Company Quick10K Filing
Quick10K
Puget Energy
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-01 Quarter: 2018-06-01
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-01 Officers
8-K 2019-07-01 Officers
8-K 2019-04-17 Officers
8-K 2018-10-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-01-18 Officers
8-K 2018-01-11 Officers
COOL Cool Technologies 5,843
SMLR Semler Scientific 320
LIXT Lixte Biotechnology Holdings 74
IRNC Ironclad Encryption 46
HLTY Nature's Best Brands 10
SRGZ Star Gold 5
WCVC West Coast Ventures Group 1
FIL American Cryostem 0
ASFT Appsoft Technologies 0
RSAP Reign Sapphire 0
PSD 2019-06-30
Part I Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 pe-ex311_20190630xq2.htm
EX-31.2 pe-ex312_20190630xq2.htm
EX-31.3 pe-ex313_20190630xq2.htm
EX-31.4 pe-ex314_20190630xq2.htm
EX-32.1 pe-ex321_20190630xq2.htm
EX-32.2 pe-ex322_20190630xq2.htm

Puget Energy Earnings 2019-06-30

PSD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 pe-20190630x10q.htm 10-Q Document
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 June 30, 2019
OR
[  ]
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
pelogo2015q1a17.jpg
1-16305
PUGET ENERGY, INC.
A Washington Corporation
355 110th Ave NE
Bellevue, Washington 98004
(425) 454-6363
91-1969407
pselogo2015q1a17.jpg
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/
No
/  /
 
Puget Sound Energy, Inc.
Yes
/X/
No
/  /
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/
No
/  /
 
Puget Sound Energy, Inc.
Yes
/X/
No
/  /
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
/  /
No
/X/
 
Puget Sound Energy, Inc.
Yes
/  /
No
/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
 
 
 
 
 
 
 
Puget Energy, Inc.
 
 
 
 
 
 
 
 
 
 
Puget Sound Energy, Inc.
 
 
 
 
 
 
 
 
 
 
Notes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


DEFINITIONS

ARO
Asset Retirement and Environmental Obligations
ASU
Accounting Standards Update
ASC
Accounting Standards Codification
EBITDA
Earnings Before Interest, Tax, Depreciation and Amortization
EIM
Energy Imbalance Market
ERF
Expedited Rate Filing
FASB
Financial Accounting Standards Board
GAAP
U.S. Generally Accepted Accounting Principles
GRC
General Rate Case
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
Production Tax Credit
PSE
Puget Sound Energy, Inc.
Puget Energy
Puget Energy, Inc.
Puget Holdings
Puget Holdings, LLC
Puget LNG
Puget Liquid Natural Gas, LLC
REP
Residential Exchange Program
SERP
Supplemental Executive Retirement Plan
TCJA
Tax Cuts and Jobs Act
Washington Commission
Washington Utilities and Transportation Commission
WSPP
WSPP, Inc.



3


FILING FORMAT
This report on Form 10-Q is a Quarterly Report filed separately by two registrants, Puget Energy, Inc. (Puget Energy) and Puget Sound Energy, Inc. (PSE).  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, including as a result of the TCJA, 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 and 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;
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 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;
Changes in climate or weather conditions 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, 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, availability of qualified employees or the loss of a key executive;
The ability to obtain insurance coverage, the availability of insurance for certain specific losses, and the cost of such insurance;
The ability to maintain effective internal controls over financial reporting and operational processes;
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; and
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.

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 Item 1A, “Risk Factors” in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2018.


4


PART I                    FINANCIAL INFORMATION

Item 1.                      Financial Statements

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)



 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Operating revenue:
 
 
 
 
 
 
 
Electric
$
510,742

 
$
501,510

 
$
1,309,670

 
$
1,201,196

Natural gas
153,457

 
160,196

 
458,125

 
490,480

Other
6,731

 
10,146

 
17,974

 
18,184

Total operating revenue
670,930

 
671,852

 
1,785,769

 
1,709,860

Operating expenses:
 

 
 

 
 
 
 
Energy costs:
 

 
 

 
 
 
 
Purchased electricity
124,001

 
129,114

 
394,703

 
283,320

Electric generation fuel
37,601

 
29,750

 
114,800

 
72,173

Residential exchange
(15,972
)
 
(16,091
)
 
(41,135
)
 
(40,035
)
Purchased natural gas
41,116

 
53,872

 
140,503

 
181,487

Unrealized (gain) loss on derivative instruments, net
30,332

 
(6,911
)
 
15,145

 
(7,907
)
Utility operations and maintenance
149,424

 
140,131

 
307,379

 
300,655

Non-utility expense and other
10,620

 
8,419

 
24,377

 
21,249

Depreciation and amortization
164,715

 
152,105

 
345,412

 
336,617

Conservation amortization
20,029

 
24,025

 
53,315

 
60,888

Taxes other than income taxes
69,949

 
73,347

 
178,695

 
184,535

Total operating expenses
631,815

 
587,761

 
1,533,194

 
1,392,982

Operating income (loss)
39,115

 
84,091

 
252,575

 
316,878

Other income (expense):
 

