (ii) rate collection for recovery of prior distribution in COVID-19 bill assistance program brought in $10.3 million cash inflow, and ~~Analysis, "Regulation~~(iii) lower expenses and ~~Rates" included~~higher amortization led to an increase of $11.1 million cash inflow in ~~Item 2 of this report.~~property tax tracker.

•Cash flow resulting from purchased gas adjustment ~~decreased $27.0~~increased $109.7 million, which was mainly driven by ~~an increase~~a decrease in actual natural gas cost ~~that exceeded the~~and increase in allowed PGA recovery in ~~2022~~2023 compared to ~~2021. Increased~~2022. Decreased natural gas prices led to a ~~$48.4~~$24.2 million, ~~(or 42.8%) increase~~or 14.9%, decrease in actual natural gas costs in ~~2022~~2023 compared to ~~2021.~~2022. Meanwhile, the total amount of allowed PGA recovery in ~~2022~~2023 increased ~~only $21.4~~$58.4 million, ~~(or 13.8%)~~or 33.2%, compared to ~~2021. The combined effect led to year-over-year cash outflow.~~2022. In addition, there was a $27.2 million refund and interest from a counterparty settlement received in January 2023.

•Cash ~~flows~~flow resulting from ~~changes in~~ other non-current assets and liabilities ~~decreased $2.5~~increased $10.9 million, ~~primarily~~which was driven by ~~a decrease~~cash inflows of ~~$1.7~~$2.6 million due a Puget Western, Inc. land sale in 2023. Further increases were due to ~~a lower~~changes in accrual of ~~liability reserve.~~other long-term expenses.

5450


Puget Energy	Puget Energy	Three Months Ended March 31,						Puget Energy	Three Months Ended March 31,
(Dollars in Thousands)	(Dollars in Thousands)	2022		2021		Change		(Dollars in Thousands)	2023		2022		Change
Net income	Net income	$	(9,786)	$	(10,477)	$	691	Net income	$	(27,566)	$	(9,786)	$	(17,780)
Non-cash items1	Non-cash items1	(6,085)		(11,720)		5,635		Non-cash items1	10,169		(6,085)		16,254
Changes in cash flow resulting from working capital2	Changes in cash flow resulting from working capital2	3,449		(5,913)		9,362		Changes in cash flow resulting from working capital2	2,029		3,449		(1,420)

Other non-current assets and liabilities3	Other non-current assets and liabilities3	(2,333)		(2,618)		285		Other non-current assets and liabilities3	(879)		(2,333)		1,454
Net cash provided by operating activities	Net cash provided by operating activities	$	(14,755)	$	(30,728)	$	15,973	Net cash provided by operating activities	$	(16,247)	$	(14,755)	$	(1,492)

_______________

1 Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity, PTCs and

other miscellaneous non-cash items.

2 Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayments, PGA, accounts payable and accrued expenses.

3 Other noncurrent assets and liabilities include funding of pension liability.

Three Months Ended March 31, ~~2022~~2023 compared to ~~2021~~2022

Cash generated from operations for the three months ended March 31, ~~2022,~~2023, in addition to the changes discussed at PSE above, ~~increased~~decreased by ~~$16.0~~$1.5 million compared to the same period in ~~2021,~~2022, which includes a net income ~~increase~~decrease of ~~$0.7~~$17.8 million. The remaining change was primarily impacted by the factors explained below:

•Non-cash items increased ~~$5.6~~$16.3 million primarily due to higher non-cash inflows of ~~$4.8~~$15.5 million related to changes in deferred taxes and an increase in amortization and depreciation of $0.8 ~~million.~~

•~~Cash flow resulting from working capital~~ increased $9.4 million primarily due to a $11.4 million increase related to changes in interest accrual for debts at PE. In addition, a $3.7 million increase was caused by the change in PSE's intercompany account receivable and account payable balances with Puget LNG and Puget Energy, which are eliminated upon consolidation of Puget Energy. Cash inflows were partially offset by increased cash outflow of $5.4 million in tax payable and lower other accrued expenses of $0.3 million.

Financing Program

The Company’s external financing requirements principally reflect the cash needs of its construction program, its schedule of maturing debt and certain operational needs. The Company anticipates refinancing the redemption of bonds or other long-term borrowings with its credit facilities and/or the issuance of new long-term debt. Access to funds depends upon factors such as Puget Energy’s and PSE’s credit ratings, prevailing interest rates and investor receptivity to investing in the utility industry, Puget Energy and PSE. The Company believes it has sufficient liquidity through its credit facilities and access to capital markets to fund its needs over the next twelve months.

Proceeds from PSE’s short-term borrowings and sales of commercial paper are used to provide working capital and the interim funding of utility construction programs. Puget Energy and PSE continue to have reasonable access to the capital and credit markets.

As ~~a result~~ of the COVID-19 pandemic and its impact on the economy and capital markets, the Company continues to carefully monitor cash receipts from customers and any impacts on the Company’s liquidity which may affect its ability to fund safe, reliable, and dependable service for our customers. Our initiative to suspend disconnections of customers for non-payment and the receipt of the Washington Commission approval to waive late fees will impact future cash receipts.

