Puget Energy Inc.
07/29/2026 | Press release | Distributed by Public on 07/29/2026 15:06
Quarterly Report for Quarter Ending 06/30/26 (Form 10-Q)
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 June 30, 2026 compared to 2025. For discussion related to the results of operations and changes in financial condition for the period ended June 30, 2025 compared to 2024 refer to Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations in our period ended June 30, 2025 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 PSE's Form 10-K for the period ended December 31, 2025. 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 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.
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, which has the sole purpose of owning and operating the non-regulated activity of the Tacoma liquefied natural gas (LNG) facility. Puget Holdings indirectly owns all of Puget Energy's common stock. 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), the Ontario Municipal Employees Retirement System (OMERS), PGGM Vermogensbeheer B.V., Macquarie Washington Clean Energy Investment, L.P., and the 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.
Factors and Trends Affecting PSE's Performance
PSE's ongoing regulatory requirements and operational needs necessitate the investment of substantial capital in 2026 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 subject to the Company's power cost adjustment mechanism 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, through company-owned generation, purchase power contracts or by procuring natural gas or electricity in wholesale markets;
•Deferral of excess revenues if earnings 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, such as the 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 or refund previously collected revenues;
•Changes in customer growth and customer usage;
•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 operational 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;
•Cybersecurity incidents, cybersecurity 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;
•Natural disasters such as wildfires, earthquakes, hurricanes, floods, landslides and windstorms or the rise in frequency and magnitude of extreme temperature events; possible accidents, explosions, fires or mechanical breakdowns affecting or caused by PSE's facilities or infrastructure; changes in legislation, regulation and government policies including federal grant programs, trade restrictions and tariffs, and government permitting, authorizations or determinations and government staff reductions may increase the Company's costs, delay projects, interrupt service, impact PSE's generation, transmission and distribution systems, subject the Company to increased liability, and/or adversely affect its operations;
•Risks due to health crises, such as epidemics and 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; and
•Legislative, regulatory, code, and/or ordinance changes, including executive orders, administrative orders, tariffs and trade restrictions and budget and efficiency measures, including any actual or potential reduction in the federal workforce, that impact operations, electric and natural gas availability, sales, transmission, costs and/or delivery.
Regulation of PSE Rates and Recovery of PSE Costs
PSE's regulatory requirements, environmental compliance and operational needs require the investment of substantial capital in 2026 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 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.
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. Washington law and the Washington Commission also set natural gas conservation achievement standards for PSE. The effects of achieving these standards will, however, have only a minor negative impact on the natural gas business's financial performance due to the natural gas business being mostly decoupled.
IOUs are required to file a forward-looking MYRP for two, three, or four years as part of a GRC filed with the Washington Commission. For the initial rate year, the Washington Commission is required 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. While utilities are required to file a MYRP (at least two years in length), the Washington Commission is not required to approve them. To the extent the Washington Commission approves a MYRP, utilities are bound to the first and second year of the MYRP but may 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 that level must be deferred for refunds 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 MYRP.
General Rate Case Filing
On February 27, 2026, PSE filed a GRC with the Washington Commission in Docket No. UE-260005 and Docket No. UG-260006. The filing included a three-year MYRP requesting an overall increase in electric and natural gas rates of 15.2% and 14.2% respectively in rate year one (expected to approximate calendar year 2027), 3.7% and 3.2%, respectively in rate year two (expected to approximate calendar year 2028) and 8.7% and 3.6% in rate year three (expected to approximate calendar year 2029). PSE requested a return on equity of 10.8% for all three rate years beginning in 2027 and requested an overall rate of return of 8.1% in rate year one and 8.2% in both rate years two and three.
For further information, such as prior rate filings, see Note 7, "Regulation and Rates" in the Combined Notes to Consolidated Financial Statements included in Part I, Item 1 of this report.
Electric Rates
The following table sets forth electric rate adjustments and the expected annual impact of PSE's revenue approved by the Washington Commission since the electric rate adjustments included in the Company's Annual Report included on Form 10-K for the year ended December 31, 2025 and inclusive of filings through the 10-K filing date of February 19, 2026. For further information on the rate schedule descriptions and prior approved filings, see Part I, Item 1, Business, "Regulation and Rates" and Part II, Item 7, "Regulation of PSE Rates and Recovery of PSE Costs" respectively, in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
| Electric | Schedule | Docket | Effective Date |
Average Percentage Increase (Decrease) in Rates |
Increase (Decrease) in Revenue (Dollars in Millions) |
||||||||||||
|
Conservation service rider
|
120 | 260128 | May 1, 2026 | 0.9% | $35.3 | ||||||||||||
|
Federal incentive credit tracker1
|
95A
|
260224 | May 1, 2026 | (1.1) | (35.0) | ||||||||||||
| Property tax tracker | 140 | 260218 | May 1, 2026 | (0.03) | (1.4) | ||||||||||||
|
Revenue decoupling adjustment mechanism
|
142 | 260213 | May 1, 2026 | 0.7 | 29.0 | ||||||||||||
| Transportation electrification plan | 141TEP | 260206 | May 1, 2026 | (0.04) | (1.5) | ||||||||||||
| Wildfire prevention tracker | 141WFP | 250931 | March 21, 2026 | 0.6 | 21.6 | ||||||||||||
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1 Rate is proposed for May 1, 2026 to January 31, 2027, not for a full 12 months.