 
 

 
 
 
 
Other income
15,439

 
8,116

 
29,003

 
21,573

Other expense
(1,825
)
 
(2,330
)
 
(3,601
)
 
(4,428
)
Interest charges:
 

 
 

 
 
 
 
AFUDC
3,570

 
3,318

 
6,920

 
6,201

Interest expense
(87,770
)
 
(86,084
)
 
(175,786
)
 
(174,410
)
Income (loss) before income taxes
(31,471
)
 
7,111

 
109,111

 
165,814

Income tax (benefit) expense
1,481

 
3,469

 
9,909

 
15,272

Net income (loss)
$
(32,952
)
 
$
3,642

 
$
99,202

 
$
150,542


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

5


PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
(32,952
)
 
$
3,642

 
$
99,202

 
$
150,542

Other comprehensive income (loss):
 

 
 

 
 
 
 
Net unrealized gain (loss) from pension and post-retirement plans, net of tax of $25, $60, $50 and $120, respectively
91

 
226

 
183

 
453

Reclassification of stranded taxes to retained earnings due to tax reform

 

 

 
(5,230
)
Other comprehensive income (loss)
91

 
226

 
183

 
(4,777
)
Comprehensive income (loss)
$
(32,861
)
 
$
3,868

 
$
99,385

 
$
145,765


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

6


PUGET ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)



ASSETS
 
June 30,
2019
 
December 31,
2018
Utility plant (at original cost, including construction work in progress of $615,782 and $550,466 respectively):
 
 
 
Electric plant
$
8,644,737

 
$
8,515,482

Natural gas plant
3,746,984

 
3,598,732

Common plant
1,060,836

 
1,027,023

Less: Accumulated depreciation and amortization
(3,038,181
)
 
(2,832,321
)
Net utility plant
10,414,376

 
10,308,916

Other property and investments:
 

 
 

Goodwill
1,656,513

 
1,656,513

Other property and investments
267,421

 
244,444

Total other property and investments
1,923,934

 
1,900,957

Current assets:
 

 
 

Cash and cash equivalents
8,028

 
37,521

Restricted cash
15,970

 
18,041

Accounts receivable, net of allowance for doubtful accounts of $10,403 and $8,408, respectively
205,508

 
338,782

Unbilled revenue
135,385

 
205,285

Purchased gas adjustment receivable
144,917

 
9,921

Materials and supplies, at average cost
119,949

 
116,180

Fuel and natural gas inventory, at average cost
58,689

 
53,351

Unrealized gain on derivative instruments
23,525

 
46,507

Prepaid expense and other
26,123

 
25,674

Power contract acquisition adjustment gain
7,453

 
6,114

Total current assets
745,547

 
857,376

Other long-term and regulatory assets:
 

 
 

Power cost adjustment mechanism
22,311

 
4,735

Regulatory assets related to power contracts
15,169

 
16,693

Other regulatory assets
721,669

 
773,552

Unrealized gain on derivative instruments
3,249

 
2,512

Power contract acquisition adjustment gain
151,715

 
156,597

Operating lease right of use asset
172,278

 

Other
87,456

 
77,523

Total other long-term and regulatory assets
1,173,847

 
1,031,612

Total assets
$
14,257,704

 
$
14,098,861


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


PUGET ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)



CAPITALIZATION AND LIABILITIES
 
June 30,
2019
 
December 31,
2018
Capitalization:
 
 
 
Common shareholder’s equity:
 
 
 
Common stock $0.01 par value, 1,000 shares authorized, 200 shares outstanding
$

 
$

Additional paid-in capital
3,308,957

 
3,308,957

Retained earnings
692,128

 
629,003

Accumulated other comprehensive income (loss), net of tax
(77,019
)
 
(77,202
)
Total common shareholder’s equity
3,924,066

 
3,860,758

Long-term debt:
 

 
 

First mortgage bonds and senior notes
3,764,412

 
3,764,412

Pollution control bonds
161,860

 
161,860

Long-term debt
1,981,900

 
1,961,900

Debt discount, issuance costs and other
(209,646
)
 
(215,681
)
Total long-term debt
5,698,526

 
5,672,491

Total capitalization
9,622,592

 
9,533,249

Current liabilities:
 

 
 

Accounts payable
277,120

 
480,069

Short-term debt
540,000

 
379,297

Accrued expenses:
 

 
 

  Taxes
97,314

 
118,112

  Salaries and wages
40,611

 
50,785

  Interest
69,789

 
70,099

Unrealized loss on derivative instruments
40,695

 
46,661

Power contract acquisition adjustment loss
2,492

 
2,547

       Operating lease liabilities
14,713

 

Other
128,805

 
79,312

Total current liabilities
1,211,539

 
1,226,882

Other long-term and regulatory liabilities:
 

 
 