As a result of the 2019 GRC outcome and the continuing negative impacts of tax reform on the Company's cash flows, Puget Energy and PSE's credit rating metrics were negatively impacted. In response to the 2019 GRC order, Moody's released an issuer comment stating the GRC outcome was credit negative but took no formal credit rating action. On July 23, 2020, S&P placedMarch 31, 2023 both Puget Energy and PSE ~~on CreditWatch with negative implications due the rate case outcome, but later revised to negative outlook.~~have stable outlooks from Moody’s, Fitch, ~~affirmed Puget Energy~~ and ~~PSE ratings but changed its outlook from stable to negative. On May 27, 2021,~~ S&P revised Puget Energy’s and PSE’s ratings from negative to stable outlook. On June 1, 2021, Fitch also revised its outlook for PE and PSE to stable. Both actions were a result of the passage and signing into law of Washington Senate Bill 5295 which allows for multi-year rate plans and reduction of regulatory lag, as well as other actions taken by management to increase revenue via available rate recovery methods and management of internal expenses. Despite these actions, the rating agencies noted that a lack of sufficient regulatory rate relief over the relative near term could result in negative ratings implications.&P. Although neither Puget Energy nor PSE have any debt whose maturity would be accelerated upon a ratings downgrade, Management continually monitors the credit rating environment for both Puget Energy and PSE as a credit rating downgrade may increase the cost of borrowing for Puget Energy and PSE in future long-term

financings or under their existing credit facilities. Any increase in the cost of borrowing ~~may~~could negatively impact Puget Energy and PSE's future results of operations ~~and could negatively impact their~~as well as future liquidity, access to debt capital resources and financial condition. Additionally, a ratings downgrade could impact the Company's ability to issue ~~dividends, see Dividend Payment Restriction below for further details.~~dividends. A downgrade to Puget Energy and PSE's credit ratings would not impact debt covenants under our existing credit facilities nor would it impact other contracts, as neither include credit rating triggering event clauses. A credit rating decrease for PSE could result in increased cash collateral required for commodity contracts, which would adversely affect PSE's liquidity. Management ~~continually monitors the credit rating environment for both Puget Energy and PSE, but~~ cannot predict with certainty the actions credit agencies may take, if any, in response to weaker near term credit metrics, regulatory and rate recovery uncertainties, and management's efforts to contain the growth of capital and operating expenditures. Containing the growth of capital and operating expenditures will be limited, over the near ~~to medium~~ term, due to continuing strategic and risk mitigation imperatives and the necessity of providing safe, reliable and resilient service levels to ~~customers, particularly in the context of the COVID-19 pandemic.~~customers.

Puget Sound Energy

Credit Facility

~~As of March 31,~~On May 16, 2022, PSE ~~had an~~entered into a new $800.0 million credit facility to ~~meet short-term liquidity needs.~~replace the existing facility. The terms and conditions, including fees, financial covenant, expansion feature and credit spreads remain substantially the same. The base interest rate on loans has changed to the Secured Overnight Financing Rate (SOFR), as the London Interbank Offered Rate (LIBOR) is being discontinued in 2023. The proceeds of the PSE credit facility are to be used for general corporate purposes. The maturity date of the credit facility is May 14, 2027. The credit facility includes a swingline feature allowing same day

availability on borrowings up to $75.0 ~~million. The credit facility~~million and has an expansion feature which, upon ~~the banks' approval, would~~receipt of commitments from one or more lenders, could increase the total size of the facility up to $1.4 billion. ~~The unsecured revolving credit facility matures in October 2023.~~

The credit agreement is syndicated among numerous lenders and contains usual and customary affirmative and negative covenants that, among other things, place limitations on PSE's ability to transact with affiliates, make asset dispositions and investments or permit liens to exist. The credit agreement also contains a leverage ratio that requires the ratio of (a) total funded indebtedness to (b) total capitalization to be 65.0% or less at all times. PSE certifies its compliance with such covenants to participating banks each quarter. As of March 31, ~~2022,~~2023, PSE was in compliance with all applicable covenant ratios.

The credit agreement ~~provides PSE with the ability to borrow at different interest rate options. The credit agreement~~ allows PSE to borrow at ~~the bank's~~a prime based rate or to make floating rate advances at the ~~London Interbank Offered Rate (LIBOR)~~SOFR, in either case, plus a spread that is based upon PSE's credit rating. PSE must pay a commitment fee on the unused portion of the credit facility. The spreads and the commitment fee depend on PSE's credit ratings. As of the date of this report, interest was calculated as SOFR plus 0.10% SOFR adjustment plus 1.25% spread over the ~~spread to the LIBOR is 1.25%~~adjusted SOFR rate and the commitment fee iswas 0.175%.

As of March 31, ~~2022,~~2023, no amount was drawn under PSE's credit facility and ~~$69.8~~$137.0 million was outstanding under the commercial paper program. Outside of the credit agreement, PSE had a ~~$2.5~~$2.3 million letter of credit in support of a long-term transmission ~~contract.~~contract and had $6.0 million issued under a standby letter of credit with TD Bank in support of gas purchases on the natural gas exchange (NGX) in Canada.