Natural Gas Rates
The following table sets forth natural gas rate adjustments and the expected annual impact of PSE's revenue approved by the Washington Commission since the natural gas rate adjustments included in the Company's Annual Report included on Form 10-K for the year ended December 31, 2025 and inclusive of filings through the 10-K filing date of February 19, 2026. For further information on the rate schedule descriptions and prior approved filings, see Part I, Item 1, Business, "Regulation and Rates" and Part II, Item 7, "Regulation of PSE Rates and Recovery of PSE Costs", respectively, in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
|
Natural gas
|
Schedule | Docket | Effective Date |
Average Percentage Increase (Decrease) in Rates |
Increase (Decrease) in Revenue (Dollars in Millions) |
||||||||||||
| Conservation service rider | 120 | 260129 | May 1, 2026 | 1.4% | $18.5 | ||||||||||||
| Property tax tracker | 140 | 260219 | May 1, 2026 | 0.1 | 1.5 | ||||||||||||
| Revenue decoupling adjustment mechanism | 142 | 260214 | May 1, 2026 | (1.7) | (23.8) | ||||||||||||
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 outstanding debt 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 or obtain access to new or renew existing credit facilities, could increase the cost of issuing long-term debt and maintaining credit facilities and could impact the Company's ability to pay dividends. 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. For additional information, see "Financing Program" included in this Item 2 of this report.
Regulatory Compliance Costs and Expenditures
PSE's operations are subject to extensive federal, state and local laws and regulations, which impact electric system reliability, natural gas pipeline system safety and energy market transparency, among other areas. The Company's operations are also impacted by environmental laws and regulations related to air and water quality, climate change, avian and endangered species protection, waste handling, waste disposal, remediation of contaminated sites and the environmental impacts or other regulated impacts of new facilities. PSE must spend significant 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.
In 2021, the Washington Legislature adopted the CCA, which establishes a greenhouse gases (GHG) emissions cap-and-invest program that requires covered entities to purchase allowances to cover their GHG emissions with a cap on available allowances beginning on January 1, 2023 that declines annually through 2050. The WDOE published final regulations to implement the program on September 29, 2022, which became effective on October 30, 2022. The WDOE also indicated that it will have subsequent rulemakings building off initial rulemaking while program implementation is underway. While the Washington Commission has approved the recovery of electric and natural gas CCA-related costs, which led to increased costs to customers, the Washington Commission also indicated these revenues are subject-to-refund, which introduces the risk that PSE may not be able to recover all costs. PSE faces continued risks associated with the program, including the evolving nature of the CCA rulemaking, related interpretation of the rules, credit volatility and unresolved recovery methodology for the CCA's impact on energy costs, company costs and customer rates.
Compliance with these or other future regulations, such as those pertaining to climate change, could require significant capital expenditures by PSE, which 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's natural gas customers may also elect to use heating oil, propane or other fuels instead of purchasing and using natural gas. 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.
Additionally, PSE faces increasing competition from other entities, primarily in the technology sector, where several large companies have entered into power purchase agreements and/or acquired generation resources to meet their growing energy needs. This capacity will largely be used to fulfill commitments for additional cloud computing, artificial intelligence data centers, reduced carbon emissions and increase reliance on renewable energy sources. The increasing competitive pressure may impact the Company's ability to acquire generation and transmission resources and/or increase the cost to acquire such resources.
Results of Operations
Puget Sound Energy
The following discussion should be read in conjunction with the unaudited consolidated financial statements and the related notes included elsewhere in this document and provides significant items that impacted PSE's results of operations for the three and six months ended June 30, 2026 and June 30, 2025.
Non-GAAP Financial Measures - Electric and Natural Gas Margins
Financial information is 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.