Deferred income taxes
807,145

 
789,297

Unrealized loss on derivative instruments
8,451

 
11,095

Regulatory liabilities
722,080

 
747,203

Regulatory liability for deferred income taxes
960,423

 
975,974

Regulatory liabilities related to power contracts
159,168

 
162,711

Power contract acquisition adjustment loss
12,677

 
14,146

       Operating lease liabilities
163,698

 

Other deferred credits
589,931

 
638,304

Total other long-term and regulatory liabilities
3,423,573

 
3,338,730

Commitments and contingencies (Note 8)


 


Total capitalization and liabilities
$
14,257,704

 
$
14,098,861


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

7


PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY
(Dollars in Thousands)
(Unaudited)

 
Common Stock
 
Additional
 
 
 
Accumulated Other
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Retained Earnings
 
Comprehensive
Income (Loss)
 
Total
Equity
Balance at December 31, 2017
200

 
$

 
$
3,308,957

 
$
465,355

 
$
(24,282
)
 
$
3,750,030

Net income (loss)

 

 

 
146,897

 

 
146,897

Common stock dividend paid

 

 

 
(30,096
)
 

 
(30,096
)
Other comprehensive income (loss)

 

 

 

 
(5,003
)
 
(5,003
)
Cumulative effect of accounting change

 

 

 
5,230

 

 
5,230

Balance at March 31, 2018
200

 
$

 
$
3,308,957

 
$
587,386

 
$
(29,285
)
 
$
3,867,058

Net income (loss)

 

 

 
3,642

 
$

 
3,642

Common stock dividend paid

 

 

 
(25,429
)
 
$

 
(25,429
)
Other comprehensive income (loss)

 

 

 

 
226

 
226

Balance at June 30, 2018
200

 
$

 
$
3,308,957

 
$
565,599

 
$
(29,059
)
 
$
3,845,497

Balance at December 31, 2018
200

 
$

 
$
3,308,957

 
$
629,003

 
$
(77,202
)
 
$
3,860,758

Net income (loss)

 

 

 
132,154

 

 
132,154

Common stock dividend paid

 

 

 
(35,994
)
 

 
(35,994
)
Other comprehensive income (loss)

 

 

 

 
92

 
92

Balance at March 31, 2019
200

 
$

 
$
3,308,957

 
$
725,163

 
$
(77,110
)
 
$
3,957,010

Net income (loss)
 
 

 

 
(32,952
)
 

 
(32,952
)
Common stock dividend paid
 
 

 

 
(83
)
 

 
(83
)
Other comprehensive income (loss)
 
 

 

 

 
91

 
91

Balance at June 30, 2019
200

 
$

 
$
3,308,957

 
$
692,128

 
$
(77,019
)
 
$
3,924,066


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



8


 PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
Operating activities:
 
 
 
Net income (loss)
$
99,202

 
$
150,542

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 
Depreciation and amortization
345,412

 
336,617

Conservation amortization
53,315

 
60,888

Deferred income taxes and tax credits, net
2,248

 
10,567

Net unrealized (gain) loss on derivative instruments
15,145

 
(7,907
)
AFUDC – equity
(6,591
)
 
(7,146
)
Production tax credit monetization
(41,111
)
 
(51,181
)
Other non-cash
7,427

 
7,377

Funding of pension liability

 
(9,000
)
Regulatory assets and liabilities
(19,061
)
 
4,591

Other long-term assets and liabilities
(13,238
)
 
(12,611
)
Change in certain current assets and liabilities:
 

 
 
Accounts receivable and unbilled revenue
203,174

 
220,207

Materials and supplies
(3,769
)
 
(5,910
)
Fuel and natural gas inventory
(5,338
)
 
(1,176
)
Prepayments and other
(85
)
 
(1,422
)
Purchased gas adjustment
(134,996
)
 
22,594

Accounts payable
(179,533
)
 
(47,040
)
Taxes payable
(20,798
)
 
(13,856
)
Other
(10,692
)
 
(16,937
)
Net cash provided by (used in) operating activities
290,711

 
639,197

Investing activities:
 

 
 

Construction expenditures – excluding equity AFUDC
(470,335
)
 
(490,623
)
Other
(3,977
)
 
1,956

Net cash provided by (used in) investing activities
(474,312
)
 
(488,667
)
Financing activities:
 

 
 

Change in short-term debt, net
160,703

 
(301,463
)
Dividends paid
(36,077
)
 
(55,525
)
Proceeds from long-term debt and bonds issued
20,000

 
631,701

Redemption of bonds and notes

 
(450,000
)
Other
7,411

 
6,196

Net cash provided by (used in) financing activities
152,037

 
(169,091
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(31,564
)
 
(18,561
)
Cash, cash equivalents, and restricted cash at beginning of period
55,562

 
36,761

Cash, cash equivalents, and restricted cash at end of period
$
23,998

 
$
18,200

Supplemental cash flow information:
 

 
 

