2017 q2 fixed income investor call - puget energy€¦ · puget energy and puget sound energy 2017...

Puget Energy and Puget Sound Energy 2017 Q2 Fixed Income Investor Call

September 20, 2017

Puget Energy Team Introduction

Dan Doyle

Senior Vice President and

Chief Financial Officer

[email protected]

(425) 462-3193

Roger Garratt

Director, Strategic Initiatives

President, Puget LNG LLC

[email protected]

(425) 462-3470

2

Kendall Cammermeyer

Director, Assistant General Counsel

[email protected]

(425) 462-3372

Cindy Song

Treasury Consulting Financial Analyst

[email protected]

(425) 462-3639

mailto:[email protected]






Forward-Looking Statements

Statements in this presentation that relate to future plans, objectives, expectations, performance, events and the like may

constitute “forward-looking statements” with the meaning of the Private Securities Litigation Reform Act of 1995, Section

27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements include statements regarding earnings guidance, statements regarding future load, hydro

conditions and operating and maintenance costs; statements concerning implementation of the Company’s 5-year Plan and

related future capital expenditures; statements regarding the outcome of any legal or regulatory proceeding; as well as other

statements containing words such as “anticipates,” “believes,” “intends,” “estimates,” “promises,” “expects,” “should,” and

similar expressions. Investors are cautioned that any such forward-looking statements are subject to risks and uncertainties,

including – but not limited to – the costs of compliance with regulatory and environmental laws, changes in capital market

conditions, reduction in demand, low wholesale prices, operational risks, hydro and wind conditions, disruption in fuel

supply, and unscheduled power outages, which may result in unanticipated operating, maintenance, and repair costs.

As a result, actual results may differ materially from those projected in the forward-looking statements. All forward-looking

statements included in this presentation are based on information available to the Company on the date hereof and such

statements speak only as of the date hereof. The Company assumes no obligation to update any such forward-looking

statement. Prospective investors should also review the risks and uncertainties listed in the Company’s most recent Annual

Report Form 10-K and the Company’s reports on Forms 8-K and 10-Q filed with the United States Securities and Exchange

Commission.

Cautionary Statement

Information Current as of August 2, 2017

Except as expressly noted, the information in this presentation is current as of August 2, 2017– the date on which PE filed

its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017– and should not be relied upon as being current as

of any subsequent date. PE undertakes no duty to update the presentation, except as may be required by law.

3

I. Current Events

1) 2017 General Rate Case Update

2) Tacoma Liquefied Natural Gas Project Overview

- Environmental, Social & Reputational Risk Mitigation

3) Greenwood Update

4) Corporate Finance Update

II. 2017 YTD Financial Performance Overview

III. Appendix

1) Big Picture

2) Business Overview

3) CAPEX Plan

4) Strategic Capital Projects Details

5) Financial Policy

4

5

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2017 General Rate Case Update

5

Key elements of settlement

Cost of capital: 9.5% ROE/48.5% equity

Colstrip units 1&2: $18.5M annual depreciation expense, offset unrecovered plant balance with PTCs in 2022

Colstrip units 3&4: Set depreciable life to 2027

Hydro Treasury grants: Reserved for units 1&2 decommissioning and remediation costs

Production tax credits: Set aside in flexible fund as monetized for Community (Colstrip) Transition Plan, unrecovered plant balances and decommissioning and remediation costs

Colstrip community transition: $10M funding ($5M PTCs, $5M shareholder contribution)

Expedited Rate Filing: End-of-period rate base (vs. AMA rate base) with full test year depreciation update

Contested issues: ECRM, decoupling, earnings sharing, rate design/spread and gas revenue requirements