Demand Promissory Note

In 2006, PSE entered into a revolving credit facility with Puget Energy, in the form of a credit agreement and a demand promissory note (Note) pursuant to which PSE may borrow up to $30.0 million from Puget Energy subject to approval by Puget Energy. Under the terms of the Note, PSE pays interest on the outstanding borrowings based on the lower of the weighted-average interest rates of PSE’s outstanding commercial paper interest rate or PSE’s senior unsecured revolving credit facility. Absent such borrowings, interest is charged at one-month LIBOR plus 0.25%. As of March 31, ~~2022,~~2023, PSE had no outstanding balance under the Note.

Debt Restrictive Covenants

The type and amount of future long-term financings for PSE may be limited by provisions in PSE's electric and natural gas mortgage indentures.

PSE’s ability to issue additional secured debt may also be limited by certain restrictions contained in its electric and natural gas mortgage indentures. Under the most restrictive tests at March 31, ~~2022,~~2023, PSE could issue:

•Approximately ~~$1.7~~$1.9 billion of additional first mortgage bonds under PSE’s electric mortgage indenture based on approximately ~~$2.9~~$3.1 billion of electric bondable property available for issuance, subject to an interest coverage ratio limitation of 2.0 times net earnings available for interest (as defined in the electric utility mortgage), which PSE exceeded at March 31, ~~2022;~~2023; and

•Approximately ~~$919.0 million~~$1.0 billion of additional first mortgage bonds under PSE’s natural gas mortgage indenture based on approximately ~~$1.5~~$1.7 billion of natural gas bondable property available for issuance, subject to a combined natural gas and electric interest coverage test of 1.75 times net earnings available for interest and a natural gas interest coverage test of 2.0 times net earnings available for interest (as defined in the natural gas utility mortgage), both of which PSE exceeded at March 31, ~~2022.~~2023.

At March 31, ~~2022,~~2023, PSE had approximately ~~$8.4~~$8.7 billion in electric and natural gas rate base to support the interest coverage ratio limitation test for net earnings available for interest.

Shelf Registrations

In ~~2019,~~August 2022, PSE filed ~~a new~~an S-3 shelf registration statement under which it may issue up to ~~$1.0~~$1.4 billion aggregate principal amount of senior notes secured by first mortgage bonds. As of the date of this report, ~~$100.0 million~~$1.4 billion was available to be issued. The shelf registration will expire in August ~~2022.~~2025.

Dividend Payment Restrictions

The payment of dividends by PSE to Puget Energy is restricted by provisions of certain covenants applicable to long-term debt contained in PSE’s electric and natural gas mortgage indentures. At March 31, ~~2022,~~2023, approximately ~~$1.3~~$1.6 billion of unrestricted retained earnings was available for the payment of dividends under the most restrictive mortgage indenture covenant.

Beginning February 6, 2009, pursuant to the terms of the merger order by the Washington Commission, PSE may not declare or pay dividends if PSE’s common equity ratio, calculated on a regulatory basis, is 44.0% or below except to the extent

a lower equity ratio is ordered by the Washington Commission. Also, pursuant to the merger order, PSE may not declare or make any distribution unless on the date of distribution PSE’s corporate credit/issuer rating is investment grade, or, if its credit ratings are below investment grade, PSE’s ratio of earnings before interest, tax, depreciation and amortization (EBITDA) to interest expense for the most recently ended four fiscal quarter ~~periods~~period prior to such date is equal to or greater than 3.0 to 1.0. The common equity ratio, calculated on a regulatory basis, was ~~48.8%~~49.9% at March 31, ~~2022,~~2023, and the EBITDA to interest expense ratio was ~~5.3~~5.2 to 1.0 for the twelve months ended March 31, ~~2022.~~2023.

PSE’s ability to pay dividends is also limited by the terms of its credit facilities, pursuant to which PSE is not permitted to pay dividends during any Event of Default (as defined in the facilities), or if the payment of dividends would result in an Event of Default, such as failure to comply with certain financial covenants. At March 31, ~~2022,~~2023, the Company was in compliance with all applicable covenants, including those pertaining to the payment of dividends.

Long Term Debt

~~On September 15, 2021, PSE issued $450.0 million of senior secured notes at an interest rate of 2.893%. The notes were issued for a period of 30 years, mature~~For information on ~~September 15, 2051, and pay interest semi-annually on March 15 and September 15of each year. The proceeds from~~ the ~~issuance will be used for repayment of commercial paper as well as general corporate purposes. For further information,~~Company's long term debt, see Part II, Item 8, Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's ~~most recent~~ Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Puget Energy

Credit Facility

~~At March 31,~~On May 16, 2022, Puget Energy ~~maintained an~~entered into a new $800.0 million credit facility to replace the existing facility. The terms and conditions, including fees, financial covenant, expansion feature and credit spreads remain substantially the same. The base interest rate on loans has changed to the SOFR, as the LIBOR is being discontinued in 2023. The proceeds of the PE credit facility are to be used for general corporate purposes. The maturity date of the credit facility is May 14, 2027. The Puget Energy revolving senior secured credit facility also has an accordion feature, upon ~~the banks' approval, would~~receipt of commitments from one or more lenders, could increase the size of the facility up to $1.3 billion. ~~The revolving credit facility matures in October 2023.~~