Cash payments for interest (net of capitalized interest)
$
165,863

 
$
164,823

Cash payments (refunds) for income taxes
$
5,376

 
$
5,169

Non-cash financing and investing activities:
 
 
 
Accounts payable for capital expenditures eliminated from cash flows
$
73,757

 
$
97,614

Reclassification of Colstrip from utility plant to a regulatory asset (Note 8)
$
(47,516
)
 
$


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



9



PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Operating revenue:
 
 
 
 
 
 
 
Electric
$
510,742

 
$
501,510

 
$
1,309,670

 
$
1,201,196

Natural gas
153,457

 
160,196

 
458,125

 
490,480

Other
6,731

 
10,146

 
17,974

 
18,184

Total operating revenue
670,930

 
671,852

 
1,785,769

 
1,709,860

Operating expenses:
 

 
 

 
 
 
 
Energy costs:
 

 
 

 
 
 
 
Purchased electricity
124,001

 
129,114

 
394,703

 
283,320

Electric generation fuel
37,601

 
29,750

 
114,800

 
72,173

Residential exchange
(15,972
)
 
(16,091
)
 
(41,135
)
 
(40,035
)
Purchased natural gas
41,116

 
53,872

 
140,503

 
181,487

Unrealized (gain) loss on derivative instruments, net
30,332

 
(6,911
)
 
15,145

 
(7,907
)
Utility operations and maintenance
149,424

 
140,131

 
307,379

 
300,655

Non-utility expense and other
9,978

 
10,834

 
23,055

 
20,614

Depreciation and amortization
164,692

 
152,080

 
345,370

 
336,570

Conservation amortization
20,029

 
24,025

 
53,315

 
60,888

Taxes other than income taxes
69,949

 
73,347

 
178,695

 
184,535

Total operating expenses
631,150

 
590,151

 
1,531,830

 
1,392,300

Operating income (loss)
39,780

 
81,701

 
253,939

 
317,560

Other income (expense):
 

 
 

 
 
 
 
Other income
12,412

 
8,113

 
22,961

 
15,756

Other expense
(1,825
)
 
(2,330
)
 
(3,601
)
 
(4,428
)
Interest charges:
 

 
 

 
 
 
 
AFUDC
3,570

 
3,318

 
6,920

 
6,201

Interest expense
(59,935
)
 
(57,020
)
 
(120,085
)
 
(116,575
)
Income (loss) before income taxes
(5,998
)
 
33,782

 
160,134

 
218,514

Income tax (benefit) expense
2,327

 
7,004

 
21,157

 
28,696

Net income (loss)
$
(8,325
)
 
$
26,778

 
$
138,977

 
$
189,818



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

10



PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
(8,325
)
 
$
26,778

 
$
138,977

 
$
189,818

Other comprehensive income (loss):
 

 
 

 
 
 
 
Net unrealized gain (loss) from pension and post-retirement plans, net of tax of $667, $761, $1,335 and $1,522, respectively
2,512

 
2,864

 
5,022

 
5,727

Amortization of treasury interest rate swaps to earnings, net of tax of $26, $26, $51 and $51, respectively
96

 
96

 
192

 
192

Reclassification of stranded taxes to retained earnings due to tax reform

 

 

 
(27,333
)
Other comprehensive income (loss)
2,608

 
2,960

 
5,214

 
(21,414
)
Comprehensive income (loss)
$
(5,717
)
 
$
29,738

 
$
144,191

 
$
168,404


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

11


PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)



ASSETS
 
June 30,
2019
 
December 31,
2018
Utility plant (at original cost, including construction work in progress of $615,782 and $550,466 respectively):
 
 
 
Electric plant
$
10,708,173

 
$
10,587,231

Natural gas plant
4,310,729

 
4,164,489

Common plant
1,086,056

 
1,052,544

Less:  Accumulated depreciation and amortization
(5,690,582
)
 
(5,495,348
)
Net utility plant
10,414,376

 
10,308,916

Other property and investments:
 

 
 

Other property and investments
80,139

 
76,986

Total other property and investments
80,139

 
76,986

Current assets:
 

 
 

Cash and cash equivalents
7,732

 
35,452

Restricted cash
15,970

 
18,041

Accounts receivable, net of allowance for doubtful accounts of $10,403 and $8,408, respectively
209,923

 
346,251

Unbilled revenue
135,385

 
205,285

Purchased gas adjustment receivable
144,917

 
9,921

Materials and supplies, at average cost
119,949

 
116,180

Fuel and natural gas inventory, at average cost
57,366

 
52,028

Unrealized gain on derivative instruments
23,525

 
46,507

Prepaid expense and other
26,123

 
25,674

Total current assets
740,890

 
855,339

Other long-term and regulatory assets:
 

 
 

Power cost adjustment mechanism
22,311

 
4,735

Other regulatory assets
721,669

 
773,552

Unrealized gain on derivative instruments
3,249

 
2,512

Operating lease right of use asset
172,278

 