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 | |||||||||||||||||||||||
| (Dollars in Thousands) |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Operating income (loss) | $ | 156,929 | $ | 125,438 | $ | 497,461 | $ | 386,792 | |||||||||||||||
| Electric operating revenue | $ | 1,015,155 | $ | 832,355 | $ | 2,275,734 | $ | 1,859,303 | |||||||||||||||
| Purchased electricity | (429,427) | (276,118) | (984,942) | (657,646) | |||||||||||||||||||
| Electric generation fuel | (22,254) | (71,608) | (46,894) | (163,232) | |||||||||||||||||||
| Residential exchange | 15,718 | 17,367 | 38,431 | 44,601 | |||||||||||||||||||
| Electric margin (non-GAAP) | $ | 579,192 | $ | 501,996 | $ | 1,282,329 | $ | 1,083,026 | |||||||||||||||
| Natural gas operating revenue | $ | 288,704 | $ | 271,283 | $ | 868,525 | $ | 837,256 | |||||||||||||||
| Purchased natural gas | (102,598) | (97,484) | (334,585) | (343,999) | |||||||||||||||||||
| Natural gas margin (non-GAAP) | $ | 186,106 | $ | 173,799 | $ | 533,940 | $ | 493,257 | |||||||||||||||
| Other operating revenue | $ | 57 | $ | 7,334 | $ | 175 | $ | 7,433 | |||||||||||||||
| Utility operation and maintenance | (230,766) | (207,957) | (505,587) | (440,342) | |||||||||||||||||||
| Non-utility expense and other | (4,192) | (10,470) | (9,818) | (19,245) | |||||||||||||||||||
| Depreciation and amortization | (257,266) | (244,159) | (525,099) | (500,732) | |||||||||||||||||||
| Taxes other than income taxes | (116,202) | (95,105) | (278,479) | (236,605) | |||||||||||||||||||
| Operating income (loss) | $ | 156,929 | $ | 125,438 | $ | 497,461 | $ | 386,792 | |||||||||||||||
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 June 30, 2026 and 2025:
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* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
Three Months Ended June 30, 2026 compared to 2025
Electric Operating Revenue
Electric operating revenues increased $182.8 million from the prior year primarily due to changes in the following key drivers: electric retail sales, sales to other utilities, decoupling revenue and transportation and other revenue. These items are discussed in detail below.
•Electric retail sales increased $195.4 million primarily from rate increases resulting in an additional $173.4 million in sales compared to the prior year and an increase in retail electricity usage of 2.6% or $22.0 million. The increase in rates is primarily due to the power cost tariff filing effective January 1, 2026; this rate increase was partially offset by lower Schedule 111 rates due to the pass-back of CCA no-cost allowance values. See Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. The increase in retail usage was primarily due to an increase in residential, commercial and industrial usage of 2.7%, 1.8% and 10.4%, respectively, due to an increase in cooling degree days of 80.0% in 2026 as compared to 2025.
•Sales to other utilities decreased $47.3 million primarily due to a 42.9% decrease in wholesale sales volume driven by a 69.8% decrease in the average price of electric wholesale sales. Decreased wholesale sales volume was related to decreased supply, resulting from lower volumes of economic generation from PSE's energy supply assets in 2026 compared to 2025, which was influenced by lower wholesale power prices and Washington carbon prices that were
9.2% higher in 2026 as compared to 2025. Lower wholesale power prices were largely the result of higher regional energy supply driven by higher Mid-Columbia hydro production.
•Decoupling revenue decreased $7.5 million which was attributable to $6.2 million and $1.3 million decreases in delivery and fixed production cost deferral revenues, respectively. The decreased decoupling revenue was driven primarily by increased usage in the three months ended June 30, 2026 compared to the same period in 2025.
•Transportation and other revenue increased $44.2 million primarily due to the start of a regulatory offset of CCA electric no-cost values of $55.3 million, which were passed back to customers as credits on billed revenue and included within electric retail revenues above. The increases were partially offset by a decrease of non-core gas sales of $8.4 million driven by decreases in both the sales and cost of sales in 2026 as compared to 2025 and an increase in natural gas financial hedging costs, and a decrease of $5.5 million related to deferrals under Schedule 129D. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report.
Electric Power Costs
Electric power costs increased $105.6 million primarily due to changes in the following key drivers: purchased electricity and electric generation fuel. These items are discussed in detail below:
•Purchased electricity increased $153.3 million primarily due to a 44.0% increase in wholesale purchase costs and a 11.4% increase in wholesale electricity volumes and capacity purchases in 2026 compared to 2025, driven by open market purchases as market price conditions became more favorable relative to internal generation dispatch from PSE energy supply assets.