The revolving senior secured credit facility provides Puget Energy the ability to borrow ~~at different interest rate options and includes variable fee levels. Interest rates may be~~ based on ~~the bank's~~a prime based rate or ~~LIBOR,~~SOFR, in either case, plus a spread based on Puget Energy's credit ratings. Puget Energy must pay a commitment fee on the unused portion of the facility. As of March 31, ~~2022,~~2023, there was ~~$34.3~~$135.0 million drawn and outstanding under the facility. As of the date of this report, ~~the~~interest was calculated as SOFR plus 0.10% SOFR adjustment plus 1.75% spread over ~~LIBOR was 1.75%~~the adjusted SOFR rate and the commitment fee was 0.275%.

The revolving senior secured credit facility contains usual and customary affirmative and negative covenants. The credit agreement also contains a leverage ratio that requires the ratio of (a) total funded indebtedness to (b) total capitalization to be 65.0% or less at all times. As of March 31, ~~2022,~~2023, Puget Energy was in compliance with all applicable covenants.

On September 26, 2022, PE borrowed $50.0 million on the credit facility and contributed the proceeds to PSE as an equity contribution. The equity proceeds will be used for general corporate purposes.

Shelf Registrations

OnIn March ~~10,~~ 2022, Puget Energy filed an S-3 Registration statement under which it may issue up to $1.0 billion aggregate principal amount of senior notes secured by Puget Energy's assets. As of the date of this report, $550.0 million was available to be issued. The shelf registration will expire in March 2025.

Long-Term Debt

On ~~June 14, 2021,~~March 17, 2022, Puget Energy issued ~~$500.0~~$450.0 million of senior secured notes at an interest rate of ~~2.379%~~4.224%. The notes ~~were issued for a period of 7 years,~~ mature on ~~June~~March 15, ~~2028,~~2032, and pay interest semi-annually on ~~June~~March 15 and ~~December~~September 15 of each year. Proceeds from the issuance of the notes were invested in short-term money market funds, and then used to repay ~~the Company’s $500.0~~Puget Energy's $450.0 million ~~6.00%~~5.625% notes that ~~matured on September 1, 2021.~~

~~On June 23, 2021, Puget Energy received an equity contribution from Puget Equico, LLC, Puget Energy’s parent company. The proceeds from the equity contribution~~ were ~~used~~originally scheduled to ~~pay off Puget Energy’s $210.0 million term loan on June 23, 2021.~~

On March 17, 2022, Puget Energy issued $450.0 million of senior secured notes at an interest rate of 4.224%. The notes were issued for a period of 10 years, mature on March 15, 2032, and pay interest semi-annually on March 15 and September 15~~of each year. The proceeds from the issuance were used for repayment of Puget Energy notes that~~ mature July ~~2022 and for general corporate purposes.~~2022.

Dividend Payment Restrictions

Puget Energy’s ability to pay dividends is also limited by the merger order issued by the Washington Commission in 2009. Pursuant to the merger order, Puget Energy may not declare or make a distribution unless on such date Puget Energy’s ratio of consolidated EBITDA to consolidated interest expense for the four most recently ended fiscal quarters prior to such date is equal to or greater than 2.0 to 1.0. Puget Energy's EBITDA to interest expense was ~~3.8~~3.9 to 1.0 for the twelve months ended March 31, ~~2022.~~2023.

At March 31, ~~2022,~~2023, the Company was in compliance with all applicable covenants, including those pertaining to the payment of dividends.

Other

New Accounting Pronouncements

For the discussion of new accounting pronouncements, see Note 2, "New Accounting Pronouncements" in the Combined Notes to ~~the consolidated financial statements~~Consolidated Financial Statements included in Item I1 of this report.

Washington Clean Energy Transformation Act

In May 2019, Washington State passed the Clean Energy Transformation Act (CETA) ~~that~~, which supports Washington's clean energy economy and transitioning to a clean, affordable, and reliable energy future. The CETA requires all electric utilities to eliminate coal-fired generation from their allocation of electricity by December 31, 2025; to be carbon-neutral by January 1, 2030 through a combination of non-emitting electric generation, renewable generation, and/or alternative compliance options; and makes it the state policy that, by 2045, 100% of electric generation and retail electricity sales will come from renewable or non-emitting resources. Clean energy implementation plans are required every four years from each investor-owned utility (IOU) ~~and~~. The plan must propose interim targets for meeting the 2045 standard between 2030 and 2045 and describe an actionable plan that the IOU intends to pursue to meet the standard. The Washington Commission may approve, reject or recommend alterations to an IOU’s plan.

In order to meet these requirements, the Act clarifies the Washington Commission’s authority to consider and implement performance and incentive-based regulation, multi-year rate plans, and other flexible regulatory mechanisms where appropriate. The Act mandates that the Washington Commission accelerate depreciation schedules for coal-fired resources, including transmission lines, to December 31, 2025, or to allow IOUs to recover costs in rates for earlier closure of those facilities. IOUs will be allowed to earn a rate of return on certain Power Purchase Agreements (PPAs) and 36 months deferred accounting treatment for clean energy projects (including PPAs) identified in the utility’s clean energy implementation plan.