Other
85,682

 
75,483

Total other long-term and regulatory assets
1,005,189

 
856,282

Total assets
$
12,240,594

 
$
12,097,523


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

12



PUGET SOUND ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)


CAPITALIZATION AND LIABILITIES

 
June 30,
2019
 
December 31,
2018
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
3,275,105

 
3,275,105

Retained earnings
677,833

 
622,844

Accumulated other comprehensive income (loss), net of tax
(185,670
)
 
(190,884
)
Total common shareholder’s equity
3,768,127

 
3,707,924

Long-term debt:
 

 
 

First mortgage bonds and senior notes
3,764,412

 
3,764,417

Pollution control bonds
161,860

 
161,860

Debt discount, issuance costs and other
(30,595
)
 
(31,417
)
Total long-term debt
3,895,677

 
3,894,860

Total capitalization
7,663,804

 
7,602,784

Current liabilities:
 

 
 

Accounts payable
277,188

 
480,195

Short-term debt
540,000

 
379,297

Accrued expenses:
 

 
 

Taxes
97,314

 
117,993

Salaries and wages
40,611

 
50,785

Interest
43,763

 
43,951

       Unrealized loss on derivative instruments
40,695

 
46,661

       Operating lease liabilities
14,713

 

       Other
128,805

 
79,312

Total current liabilities
1,183,089

 
1,198,194

Other long-term and regulatory liabilities:
 

 
 

Deferred income taxes
952,124

 
926,403

Unrealized loss on derivative instruments
8,451

 
11,095

Regulatory liabilities
720,757

 
745,880

Regulatory liability for deferred income taxes
961,214

 
976,582

Operating lease liabilities
163,698

 

Other deferred credits
587,457

 
636,585

Total other long-term and regulatory liabilities
3,393,701

 
3,296,545

Commitments and contingencies (Note 8)


 


Total capitalization and liabilities
$
12,240,594

 
$
12,097,523


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

13


 PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER’S EQUITY
(Dollars in Thousands)
(Unaudited)

 
Common Stock
 
Additional
 
 
 
Accumulated Other
 
 
 
Shares
 
Amount
 
Paid-in
Capital
 
Retained Earnings
 
Comprehensive
Income (loss)
 
Total
Equity
Balance at December 31, 2017
$
85,903,791

 
$
859

 
$
3,275,105

 
$
452,066

 
$
(126,906
)
 
$
3,601,124

Net income (loss)

 

 

 
163,037

 

 
163,037

Common stock dividend paid

 

 

 
(58,612
)
 

 
(58,612
)
Other comprehensive income (loss)

 

 

 

 
(24,374
)
 
(24,374
)
Cumulative effect of accounting change

 

 

 
27,333

 

 
27,333

Balance at March 31, 2018
$
85,903,791

 
$
859

 
$
3,275,105

 
$
583,824

 
$
(151,280
)
 
$
3,708,508

Net income (loss)

 

 

 
26,778

 

 
26,778

Common stock dividend paid

 

 

 
(43,844
)
 

 
(43,844
)
Other comprehensive income (loss)

 

 

 

 
2,960

 
2,960

Balance at June 30, 2018
$
85,903,791

 
$
859

 
$
3,275,105

 
$
566,758

 
$
(148,320
)
 
$
3,694,402

Balance at December 31, 2018
$
85,903,791

 
$
859

 
$
3,275,105

 
$
622,844

 
$
(190,884
)
 
$
3,707,924

Net income (loss)

 

 

 
147,302

 

 
147,302

Common stock dividend paid

 

 

 
(64,604
)
 

 
(64,604
)
Other comprehensive income (loss)

 

 

 

 
2,606

 
2,606

Balance at March 31, 2019
$
85,903,791

 
$
859

 
$
3,275,105

 
$
705,542

 
$
(188,278
)
 
$
3,793,228

Net income (loss)

 

 

 
(8,325
)
 

 
(8,325
)
Common stock dividend paid

 

 

 
(19,384
)
 

 
(19,384
)
Other comprehensive income (loss)

 

 

 
 
 
2,608

 
2,608

Balance at June 30, 2019
$
85,903,791

 
$
859

 
$
3,275,105

 
$
677,833

 
$
(185,670
)
 
$
3,768,127


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



14


PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
Operating activities:
 
 
 
Net income (loss)
$
138,977

 
$
189,818

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 
Depreciation and amortization
345,370

 
336,570

Conservation amortization
53,315

 
60,888

Deferred income taxes and tax credits, net
8,967

 
18,519

Net unrealized (gain) loss on derivative instruments
15,145

 
(7,907
)
AFUDC – equity
(6,591
)
 
(7,146
)
Production tax credit monetization
(41,111
)
 
(51,181
)
Other non-cash
2,210

 
2,197

Funding of pension liability

 
(9,000
)
Regulatory assets and liabilities
(19,061
)
 
4,591

Other long-term assets and liabilities
(9,822
)
 