•Electric generation fuel decreased $49.4 million primarily driven by a $40.9 million decrease in natural gas fuel costs resulting from lower natural gas prices and a 92.1% decrease in gas-fired combustion turbine (CT) generation. The decrease in gas-fired CT generation was driven by reduced economic dispatch of PSE's gas-fired energy supply assets in 2026 compared to 2025, influenced by lower wholesale power prices and Washington carbon prices that were 9.2% higher as discussed above. Additionally, Colstrip fuel expense decreased $8.4 million due to the transfer of PSE's interest in Colstrip Units 3 and 4 to NorthWestern Energy on January 1, 2026, and thus Colstrip no longer served PSE customers in the three months ended June 30, 2026 compared to the same period in 2025.
The following chart displays the details of PSE's electric margin changes for the six months ended June 30, 2026 and 2025:
______________
* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
Six Months Ended June 30, 2026 compared to 2025
Electric Operating Revenue
Electric operating revenues increased $416.4 million from the prior year primarily due to changes in the following key drivers: electric retail sales, sales to other utilities and transportation and other revenue. These items are discussed in detail below.
•Electric retail sales increased $414.7 million primarily from rate increases resulting in an additional $452.6 million in sales compared to the prior year, partially offset by a decrease in retail electricity usage of 1.6% or $37.9 million. The increase in rates is primarily due to the power cost tariff filing effective January 1, 2026; this rate increase was partially offset by lower Schedule 111 rates due to the pass-back of CCA no-cost allowance values. See Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. The decrease in retail usage was primarily due to a decrease in residential and commercial usage of 2.3% and 0.9%, respectively, due to a decrease in heating degree days of 8.9% in 2026 as compared to 2025.
•Sales to other utilities decreased $90.5 million primarily due to a 32.1% decrease in wholesale sales volume driven by a 58.4% decrease in the average price of electric wholesale sales. Decreased wholesale sales volume was related to decreased supply, resulting from lower volumes of economic generation from PSE's energy supply assets in 2026 compared to 2025 which was influenced by lower wholesale power prices and Washington carbon prices that were 21.2% higher in 2026 as compared to 2025. Lower wholesale power prices were largely the result of higher regional energy supply driven by higher Mid-Columbia hydro production.
•Transportation and other revenue increased $91.8 million primarily due to the start of a regulatory offset of CCA electric no-cost values of $126.6 million, which were passed back to customers as credits on billed revenue and included within electric retail revenues above, and an increase in transmission revenue of $4.7 million. The increases were partially offset by (i) a decrease of non-core gas sales of $33.1 million driven by an increase in natural gas financial hedging costs of $21.6 million and an $11.5 million change in net gas sales in 2026 as compared to 2025, (ii) a decrease of $9.6 million related to deferrals under Schedule 129D, and (iii) $6.1 million related to the Beaver Creek wind facility generating an investment tax credit that was monetized and passed back to customers See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report.
Electric Power Costs
Electric power costs increased $217.1 million primarily due to changes in the following key drivers: purchased electricity, electric generation fuel and residential exchange credits. These items are discussed in detail below:
•Purchased electricity increased $327.3 million primarily due to a 22.5% increase in wholesale purchase costs and a 23.8% increase in wholesale electricity volumes and capacity purchases in 2026 compared to 2025, driven by open market purchases as market conditions became more favorable relative to internal generation dispatch from PSE energy supply assets.
•Electric generation fuel decreased $116.3 million primarily driven by a $92.3 million decrease in natural gas fuel costs resulting from lower natural gas prices and a 94.1% decrease in gas-fired combustion turbine (CT) generation. The decrease in gas-fired CT generation was driven by reduced economic dispatch of PSE's gas-fired energy supply assets in 2026 compared to 2025, influenced by lower wholesale power prices and Washington carbon prices that were 21.2% higher as discussed above. Additionally, Colstrip fuel expense decreased $24.0 million due to the transfer of PSE's interest in Colstrip Units 3 and 4 to NorthWestern Energy on January 1, 2026, and thus Colstrip no longer served PSE customers in the six months ended June 30, 2026 compared to the same period in 2025.
•Residential exchange credits decreased by $6.2 million due to a 0.5% change in the amount of credits to be passed back to customers effective October 1, 2025 and a decrease in residential usage of 2.7%; see Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
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 June 30, 2026 and 2025:
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* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
Three Months Ended June 30, 2026 compared to 2025
Natural Gas Operating Revenue
Natural gas operating revenue increased $17.4 million primarily due to changes in the following key drivers: retail sales and transportation and other revenue. These items are discussed in detail below.
•Natural gas retail sales increased $10.8 million primarily due to an increase in rates of $15.3 million partially offset by a decrease in natural gas load of 1.6%, or $4.5 million. The increase in rates is primarily driven by Schedule 111 that includes a charge for CCA natural gas allowance costs and a pass back of CCA auction proceeds, Schedule 129D Bill discount rate rider, Schedule 120 Conservation service rider, and Schedule 140 Property tax tracker. See Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 for natural gas rate changes. The decrease in natural gas load was driven by a decrease in heating degree days of 6.0% in the three months ended June 30, 2026 as compared to 2025.