IOUs are considered to be in compliance when the cost of meeting the standard or an interim target within the four-year period between plans equals a 2% increase in the weather-adjusted sales revenue to customers from the previous year. If relying

~~on the cost cap exemption, IOUs must demonstrate that they have maximized investments in renewable resources and non-emitting generation prior to using alternative compliance measures.~~

~~The law requires additional rulemaking by several Washington agencies for its measures to be enacted and PSE is unable to predict outcomes at this time.~~ The Company intends to seek recovery of any costs associated with ~~the clean energy legislation~~CETA through the regulatory process.

~~Colstrip~~

On December 17, 2021, PSE ~~has~~filed its Final CEIP, which proposes a ~~50% ownership interest in Colstrip Units 1~~plan for implementation of CETA for 2022-2025 and 2 and a 25% interest in each of Colstrip Units 3 and 4, which are coal-fired generating units located in Colstrip, Montana. PSE has accelerated the depreciation of Colstrip Units 3 and 4, per the terms of the 2017 GRC settlement, to December 31, 2027, which was subsequently updated to December 31, 2025 as part of the 2019 GRC. The 2017 GRC also repurposed PTCs and hydro-related treasury grants to recover unrecovered plantprojects costs ~~and to fund and recover decommissioning and remediation costs for Colstrip Units 1 through 4.~~

~~Consistent with a June 2019 announcement, Talen permanently shut down Units 1 and 2 at the end of 2019 due to operational losses~~ associated with ~~the Units. Colstrip Units 1 and 2 were retired effective December 31, 2019.~~its implementation. The Washington ~~CETA requires~~Commission held a hearing on January 31, 2023. Once the CEIP is approved by the Washington Commission, ~~to provide recovery of the investment, decommissioning, and remediation~~approved costs ~~associated with the facilities that are not~~will be recovered through the ~~repurposed PTCs and hydro-related treasury grants. The full scope of decommissioning activities and costs may vary from the estimates that are available at this time.~~

On May 19, 2021, PSE along with the Colstrip owners, Avista Corporation, PacifiCorp and Portland General Electric Company filed a lawsuit against the Montana Attorney General challenging the constitutionality of Senate Bill 266. On October 13, 2021, the United States District Court for the District of Montana issued a preliminary injunction finding it likely that Senate Bill 266 unconstitutionally violates the Commerce Clause and Contract Clause of the United States Constitution. Since then, a motion for summary judgment was filed requesting a permanent injunction against enforcement of Senate Bill 266. As of March 31, 2022, the Company is not able to predict the outcome, nor an amount or range of potential impactCEIP tracker approved in the ~~event of an outcome that is adverse to the Company’s interests.~~2022 GRC.

Washington Climate Commitment Act

In 2021, the Washington Legislature adopted the ~~Climate Commitment Act,~~CCA, which establishes a ~~greenhouse gases (GHG)~~GHG emissions cap-and-invest program that ~~will take effect~~caps GHG emissions beginning on January 1, ~~2023.~~2023 and makes further reductions to the cap annually through 2050. The Washington Department of Ecology ~~is currently developing~~(WDOE) published final regulations to implement the program ~~but in~~on September 29, 2022, which became effective on October 30, 2022. In general, the program will require covered entities to obtain emission allowances or offset credits for covered ~~emissions.~~emissions and the WDOE provides the annual allowance budget based on the cap. Allowances can be obtained through quarterly auctions, or bought and sold on a secondary market.

The ~~Climate Commitment Act will regulate~~CCA regulates PSE both as an electric utility and as a natural gas distribution utility. PSE ~~will be~~is required to obtain emission allowances or offset credits for GHG emissions associated with electricity generated in or imported into the state ~~if the~~to serve Washington State load, and all electricity generated by Washington State PSE facilities with total annual emissions ~~associated with this generation exceed~~exceeding 25,000 metric tons of carbon dioxide equivalent per year. As an electric utility subject to Washington’s CETA, which is discussed ~~above,~~below, PSE will receive ~~some~~ emission allowances at no cost through 2050 for direct emissions associated with electricity used to serve Washington State load to mitigate impacts to ratepayers. PSE will also be required to obtain emission allowances for GHG emissions associated with natural gas supplied to customers and any facilities associated with its natural gas system with total facility emissions that exceed 25,000 metric tons of carbon dioxide equivalent per year. PSE will receive some emission allowances to cover its natural gas obligation at no cost to mitigate impacts to customers; the amount will be based on a ~~declining basis~~percentage of baseline emissions (determined from 2015 - 2019 natural gas system related emissions) that will decline to mitigate rate impacts to certain natural gas customers. ~~The Department~~Offset credit use is limited and the WDOE will reduce the cap proportionally for any offsets used. In the first compliance period, 2023-2026, participating entities can cover up to 5% of ~~Ecology’s implementing regulations are expected~~their emissions with offset credits, and can cover an additional 3% with credits from projects on federally recognized Tribal lands. In the second compliance period, 2027-2030, the general limit drops to ~~be finalized later this year.~~4%, with an additional 2% from projects on Tribal lands.