(5,956
)
Change in certain current assets and liabilities:
 

 
 
Accounts receivable and unbilled revenue
206,228

 
216,047

Materials and supplies
(3,769
)
 
(5,910
)
Fuel and natural gas inventory
(5,338
)
 
(1,176
)
Prepayments and other
(85
)
 
(1,422
)
Purchased gas adjustment
(134,996
)
 
22,594

Accounts payable
(179,591
)
 
(47,040
)
Taxes payable
(20,679
)
 
(12,971
)
Other
(7,893
)
 
(17,100
)
Net cash provided by (used in) operating activities
341,276

 
684,415

Investing activities:
 

 
 

Construction expenditures – excluding equity AFUDC
(451,215
)
 
(452,220
)
Other
(3,977
)
 
1,956

Net cash provided by (used in) investing activities
(455,192
)
 
(450,264
)
Financing activities:
 

 
 

Change in short-term debt, net
160,703

 
(301,463
)
Dividends paid
(83,988
)
 
(102,456
)
Long-term bonds and notes issued

 
594,750

Redemption of bonds and notes

 
(450,000
)
Other
7,410

 
6,196

Net cash provided by (used in) financing activities
84,125

 
(252,973
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(29,791
)
 
(18,822
)
Cash, cash equivalents, and restricted cash at beginning of period
53,493

 
36,009

Cash, cash equivalents, and restricted cash at end of period
$
23,702

 
$
17,187

Supplemental cash flow information:
 

 
 

Cash payments for interest (net of capitalized interest)
$
112,058

 
$
112,354

Cash payments (refunds) for income taxes
$
9,784

 
$
9,631

Non-cash financing and investing activities:
 
 
 
Accounts payable for capital expenditures eliminated from cash flows
$
73,757

 
$
97,614

Reclassification of Colstrip from utility plant to a regulatory asset (Note 8)
$
(47,516
)
 
$


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

15


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 Puget Sound Energy.  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, which has the sole purpose of owning, developing and financing the non-regulated activity of the Tacoma LNG facility, currently under construction. 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 FASB ASC 805, “Business Combinations”, 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. 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.

Tacoma LNG Facility
In August 2015, PSE filed a proposal with the Washington Commission to develop an LNG facility at the Port of Tacoma. Currently under construction at the Port of Tacoma, the facility is expected to be operational in early 2021. The Tacoma LNG facility is intended to provide peak-shaving services to PSE’s natural gas customers. By storing surplus natural gas, PSE is able to meet the requirements of peak consumption. LNG will also provide fuel to transportation customers, particularly in the marine market. On January 24, 2018, the Puget Sound Clean Air Agency (PSCAA) determined a Supplemental Environmental Impact Statement (SEIS) is necessary in order to rule on the air quality permit for the facility. As a result of requiring a SEIS, the Company's construction schedule may be impacted depending on the Puget Sound Clean Air Agency's timing and decision on the air quality permit. PSE received the SEIS which concluded the LNG facility would result in a net decrease in GHG emissions, provided in part that the natural gas for the facility was sourced from British Columbia or Alberta. PSE must now await the final determination by PSCAA.
If delayed, the construction schedule and costs may be adversely impacted. 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, $185.4 million of construction work in progress and $0.7 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 June 30, 2019. Additionally, $148.5 million of construction work in progress 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 PSE is a regulated entity.

Leases
PSE determines if an arrangement is, or contains, a lease at inception of the contract. If the arrangement is, or contains a lease, PSE assesses whether the lease is operating or financing for income statement and balance sheet classification. Operating leases are included in operating lease right-of-use (ROU) assets, operating lease current liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in utility plant, other current liabilities, and other deferred credits in our consolidated balance sheets.
ROU assets represent the right to use an underlying asset for the lease term, and consist of the amount of the initial measurement of the lease liability, any lease payments made to the lessor at or before the commencement date, minus any lease incentives

16


received, and any initial direct costs incurred by the lessee. Lease liabilities represent our obligation to make lease payments arising from the lease and are measured at present value of the lease payments not yet paid, discounted using the discount rate for the lease at commencement. As most of PSE's leases do not provide an implicit interest rate, PSE uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. For fleet, IT and wind farm leases, this rate is applied using a portfolio approach. The lease terms may include options to extend or terminate the lease when it is reasonably certain that PSE will exercise that option. On the statement of income, operating leases are generally accounted for under a straight-line expense model, while finance leases, which were previously referred to as capital leases, are generally accounted for under a financing model. Consistent with the previous lease guidance, however, the standard allows rate-regulated utilities to recognize expense consistent with the timing of recovery in rates.
PSE has lease agreements with lease and non-lease components. Non-lease components comprise common area maintenance and utilities, and are accounted for separately from lease components.