•Transportation and other revenue increased $5.5 million due to an increase of $5.3 million related to the regulatory offset of CCA auction proceeds, which were passed through to customers as credits on billed revenue included within natural gas retail revenues above and an increase in transportation revenue of $3.7 million. The increase was partially offset by a decrease of $3.0 million related to deferrals under Schedule 129D; for additional information see Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
Natural Gas Energy Costs
•Purchased natural gas expense increased $5.1 million primarily due to an increase of $15.1 million in amortization of deferred CCA emission allowance costs, which were passed through to customers as billed revenue included within natural gas retail revenues above. This increase was partially offset by a decrease in the PGA rates in November 2025 and a decrease in natural gas usage of 1.6%. For natural gas rate changes and details on the PGA, see Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
The following chart displays the details of PSE's natural gas margin changes for the six months ended June 30, 2026 and 2025:
______________
* Includes decoupling cash collections, ROR excess earnings, and decoupling 24-month revenue reserve.
Six Months Ended June 30, 2026 compared to 2025
Natural Gas Operating Revenue
Natural gas operating revenue increased $31.3 million primarily due to changes in the following key drivers: retail sales, decoupling revenue and transportation and other revenue. These items are discussed in detail below.
•Natural gas retail sales increased $11.7 million primarily due to an increase in rates of $81.1 million partially offset by a decrease in natural gas load of 7.9%, or $69.4 million. The increase in rates is primarily driven by Schedule 111 that includes a charge for CCA natural gas allowance costs and a pass back of CCA auction proceeds, Schedule 129D Bill discount rate rider, Schedule 129 Low income program, Schedule 120 Conservation service rider, Schedule 140 Property tax tracker and a marginal increase in base rates from the 2024 GRC. See Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025 for natural gas rate changes. The decrease in natural gas load was driven by a decrease in heating degree days of 8.9% in the six months ended June 30, 2026 as compared to 2025.
•Decoupling revenue increased $10.8 million primarily due to decreased natural gas usage, as mentioned above. This resulted in actual decoupling revenues being higher than the allowed revenues by a less significant margin in 2026 as compared to 2025.
•Transportation and other revenue increased $10.7 million due to an increase of $14.3 million related to the regulatory offset of CCA auction proceeds, which were passed through to customers as credits on billed revenue included within natural gas retail revenues above and an increase in transportation revenue of $6.3 million. The increase was partially offset by a decrease of $6.9 million related to deferrals under Schedule 129D. For additional information see Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
Natural Gas Energy Costs
•Purchased natural gas expense decreased $9.4 million primarily due to a decrease in the PGA rates in November 2025 and a decrease in natural gas usage of 7.9%. For natural gas rate changes and details on the PGA, see Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. The decrease was partially offset by an increase of $40.4 million in amortization of deferred CCA emission allowance costs, which were passed through to customers as billed revenue included within natural gas retail revenues above.
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 June 30, 2026 and 2025:
Three Months Ended June 30, 2026 compared to 2025
•Utility operations and maintenance expense increased $22.8 million primarily due to increases in the following: (i) $10.5 million increase in deferred O&M recognized related to approved trackers that are being recovered through rates, (ii) $5.0 million of increased amortization of bad debt deferral recovery, and (iii) $4.6 million in labor expense related to Operations Support driven by additional resources and marginal salary increases. For regulatory schedule information and rate changes, see Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
•Non-utility and other expense decreased $6.3 million primarily due to $5.9 million of costs associated with sales of land at PSE's wholly-owned subsidiary, Puget Western Inc. in May 2025.
•Depreciation and amortization expense increased $13.1 million primarily due to a $10.0 million increase in conservation amortization from an increase in conservation rates effective May 1, 2025, see "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report.
•Taxes other than income taxes increased $21.1 million primarily due to an increase of $12.0 million and $7.7 million in municipal and state excise taxes, respectively, driven by higher revenue in 2026 compared to 2025.
Other Income, Interest Expense and Income Tax Expense
•Interest expense increased $10.5 million primarily due to an increase of $7.0 million in interest expense due to the September 2025 PSE bond issuance and an increase of $2.9 million of AFUDC - debt driven by a decrease in the average short term debt rate.
•Income tax expense increased $12.1 million primarily driven by an increase in pre-tax book income in 2026 as compared to 2025.