Related Party Transactions

In August 2015, PSE filed a proposal with the Washington Commission to develop a ~~liquefied nature gas (LNG)~~LNG facility at the Port of Tacoma. The Tacoma LNG facility ~~will provide~~provides peak-shaving services to PSE’s natural gas customers, and ~~will provide~~provides LNG as fuel to

transportation customers, particularly in the marine market. Following a mediation process and the filing of a settlement stipulation by PSE and all parties, the Washington Commission issued an order on October 31, 2016, that allowed PSE’s parent company, Puget Energy, to create a wholly-owned subsidiary, named Puget LNG, which was formed on November 29, 2016, for the sole purpose of owning, developing and financing the non-regulated activity of the Tacoma LNG facility. Puget LNG has entered into one fuel supply agreement with a maritime customer and is marketing the facility’s ~~expected~~ output to other potential customers.

OnIn February 1, 2022, the Tacoma LNG facility at the Port of Tacoma completed commissioning and commenced commercial ~~operations in February 2022.~~operations. Pursuant to the Commission’s order, Puget LNG ~~will be~~is allocated approximately 57.0% of the capital and operating costs of the Tacoma LNG facility and PSE will be allocated the remaining 43.0% of the capital and operating costs. PSE and Puget LNG are considered related parties with similar ownership by Puget Energy. Therefore, capital and operating costs that occur under PSE and are allocated to Puget LNG are related party transactions by nature. Per this allocation of costs, ~~$244.8~~$244.9 million of non-utility plant and ~~$2.2~~$7.8 million of operating costs related to Puget LNG's portion of the Tacoma LNG facility are reported in the Puget Energy "Other property and investments" and "Non-utility

expense and other" financial statement line items, respectively, as of March 31, ~~2022.~~2023. The portion of the Tacoma LNG facility allocated to PSE ~~will be~~is subject to regulation by the Washington Commission.

Integrated Resource Plans, Resource Acquisition and Development

~~On April 1,~~The 2021 Integrated Resource Plan marked a major departure from past Integrated Resource Plans (IRP) due in large part to the ~~Company~~passage of CETA. The new electric progress report rules, Washington Administrative Code 480-100-625 Integrated Resource Plan Development and Timing, outlines the requirements for this report. The two-year progress report must be filed at least every two years after the utility files it’s IRP. The final ~~2021 IRP~~2023 Electric Progress Report and the ~~2021 Request for Proposals for All Resources (All-source RFP),~~Gas Utility IRP were filed on March 31, 2023.

On February 10, 2023 the FERC approved a voluntary regional resource adequacy program that PSE plans to participate in along with other utilities in the Western United States and ~~has since received a number of bids, which~~Canada. The program is intended to help the ~~Company is currently evaluating. Bidders have informed the Company that prices~~region anticipate its future power supply needs as natural gas-fired and coal power plants retire and are ~~being impacted~~replaced by ~~substantial inflationary pressure, resulting in higher proposed prices for~~variable renewable energy ~~than anticipated. While the current estimates related to RFP bids have no direct financial impact, the Company continues to monitor the impacts of inflation~~resources such as wind and ~~market pricing pressures on future energy needs.~~solar.

For further information, see Part I, Item I - “Integrated Resource Plans, Resource Acquisition and Development” ofin the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Environmental Remediation

The Company is subject to federal and state requirements for protection of the environment, including those for release of hazardous materials and remediation of contaminated sites. A potentially responsible party has joint and several liability under existing U.S. environmental laws. In instances where we have been designated a potentially responsible party by the Environmental Protection Agency or state environmental agency, we are potentially liable for the cost of remediating contamination at current work sites and former work sites. Such sites include former manufactured gas plants operated by PSE predecessors, such as Gas Works Park on the shore of Lake Union in Seattle, or contaminated facilities with other connections to PSE predecessors, such as the location of a long-defunct creosote manufacturer which had purchased waste products from PSE predecessors, the Quendall Terminals site on Lake Washington in Renton, Washington. In each case, PSE assesses, based on in-depth studies, expert analyses and legal reviews, our environmental remediation obligations related to contaminated sites, including assessments of ranges and probabilities of recoveries from other responsible parties and/or insurance carriers. PSE develops a range of reasonably estimable costs that includes a low and high end of a range for all remediation sites for which we have sufficient information. There are some potential remediation obligations where the costs of remediation cannot be reasonably estimated. Liabilities are recorded based on the best estimate or the low end of a range of reasonably possible costs expected to be incurred to remediate sites. It is possible that costs are incurred in excess of the recorded amounts because of changes in laws and/or regulations, higher than expected costs and/or the discovery of new or additional contamination. The Company believes a significant portion of its past and future environmental remediation costs are recoverable from insurance companies, from third parties or from customers under a Washington Commission order.