(2)  New Accounting Pronouncements

Recently Adopted Accounting Guidance
Lease Accounting
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". The FASB issued this ASU to increase transparency and comparability among organizations by recognizing right-of-use lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB amended the FASB ASC and created Topic 842, Leases. ASU 2016-02 requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The income statement recognition is similar to existing lease accounting and is based on lease classification. Under the new guidance, lessor accounting is largely unchanged.
In January 2018, the FASB issued ASU 2018-01, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842". In connection with the FASB’s transition support efforts, the amendments in this update provide an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 upon adoption. Land easements (also commonly referred to as rights of way) represent the right to use, access, or cross another entity’s land for a specified purpose. The Company elected this practical expedient.
In July 2018, the FASB issued both ASU 2018-10 and ASU 2018-11, "Leases (Topic 842): Codification Improvements" and "Leases (Topic 842): Targeted Improvements". These ASUs provide entities with both clarification on existing guidance issued in ASU 2016-02, as well as an additional transition method to adopt the new leasing standard. Under the new transition method, the entity initially applies the new standard at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity's reporting for the comparative periods presented in the financial statements will continue to be in accordance with Topic 840. The Company has elected to adopt the standard using this new modified transition method.
In preparation for adoption of the standard, the Company assembled a project team that met bi-weekly to make key accounting assessments and perform pre-implementation controls related to the scoping and completeness of existing leases. Additionally, the Company implemented a new leasing system and drafted accounting policies including discount rate, variable pricing, power purchase agreements, and election of practical expedients. In addition to the land easement practical expedient, the Company has elected the practical expedient package.
These amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company has adopted ASU 2016-02 as of January 1, 2019, which resulted in the recognition of right-of-use asset and lease liability financial statement line items that have not previously been recorded and are material to the consolidated balance sheets. Adoption of the standard did not have a material impact on the income statement. The financial impact as of the date of adoption was not materially different than what has been disclosed as of June 30, 2019, in Note 9, "Leases", to the consolidated financial statements included in Item 1 of this report.


17


Internal-Use Software
In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract". These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments.
The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this update is permitted, including adoption in any interim period, for all entities. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this update prospectively in 2019 for implementation costs incurred in hosting arrangements and application of the amendment has not had a material impact on the consolidated financial statements.

Accounting Standards Issued but Not Yet Adopted
Credit Losses
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The amendments in the update change how entities account for credit losses on receivables and certain other assets. The guidance requires use of a current expected loss model, which may result in earlier recognition of credit losses than under previous accounting standards. ASU 2016-13 is effective for interim and annual periods beginning on or after December 15, 2019. The Company is currently evaluating the impact of adoption of the new standard on its consolidated financial statements.

Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement". The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is in the process of evaluating potential impacts of these amendments to Note 5, "Fair Value Measurements", to the consolidated financial statements.

Retirement Benefits
In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans". This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans through added, removed, and clarified requirements of relevant disclosures.
The amendments in this update are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities. The Company is in the process of evaluating potential impacts of these amendments to Note 6, "Retirement Benefits", to the consolidated financial statements.


18


(3) Revenue

The following table presents disaggregated revenue from contracts with customers, and other revenue by major source:
Puget Energy and
Puget Sound Energy
 
 
 
 
 
 
 
(Dollars in Thousands)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Revenue from contracts with customers:
2019
 
2018
 
2019
 
2018
Electric retail
$
463,219

 
$
468,378

 
$
1,100,408

 
$
1,099,184

Natural gas retail
145,222

 
158,544

 
467,782

 
492,578

Other
36,546

 
38,930

 
172,595

 
81,364

Total revenue from contracts with customers
644,987

 
665,852

 
1,740,785

 
1,673,126

Alternative revenue programs
4,351

 
(8,815
)
 
(20,880
)
 
(23,897
)
Other non-customer revenue
21,592

 
14,815

 
65,864

 
60,631

Total operating revenue
$
670,930

 
$
671,852

 
$
1,785,769

 
$
1,709,860


Revenue at PSE is recognized when performance obligations under the terms of a contract or tariff with our customers are satisfied. Performance obligations are satisfied generally through performance of PSE's obligation over time or with transfer of control of electric power, natural gas, and other revenue from contracts with customers. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods and services.

Electric and Natural Gas Retail Revenue
Electric and natural gas retail revenue consists of tariff-based sales of electricity and natural gas to PSE's customers. For tariff contracts, PSE has elected the portfolio approach practical expedient model to apply the revenue from contracts with customers to groups of contracts. The Company determined that the portfolio approach will not differ from considering each contract or performance obligation separately. Electric and natural gas tariff contracts include the performance obligation of standing ready to perform electric and natural gas services. The electricity and natural gas the customer chooses to consume is considered an option and is recognized over time using the output method when the customer simultaneously consumes the electricity or natural gas. PSE has elected the right to invoice practical expedient for unbilled retail revenue. The obligation of standing ready to perform electric service and the consumption of electricity and natural gas at market value implies a right to consideration for performance completed to date. The Company believes that tariff prices approved by the Washington Commission represent stand-alone selling prices for the performance obligations under ASC 606. PSE collects Washington State excise taxes (which are a component of general retail customer rates) and municipal taxes and presents the taxes on a gross basis, as PSE is the taxpayer for those excise and municipal taxes.