2017 General Rate Case Update

6

Reduced/eliminated regulatory risk

- Avoided as much as $200M in proposed write-offs

- Set aside $450M for Colstrip end of life costs

- Allows full recovery of/return on Colstrip plant balances

- Protected storm mechanism

- Secured process for 2018 ERF filing

2017 General Rate Case remaining process (filed in Jan 2017)

- August 30: hearings on contested issues

- September 29: settlement hearings

- October 4: reply briefs due

- Early-December: Commission issue order

- Mid-December: Rates in effect

Tacoma LNG Project Overview

7

32 miles southwest of Seattle

Mid-sized urban port city on the Puget Sound

Second-largest city in the Puget Sound area with a

population of ~200,000

Center of business activity for the South Sound

region

- Industrial and manufacturing history

- Port of Tacoma, established in 1918, is

Washington State’s largest port

Tacoma, Washington


8

Puget Sound Energy is constructing a $310 million liquefied natural gas (“LNG”) storage

facility on a 33-acre brownfield site at the Port of Tacoma

The project benefits local residents and businesses by providing natural gas supply to utility

customers on the coldest days of the year

It also provides local companies like TOTE Maritime with clean energy to power ships

traveling between Tacoma and Alaska

- In the future, we expect to serve the transportation/long-haul trucking industry by

supplying LNG as a cleaner burning alternative to diesel fuel

The Tacoma LNG facility is not an export facility

What is the Tacoma LNG facility?


9

Tacoma LNG at the Port of Tacoma

The LNG facility is located on a brownfield site in the 100-year-old industrial port

- The project will significantly improve the visual and environmental characteristics of

the site

Before After (photo simulation)

- 8 million gallon storage tank

- 250K gallon per day production


10

We’re building 4 miles of new distribution pipeline to serve the LNG facility

- Similar to many other pipelines in PSE’s system

- Pipeline route primarily follows existing roadways in commercial and industrial

areas

- Not on tribal lands – on property leased from the Port of Tacoma

- Pipeline construction is expected to be complete in September 2017

Natural gas pipeline to serve LNG facility


11

LNG is safe and reliable

LNG is natural gas cooled into a

liquid, making it easier and safer

to store and transport

In its liquid state, it is not

explosive or flammable

If warmed above -260ºF, LNG

turns back into the natural gas

used in homes and businesses,

dissipating quickly in an

unconfined space

In the very unlikely event of a

vapor escape or fire, the facility is

designed to contain all potential

hazards on the 33-acre site (per

federal regulation)


12

City of Tacoma WA State Dept. of Ecology

Port of Tacoma WA State Dept. of Fish and Wildlife

City of Fife US Coast Guard

Puget Sound Clean Air Agency US Army Corps of Engineers

Pierce County US Dept. of Transportation

WA Utilities and Transportation Commission (WUTC) US Environmental Protection Agency (EPA)

WA State Dept. of Transportation (WSDOT) US Fish and Wildlife Service

WA State Dept. of Archaeology and Historic

Preservation

National Oceanic and Atmospheric Administration

(NOAA)

In 2012, PSE began discussions with various permitting agencies and the City of Tacoma

regarding project viability

A Final Environmental Impact Statement (EIS) was issued for the project in late 2015

- The EIS was a year-long process through the City of Tacoma, which included opportunities

for community input

- In addition to an extensive safety review, potential impacts to protected species, habitats and

cultural heritage have been thoroughly reviewed as part of the EIS and by several other

agencies

The LNG facility received Washington Utilities and Transportation Commission (UTC) approval in

late 2016

Listed below are 16 local, state and federal agencies that have issued or will issue permits for the

LNG project

LNG is regulated and reviewed


13

We’ve obtained all major

siting permits

Remaining permits are

primarily building or right-

of-way permits, which will

be issued as long as the

permit submittal meets

code requirements

Details on the permitting

status can be found on the

City of Tacoma website:

http://www.cityoftacoma.or

g/government/city_depart

ments/planning_and_deve

lopment_services/planning

_services/pse_proposed_t

ideflats_lng_facility/permit

_status/

Permitting Status

http://www.cityoftacoma.org/government/city_departments/planning_and_development_services/planning_services/pse_proposed_tideflats_lng_facility/permit_status/










14

Construction progress

LNG facility

- Construction started in late 2016 and is expected to be complete in summer 2019

16-inch natural gas pipeline

- Construction started in May 2017 and is expected to be complete in September 2017

- Night and weekend work to minimize traffic impacts in the area

- Using installation techniques that minimize disruption to the surrounding neighborhood

Construction of special isolators on the tank’s foundation will

allow the tank to move with and “ride out” an earthquake. There

will be a total of 88 isolators installed.