For additional information see Item 8, Note 4, "Regulation and Rates" to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Human Capital

Information regarding the Company’s human capital measures and objectives is contained in the Environmental, Social and Governance (ESG) report that can be found on the Company’s website, www.pse.com. The information on the Company’s website is not, and will not be deemed to be a part of this Quarterly Report on Form 10-Q or incorporated into the Company’s other filings with the SEC.

Other Legal Matters

On October 3, 2022, a putative class-action complaint was filed against PSE in the Pierce County Superior Court of Washington, alleging violations of state wage-and-hour laws. Subsequently, PSE removed the case from state court to the U.S. District Court for the Western District of Washington. Class has not been certified and the plaintiff currently seeks remand back to state court. The case is in early stages of discovery and due to the inherent difficult of predicting the course of legal action relating to this class-action allegation, such as eventual scope, duration or outcome, the Company is currently unable to estimate the amount or range of any potential loss that could result from an unfavorable outcome arising from this matter.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

The Company is exposed to various forms of market risk, consisting primarily of fluctuations in commodity prices, counterparty credit risk, as well as interest rate risk. PSE maintains risk policies and procedures to help manage the various risks. There have been no material changes to market risks affecting the Company from those set forth in Part II, Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" ofin the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Commodity Price Risk

The nature of serving regulated electric and natural gas customers with its portfolio of owned and contracted electric generation resources exposes PSE and its customers to some volumetric and commodity price risks. PSE’s Energy Risk Management Committee establishes energy risk management policies and procedures to manage commodity and volatility risks and the related effects on credit, tax, accounting, financing and liquidity.

PSE's objective is to minimize commodity price exposure and risks associated with volumetric variability in the natural gas and electric portfolios. It is not engaged in the business of assuming risk for the purpose of speculative trading. PSE hedges open natural gas and electric positions to reduce both the portfolio risk and the volatility risk in prices.

Counterparty Credit Risk

PSE is exposed to credit risk primarily through buying and selling electricity and natural gas to serve customers. Credit risk is the potential loss resulting from a counterparty's non-performance under an agreement. PSE manages credit risk with policies and procedures for counterparty analysis and measurement, monitoring and mitigation of exposure. Additionally, PSE has entered into commodity master arrangements (i.e., WSPP, Inc. (WSPP), International Swaps and Derivatives Association (ISDA) or North American Energy Standards Board (NAESB)) with its counterparties to mitigate credit exposure.

Interest Rate Risk

The Company believes its interest rate risk primarily relates to the use of short-term debt instruments, variable-rate leases and anticipated long-term debt financing needed to fund capital requirements. The Company manages its interest rate risk through the issuance of mostly fixed-rate debt with varied maturities. The Company utilizes internal cash from operations and borrowings under its commercial paper program, and its credit facilities to meet short-term funding needs. During periods of financial market or interest rate volatility, the Company may utilize its credit facilities for short term funding needs instead of the commercial paper program. Credit facility borrowings are based on a more stable base rate and the credit spread is fixed.

Short-term obligations are commonly refinanced with fixed-rate bonds or notes when needed and when interest rates are considered favorable. The Company may also enter into swaps or other financial hedge instruments to manage the interest rate risk associated with the debt.

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Item 4. Controls and Procedures

Puget Energy

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of Puget Energy’s management, including the President and Chief Executive Officer and ~~Senior~~Executive Vice President and Chief Financial Officer, Puget Energy has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, ~~2022,~~2023, the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and ~~Senior~~Executive Vice President and Chief Financial Officer of Puget Energy concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in Puget Energy’s internal control over financial reporting during the quarter ended March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, Puget Energy’s internal control over financial reporting.

Puget Sound Energy

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of PSE’s management, including the President and Chief Executive Officer and ~~Senior~~Executive Vice President and Chief Financial Officer, PSE has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, ~~2022,~~2023, the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and ~~Senior~~Executive Vice President and Chief Financial Officer of PSE concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in PSE’s internal control over financial reporting during the quarter ended March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, PSE’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Contingencies arising out of the Company's normal course of business existed as of March 31, ~~2022.~~2023. Litigation is subject to numerous uncertainties and the Company is unable to predict the ultimate outcome of these matters. For details on legal proceedings, see Note 8, "Commitments and Contingencies" in the Combined Notes to Consolidated Financial Statements included in Item I1 of this report and see "Other Legal Matters" included in this Item 2 of this report.

Given the size of the Company's operations, we have elected to adopt a threshold of $1.0 million in expected sanctions related to required disclosures of environmental proceedings to which the government is a party. As of the date of this filing, we are not aware of any matters that exceed this threshold and meet the definition for disclosure.

Item 1A. Risk Factors

There have been no material changes from the risk factors set forth in Part 1, Item 1A, "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Although the Company has not been materially affected, the following represents an ongoing risk that the Company continues to monitor.

~~PSE could be adversely affected by disruptions in the global economy and rising geopolitical tensions caused by the ongoing military conflict between Russia and Ukraine.~~The global economy has been negatively impacted by the military conflict between Russia and Ukraine. Governments including the U.S., United Kingdom, and European Union imposed import and export controls on certain products and economic sanctions on certain industries and parties in Russia. Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply chain disruptions, and increased costs, including energy costs, which may adversely affect our business and supply chain. In addition, the effects of the ongoing conflict could heighten many of our known risks described in Part I, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 6. Exhibits

Included in the Exhibit Index are a list of exhibits filed as part of this Quarterly Report on Form 10-Q.