Other Revenue from Contracts with Customers
Other revenue from contracts with customers is primarily comprised of electric transmission, natural gas transportation, biogas, and wholesale revenue sold on an intra-month basis.

Electric Transmission and Natural Gas Transportation Revenue
Transmission and transportation tariff contracts include the performance obligation to transmit and transport electricity or natural gas. Transfer of control and recognition of revenue occurs over time as the customer simultaneously receives the transmission and transportation services. Measurement of satisfaction of this performance obligation is determined using the output method. Similar to retail revenue, the Company utilizes the right to invoice practical expedient as PSE’s right to consideration is tied directly to the value of power and natural gas transmitted and transported each month. The price is based on the tariff rates that were approved by the Washington Commission or the FERC and, therefore, corresponds directly to the value to the customer for performance completed to date.

Biogas Revenue
Biogas is a renewable natural gas fuel that PSE purchases and sells along with the renewable green attributes derived from the renewable natural gas. Biogas contracts include the performance obligations of biogas and renewable credit delivery upon

19


PSE receiving produced biogas from its supplier. Transfer of control and recognition of revenue occurs at a point in time as biogas is considered a storable commodity and may not be consumed as it is delivered.

Wholesale Revenue
Wholesale revenue at PSE includes sales of electric power and non-core natural gas to other utilities or marketers. Wholesale revenue contracts include the performance obligation of physical electric power or natural gas. There are typically no added fixed or variable amounts on top of the established rate for power or natural gas and contracts always have a stated, fixed quantity of power or natural gas delivered. Transfer of control and recognition of revenue occurs at a point in time when the customer takes physical possession of electric power or natural gas. Non-core gas consists of natural gas supply in excess of natural gas used for generation, sold to third parties to mitigate the costs of firm transportation and storage capacity for its core natural gas customers. PSE reports non-core gas sold net of costs as PSE does not take control of the natural gas but is merely an agent within the market that connects a seller to a purchaser.

Other Revenue
In accordance with ASC 606, PSE separately presents revenue not collected from contracts with customers that falls under other accounting guidance.

(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). Therefore, wholesale market transactions and PSE's related hedging strategies are focused on reducing costs and risks where feasible, thus reducing volatility of 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.


20


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
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2019
 
December 31, 2018
(Dollars in Thousands)
Volumes
 
Assets1
 
Liabilities2
 
Volumes
 
Assets1
 
Liabilities2
Electric portfolio derivatives
*
 
$
18,476

 
$
27,617

 
*
 
$
33,287

 
$
27,284

Natural gas derivatives (MMBtus)3
293.7 million
 
8,298

 
21,529

 
336.6 million
 
15,732

 
30,472

Total derivative contracts
 
 
$
26,774

 
$
49,146

 
 
 
$
49,019

 
$
57,756

Current
 
 
$
23,525

 
$
40,695

 
 
 
$
46,507

 
$
46,661

Long-term
 
 
3,249

 
8,451

 
 
 
2,512

 
11,095

Total derivative contracts
 
 
$
26,774

 
$
49,146

 
 
 
$
49,019

 
$
57,756

_______________
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 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 206.3 million One Million British Thermal Units (MMBtu) and purchased electricity of 10.2 million Megawatt Hours (MWhs) at June 30, 2019, and 194.8 million MMBtus and 6.6 million MWhs at December 31, 2018.

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," to the 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
 
 
 
 
 
 
 
 
 
At June 30, 2019
 
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)
 
Commodity Contracts
 
Cash Collateral Received/Posted
 
Net Amount
Assets:
 
 
 
 
 
 
 
 
 
 
 
Energy derivative contracts
$
26,774

 
$

 
$
26,774

 
$
(19,661
)
 
$

 
$
7,113

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Energy derivative contracts
49,146

 

 
49,146

 
(19,661
)
 

 
29,485



21


 
 
 
 
 
 
 
 
 
Puget Energy and
Puget Sound Energy
At December 31, 2018
 
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)
 
Commodity Contracts
 
Cash Collateral Received/Posted
 
Net Amount
Assets:
 
 
 
 
 
 
 
 
 
 
 
Energy derivative contracts
$
49,019

 
$

 
$
49,019

 
$
(25,388
)
 
$

 
$
23,631

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Energy derivative contracts
57,756

 

 
57,756

 
(25,388
)
 

 
32,368

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

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
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(Dollars in Thousands)
Classification
2019
 
2018
 
2019
 
2018
Gas for Power Derivatives:
 
 
 
 

 
 
 
 
Unrealized
Unrealized gain (loss) on derivative instruments, net
$
(17,189
)
 
$
5,357

 
$
(2,228
)
 
$
7,669

Realized
Electric generation fuel
(1,333
)
 
(4,417
)