Other Operating Expenses and Other Income (Deductions)
The following chart displays the details of PSE's operating expenses and other income (deductions) for the six months ended June 30, 2026 and 2025:
Six Months Ended June 30, 2026 compared to 2025
•Utility operations and maintenance expense increased $65.2 million primarily due to increases in the following: (i) $13.6 million increase in deferred O&M recognized related to approved trackers that are being recovered through rates, (ii) $21.8 million related to customer service expense, driven by an increase in Schedule 129 Low income program in electric and natural gas rates, (iii) $14.0 million of increased amortization of bad debt deferral recovery, (iv) $7.8 million in labor expense related to Operations Support driven by additional resources and marginal salary increases, (v) $5.8 million of increased outside service expenses driven by higher contractor and consulting spend largely related to new resource acquisition work in 2026 compared to 2025, (vi) $4.7 million in legal fees related to rate case matters and (vii) $4.0 million in distribution maintenance related to scheduling and management of deferrable loads. The increases were partially offset by a $16.1 million decrease in maintenance expenses specific to steam generation, which was primarily driven by the transfer of PSE's ownership interest in Colstrip Units 3 and 4 to NorthWestern Energy on January 1, 2026. For regulatory schedule information and rate changes, see Part II, Item 7, Management's Discussion and Analysis, "Regulation of PSE Rates and Recovery of PSE Costs" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
•Non-utility and other expense decreased $9.4 million primarily due to $5.9 million of costs associated with sales of land at PSE's wholly-owned subsidiary, Puget Western Inc. in May 2025 and a decrease in the long-term incentive plan of $3.2 million in 2026 as compared to 2025.
•Depreciation and amortization expense increased $24.4 million primarily due to the following: (i) a $19.2 million increase in conservation amortization from an increase in conservation rates effective May 1, 2025 and (ii) electric transmission and distribution depreciation of $12.1 million due to net additions of primarily poles, substation equipment, conduit and conductors. These increases were partially offset by decreases in natural gas plant
amortization and electric general plant depreciation of $2.9 million and $2.7 million, respectively. See "Regulation of PSE Rates and Recovery of PSE Costs" included in this Item 2 of this report.
•Taxes other than income taxes increased $41.9 million primarily due to an increase of $21.9 million and $16.5 million in municipal and state excise taxes, respectively, driven by higher revenue in 2026 compared to 2025.
Other Income, Interest Expense and Income Tax Expense
•Interest expense increased $19.7 million primarily due to an increase of $14.0 million in interest expense due to the September 2025 PSE bond issuance and $6.2 million of AFUDC - debt driven by driven by a decrease in the average short term debt rate.
•Income tax expense increased $22.1 million primarily driven by an increase in pre-tax book income in 2026 as compared to 2025.
Puget Energy
Primarily, all operations of Puget Energy are conducted through PSE. Puget Energy's net income (loss) for the three months ended June 30, 2026 and 2025 is as follows:
Three Months Ended June 30, 2026 compared to 2025
Summary Results of Operation
Puget Energy's net income increased by $3.3 million. This is primarily due to: (i) an increase in PSE's net income of $11.4 million, (ii) less expenditure in non-utility expense and other of $2.8 million and (iii) increased other operating revenue and income of $2.0 million. The increases were partially offset by an increase in interest expense of $11.2 million, which was mainly driven by interest expense accrued for the $900.0 million Junior Subordinated Notes issued in March 2026.
Puget Energy
Primarily, all operations of Puget Energy are conducted through PSE. Puget Energy's net income (loss) for the six months ended June 30, 2026 and 2025 is as follows:
Six Months Ended June 30, 2026 compared to 2025
Summary Results of Operation
Puget Energy's net income increased by $58.6 million. This is primarily due to: (i) an increase in PSE's net income of $71.8 million and (ii) increased tax benefits of $5.0 million. The increases were partially offset by an increase in interest expense of $16.2 million, which was driven by interest expense accrued for Puget Energy's $600.0 million bond issuance in March 2025 and the $900.0 million Junior Subordinated Notes issued in March 2026.
Capital Requirements
Contractual Obligations and Commercial Commitments
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, 2025, during the six months ended June 30, 2026, the Company entered into new Electric Portfolio and Electric Wholesale Market Transaction contracts with estimated payment obligations totaling $260.1 million through 2028. For further information, see Part II, Item 8, Note 15, "Commitments and Contingencies" in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
Off-Balance Sheet Arrangements
As of June 30, 2026, the Company had no off-balance sheet arrangements that have had or are reasonably likely to have a material effect on the Company's financial condition. The Company does have standby letter of credit arrangements. For more information, see Note 10, "Other" in the Combined Notes to Consolidated Financial Statements included in Part I, Item 1 of this report.