Recent night work on the pipeline in Fife, Wash.


15

Demonstrations and activism

- A small group of local project opponents have recently been joined by out-of-area activists seeking venues to share their anti-fossil fuel message

- We’re responding by:

• Amplifying key benefit messages – specifically emphasizing the environmental and economic benefits of the Tacoma LNG project

• Continuing to ensure the safety of the activists, the public and our crews around our facilities, in coordination with tribal and local law enforcement

Litigation

- Shoreline permit appeal

• On August 16, 2016, the Puyallup Tribe appealed a July 18, 2016 Shoreline Hearings Board (SHB) decision to affirm PSE’s permit

• PSE’s request that appeal be heard by State Appeals Court was granted and a court date is expected to be set in fall 2017

- Department of Ecology Water Quality Certification (WQC) and Coastal Zone Management (CZM) appeal

• The Tribe appealed WQC and CZM to the Pollutions Control Hearings Board (PCHB)

• A hearing is scheduled for October 2017

o PSE filed a summary judgment motion in August 2017

Opposition groups

Environmental, Social & Reputational Risk Mitigation

16

Overview of PSE’s ESRM best practices

Overall environmental and social (E&S) policy and disclosure

Organizational capacity and competency

Stakeholder engagement and Indigenous Peoples

- Public outreach and education

- Service-area-wide tribal engagement efforts

Pipeline safety corporate risk management

Gas leak detection and mitigation

Natural gas emergency response

Spill prevention and management

Occupational Health and Safety (OHS) management program

Contractor OHS program

Human rights

Greenwood Update

17

Greenwood Update

On March 28, 2017 pipeline safety regulators and PSE

reached a settlement concerning the complaint for

violation of state commission rules. As part of the

agreement, PSE agreed to pay a penalty of $2.8

million, of which $1.3 million was suspended on

condition that PSE complete a comprehensive

inspection and remediation program

On June 19, 2017 the Washington Commission

approved settlement without conditions

PSE has received numerous claims and two lawsuits

are pending in state court

PSE partnered with UTC pipeline safety staff to

develop a comprehensive inspection and remediation

program and are now implementing the program

according to the terms of the agreement

PSE employees were on-hand during the

Greenwood response to answer

questions from the public

Over the next three years, PSE will be

inspecting certain deactivated service

lines as part of the Greenwood UTC

settlement

Corporate Finance Update

Fitch Ratings added in June 2017

Credit Facility

- PE credit facility expires in April 2018

- PSE credit facility expires in April 2019

18

I. Current Events




3) Greenwood Update



III. Appendix

1) Big Picture


3) CAPEX Plan


5) Financial Policy

19

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PSE June 2017 YTD Snapshot

20

Decoupling revenue resulted in

an additional $8M of revenue

for the 6 months ended June

30, 2017 due to lower

volumetric sales from weather

and conservation.

Historical Financial Performance

EBITDA

Return on Regulatory Equity

21

3,358 3,3293,122

3,3193,215

3,187

3,116 3,093 3,1653,331

818864

908

1,023 1,1031,156 1,146

1,2221,255 1,284

0

350

700

1,050

1,400

0

1,000

2,000

3,000

4,000

Revenue$ in mm

Revenue (LHS) EBITDA (RHS)

EBITDA

CAGR: 5.1%

Revenue

CAGR: -0.1% EBITDA

$ in mm

2008 2009 2010 2011 2012 2013 2014 2015

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2010 2011 2012 2013 2014 2015 2016 2017 Jun

Authorized ROE Actual ROE EBITDA

PSE's Authorized and Actual ROE $ MillionsROE PSE's Authorized and Actual ROE $ Millions

(Left Scale)

PSE's Authorized and Actual ROE $ MillionsPSE's Authorized and Actual ROE $ Millions

(Left Scale) (Right Scale)

- Between 2008 and last twelve

months ended June 2017, Puget

Energy experienced compound

annual EBITDA growth of 5.1%,

despite flat revenue growth largely

due to operating efficiencies & lower

commodity prices

- Prior to implementing the ‘global

settlement’ regulatory mechanisms in

July 2013, the utility rate-making

process resulted in regulatory lag

- PSE narrowed the gap between

Authorized and Actual ROE from 6.0%

in 2010, to 0.7% in June 2017

2016 2017 Jun (1)

(1) For the twelve months ended Jun 30, 2017.