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EXHIBIT INDEX


3(i).1			Amended Articles of Incorporation of Puget Energy , In c . (incorporated herein by reference to Exhibit 3.1 to Puget Energy’s Current Report on Form 8-K, dated February 6, 2009, Commission File No. 1-16305).
3(i).2			Amended and Restated Articles of Incorporation of Puget Sound Energy, Inc. (incorporated herein by reference to Exhibit 3.2 to Puget Sound Energy’s Current Report on Form 8-K, dated February 6, 2009, Commission File No. 1-4393).
3(ii).1			Amended and Restated Bylaws of Puget Energy, ~~Inc~~.Inc. (Ini ~~corporated~~ncorporated herein by reference to Exhibit 33.3 to Puget Energy's ~~.3 to~~ Annual P ~~uget Energy's Current~~ Report on Form 10-K, dated Fe ~~bruary~~February 25, 2022, Commission File No. 001-16305).
3(ii).2			Amended and Restated Bylaws of Puget Sound ~~Ener~~Energy, Inc. (~~gy, Inc. (Incorporated~~ i ncorporated herein by reference to Exhibit 3.4 to Puget Sound Energy's ~~Current~~Annual Report on Form 10-K dated February 25, 2022,, Commission File No. 001-04393).
~~4.1~~22.1*			Seventh Supplemental Indenture dated March 17, 2022 relating to Puget Energy's 4.224% Senior Secured Notes due 2032 (incorporated herein by reference to Exhibit 4.1 Puget Energy's Current Report on Form 8-K, filed ~~March 18~~ ~~2022, Commission File No. 1-1605.)~~Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize Securities of the Registrant.
31.1*			Chief Executive Officer certification of Puget Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Principal Financial Officer certification of Puget Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3*			Chief Executive Officer certification of Puget Sound Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4*			Principal Financial Officer certification of Puget Sound Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*			Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*			Principal Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101			Financial statements from the Quarterly Report on Form 10-Q of Puget Energy, Inc. and Puget Sound Energy, Inc. for the quarter ended March 31, ~~2022~~2023 filed on May ~~4, 2022~~10, 2023 formatted in Inline XBRL: (i) the Consolidated Statement of Income (Unaudited), (ii) the Consolidated Statements of Comprehensive Income (Unaudited), (iii) the Consolidated Balance Sheets (Unaudited), (iv) the Consolidated Statements of Cash Flows (Unaudited), (v) the Consolidated Statements of Common Shareholder's Equity (Unaudited), and ~~(v)~~(vi) the Notes to Consolidated Financial Statements ~~(submitted electronically herewith).~~
104			Cover Page Interactive Data File (embedded within the ~~inline~~Inline XBRL document).

__________________

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.


		PUGET ENERGY, INC. PUGET SOUND ENERGY, INC.
		/s/ ~~Stephen King~~Stacy Smith
		~~Stephen King~~Stacy Smith Controller & Principal Accounting Officer
Date:	May ~~4, 2022~~10, 2023

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Puget Energy and Puget Sound Energy
(Dollars in Thousands)	Three Months Ended March 31, 2021
Revenue from contracts with customers:	Electric		Natural Gas		Other		Total
Retail
Residential	$	401,510	$	276,687	$	—	$	678,197
Commercial	229,639		103,387		—		333,026
Industrial	27,533		7,535		—		35,068
Other	5,420		254		—		5,674
Wholesale	23,676		—		—		23,676
Transmission and transportation	9,226		5,161		—		14,387
Miscellaneous	8,401		1,077		8,588		18,066
Total revenue from contracts with customers	$	705,405	$	394,101	$	8,588	$	1,108,094
Total other revenue1	53,187		(1,195)		—		51,992
Total operating revenue	$	758,592	$	392,906	$	8,588	$	1,160,086


Puget Energy and Puget Sound Energy	Fair Value At March 31, 2022						Fair Value At December 31, 2021
(Dollars in Thousands)	Level 2		Level 3		Total		Level 2		Level 3		Total
Assets:
Electric derivative instruments	$	160,220	$	13,261	$	173,481	$	68,011	$	6,818	$	74,829
Natural gas derivative instruments	156,674		419		157,093		79,526		52		79,578
Total assets	$	316,894	$	13,680	$	330,574	$	147,537	$	6,870	$	154,407
Liabilities:
Electric derivative instruments	$	32,883	$	19,271	$	52,154	$	35,854	$	49,570	$	85,424
Natural gas derivative instruments	8,825		1,631		10,456		16,678		2,172		18,850
Total liabilities	$	41,708	$	20,902	$	62,610	$	52,532	$	51,742	$	104,274


Effective Date	Average Percentage Increase (Decrease) in Rates from prior year	Total credit to be passed back to eligible customers (Dollars in Millions)
January 1, 2022	0.1%	$(28.2)
January 1, 2021	0.3	(29.5)
January 1, 2020	(0.04)	(37.8)