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 improve energy system reliability. Construction expenditures, excluding equity AFUDC, totaled $851.2 million for the six months ended June 30, 2026. Presently planned utility construction expenditures, excluding equity AFUDC, are as follows:
| Capital Expenditure Projections | |||||||||||||||||||||||||||||
| (Dollars in Millions) | 2026 | 2027 | 2028 | 2029 | 2030 | ||||||||||||||||||||||||
| Total energy delivery, technology and facilities expenditures | $2,079.0 | $2,812.0 | $3,182.0 | $3,308.0 | $3,112.0 | ||||||||||||||||||||||||
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.
Capital Resources
Cash from Operations
| Puget Sound Energy |
Six Months Ended June 30, |
||||||||||||||||
| (Dollars in Thousands) | 2026 | 2025 | Change | ||||||||||||||
| Net income | $ | 326,183 | $ | 254,334 | $ | 71,849 | |||||||||||
|
Non-cash items1
|
546,235 | 496,886 | 49,349 | ||||||||||||||
|
Changes in cash flow resulting from working capital2
|
(100,559) | (65,503) | (35,056) | ||||||||||||||
| Proceeds from sale of transferable tax credits | 97,968 | - | 97,968 | ||||||||||||||
| Regulatory assets and liabilities | 59,543 | (37,628) | 97,171 | ||||||||||||||
| Purchased gas adjustment | (19,088) | 35,123 | (54,211) | ||||||||||||||
| GHG emission allowances | (88,257) | (90,587) | 2,330 | ||||||||||||||
|
Other non-current assets and liabilities3
|
(10,828) | 10,200 | (21,028) | ||||||||||||||
| Net cash provided by operating activities | $ | 811,197 | $ | 602,825 | $ | 208,372 | |||||||||||
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1 Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity and other miscellaneous non-cash items.
2 Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayment, accounts payable and accrued expenses.
3 Other non-current assets and liabilities include funding of pension liability.
Six Months Ended June 30, 2026 compared to 2025
Cash generated from operations for the six months ended June 30, 2026 increased by $208.4 million, which includes a net income increase of $71.8 million. The following are significant factors that impacted PSE's cash flows from operations:
•Cash flows resulting from non-cash items increased $49.3 million primarily due to: (i) an increase of $19.2 million in conservation amortization, (ii) a $16.4 million increase due to lower usage of CCA no cost emission allowances compared to values passed back in Schedule 111 for electric, (iii) a change in equity AFUDC of $11.9 million, (iv) an increase of $8.4 million related to amortization of deferred return on PSE's share of the Tacoma LNG investment, and (v) an increase in depreciation and amortization of $5.1 million. The increases were partially offset by: (i) a decrease of $5.5 million related to the deferral of energy exchange costs, (ii) $4.8 million of ITC amortization and (iii) a decrease in deferred taxes of $4.6 million.
•Cash flows resulting from changes in working capital decreased $35.1 million primarily due to: (i) an increase in cash outflow of $24.2 million mainly due to higher prepayments for purchased electricity, (ii) increased cash outflow of $21.8 million due to higher inventory of material and supplies, and (iii) change in natural gas and fuel inventory led to decreased cash inflow of $8.5 million. The decreases were partially offset by: (i) cash inflow of $10.6 million due
to the change in taxes payable and (ii) an increase in cash inflow of $9.2 million due to the timing of accounts receivable and unbilled revenue collections, as the balance of accounts receivable and unbilled revenue decreased $122.0 million in 2026 compared to a decrease of $112.8 million in 2025.
•Cash flows resulting from proceeds from sale of transferable tax credits was $98.0 million in 2026, which related to a partial sale of ITCs generated from the Beaver Creek Wind Project that commenced commercial operations in August 2025.
•Cash flows resulting from regulatory assets and liabilities increased $97.2 million primarily due to a $99.4 million cash inflow that was driven by the combined effect of lower power costs in first half of 2026 and recovery of prior year PCA imbalances compared to the same period in 2025, when costs exceeded baseline rates. The increase was partially offset by $10.1 million cash outflow related to revenue decoupling mechanism, which had cash inflows of $24.5 million in 2026 compared to $34.6 million in 2025.
•Cash flows resulting from purchased gas adjustment decreased $54.2 million, primarily due to a $48.9 million decrease in allowed PGA recovery in 2026 compared to 2025 with a $5.3 million increase in actual natural gas cost.
•Cash flow resulting from GHG emission allowances increased $2.3 million due to changes in purchases made to obtain the Washington emission allowances for GHG emissions associated with the Company's electric and natural gas business activities in compliance with the CCA.
•Other non-current assets and liabilities decreased $21.0 million, which is primarily due to: (i) $13.2 million increased cash outflow driven by higher long-term incentive payments in 2026 compared to 2025 and (ii) $2.8 million increased cash outflow for fees related to PSE's credit agreement amendment in May 2026.
| Puget Energy |
Six Months Ended June 30, |
||||||||||||||||
| (Dollars in Thousands) | 2026 | 2025 | Change | ||||||||||||||
| Net income | $ | (53,652) | $ | (42,604) | $ | (11,048) | |||||||||||
|
Non-cash items1
|
18,863 | 8,693 | 10,170 | ||||||||||||||
|
Changes in cash flow resulting from working capital2
|
15,644 | 9,532 | 6,112 | ||||||||||||||
|
Other non-current assets and liabilities3
|
(1,223) | (2,137) | 914 | ||||||||||||||
| Net cash provided by operating activities | $ | (20,368) | $ | (26,516) | $ | 6,148 | |||||||||||
_______________
1 Non-cash items include depreciation, amortization, deferred income taxes, net unrealized (gain) loss on derivative instruments, AFUDC-equity and other miscellaneous non-cash items.
2 Changes in working capital include receivables, unbilled revenue, materials/supplies, fuel/gas inventory, income taxes, prepayments, accounts payable and accrued expenses.
3 Other noncurrent assets and liabilities include funding of pension liability.
Six Months Ended June 30, 2026 compared to 2025
Cash generated from operations for the six months ended June 30, 2026, in addition to the changes discussed at PSE above, increased by $6.1 million compared to the same period in 2025, which includes a net income decrease of $11.0 million.
•Changes in cash flow resulting from non-cash items increased $10.2 million primarily due to a $12.0 million change in deferred taxes.
•Changes in cash flow resulting from working capital increased $6.1 million, largely driven by a $8.2 million cash inflow from changes in interest accruals.
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.
In the first quarter of 2026, Moody's, S&P and Fitch issued rating agency reports and maintained both Puget Energy (Baa3/BBB-/BBB-) and PSE (Baa1/BBB/BBB+) credit ratings and retained stable outlooks from all three agencies. Thus, as of June 30, 2026, both Puget Energy and PSE have stable outlooks from Moody's, S&P and Fitch. Although neither Puget Energy nor PSE have any outstanding 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 could negatively impact Puget Energy and PSE's future results of operations 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. 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 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 term, due to continuing strategic and risk mitigation imperatives and the necessity of providing safe, reliable and resilient service levels to customers.
Puget Sound Energy
Debt Restrictive Covenants
PSE's future long-term financings and ability to issue additional secured debt may be limited by certain restrictions contained in its electric and natural gas mortgage indentures. Under the most restrictive tests, at June 30, 2026, PSE could issue:
•Approximately $4.0 billion of additional first mortgage bonds under PSE's electric mortgage indenture based on approximately $5.8 billion of electric bondable property available for issuance; and
•Approximately $3.1 billion of additional first mortgage bonds under PSE's natural gas mortgage indenture based on approximately $4.5 billion of natural gas bondable property available for issuance.
Dividend Payment Restrictions
Pursuant to the terms of the Washington Commission merger order, 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 EBITDA to interest expense for the most recently ended four fiscal quarter periods 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 48.9% at June 30, 2026, and the EBITDA to interest expense ratio was 5.4 to 1.0 for the twelve months ended June 30, 2026.
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 June 30, 2026, the Company was in compliance with all applicable covenants, including those pertaining to the payment of dividends.
For more information on PSE's credit facilities, long-term debt, demand promissory note, and shelf registrations see Note 10, "Other" included in Part I, Item 1 of this report and Part II, Item 8, Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
Puget Energy
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 to 1.0 for the twelve months ended June 30, 2026.
Puget Energy's ability to pay dividends is also limited by the terms of its Junior Subordinated Notes, which Puget Energy may, at its option, defer interest payments on the Junior Subordinated Notes on one or more occasions for up to 10 consecutive years, so long as no Event of Default (as defined in the Junior Subordinated Indenture) has occurred and is continuing. In the
event that Puget Energy were to exercise such right to defer interest payments on the Junior Subordinated Notes, Puget Energy would not be able to pay cash dividends during the periods in which such payments were deferred.
At June 30, 2026, the Company was in compliance with all applicable covenants, including those pertaining to the payment of dividends.
For further information on Puget Energy's credit facilities, shelf registrations, and long-term debt, see Note 10, "Other" included in Part I, Item 1 of this report and Part II, Item 8, Note 7, "Long-Term Debt" and Note 8, "Liquidity Facilities and Other Financing Arrangements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
Other
New Accounting Pronouncements
For the discussion of new accounting pronouncements, see Note 2, "New Accounting Pronouncements" included in Part I, Item 1 of this report. For critical accounting estimates, see Part II, Item 7, Management's Discussion and Analysis, "Critical Accounting Estimates" in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
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