(1)

Upcoming Events

22

Preliminary timeline for upcoming investor events in

2017 & 2018

- Nov 2017: EEI

- Apr 2018 East Coast non-deal road show

o Apr 16-17 New York (preliminary)

o Apr 18-19 Boston (preliminary)

- Sep 2018: 2018 Q2 earnings call

- Nov 2018: EEI

More information can be found on the new investor relations page at:

http://pugetenergy.com/pages/InvestorRelations.html



I. Current Events




3) Greenwood Update



III. Appendix

1) Big Picture


3) CAPEX Plan


5) Financial Policy

23

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Appendix

24

Big Picture

- Mission: Safe, Dependable and Efficient

- Strategy: Integrated Strategic Plan

- Puget Sound is a major commercial and population center in the Pacific Northwest

- A center of high population growth, mostly as a result of economic stability and diversity of job

opportunities

- Dec 2016 King County unemployment rate (not seasonally adjusted) 3.4% vs 4.5% for the U.S.

- Recovery from 2007-2008 economic downturn, load and customer growth patterns significantly

different from the past due to energy efficiency

- Latest published load forecast can be found in 2015 IRP, filed with WUTC on Nov 30, 2015

2015 IRP Link: http://pse.com/aboutpse/EnergySupply/Pages/Resource-Planning.aspx

- In 2015 IRP, PSE’s 20-year average growth rate projections are:

Electric Load: 0.8%; Electric Customer Count: 1.5%

Gas Load: 1.2%; Gas Customer Count: 1.9%

Big Picture

25

3. Weather Patterns & Load Growth

2. Vibrant Local Economy

1. Clear Direction

http://pse.com/aboutpse/EnergySupply/Pages/Resource-Planning.aspx



- 2013 Global Rate Settlement

• Expedited Rate Filing (“ERF”): one-time rate adjustment to establish baseline for decoupling

• Decoupling: allowed revenue recovery on T&D assets based on number of customers served

• Rate Plan: annual rate increase of 3% on electric & 2.2% on gas delivery revenue (Jan 1, 2014-17)

• 3-year stay out period, next general rate case filing postponed to January 2017

- 2015 favorable ROE remand order upheld 9.8% ROE

- 2015 PCA settlement: update PCA sharing band & include fixed production costs in decoupling

- GRC filed in Jan 2017, details in “Current Events & Initiatives” section

- Power Cost Adjustment (“PCA”) substantially protects PSE from power price volatility

- Purchased Gas Adjustment (“PGA”) facilitates PSE’s timely recovery of gas supply costs

- Other Trackers & Riders

Big Picture

26

5. Low Commodity Price Risk

4. Regulatory Environment

- Tacoma Liquefied Natural Gas project

- Strategic capital projects focused on customers, core operations, and system reliability

- Capex details in “Capex Plan” section

- From 2007-2016, Puget Energy experienced compounded annual EBITDA growth of 5.1%

- PSE markedly narrowed the gap between Authorized ROE and Actual Return on AMA

Regulatory Equity

• 2010: Authorized 10.1%; Actual 4.1%; Gap 6.0%

• 2016: Authorized 9.8%; Actual 8.9%; Gap 0.9%

- Fitch ratings added in June 2017, see “Current Events & Initiatives” section for a summary of

credit ratings among the three rating agencies

Big Picture

27

6. Consistent and Improving Financial and Credit Metric Performance

7. Growth from Strategic Investment

Appendix

28

Business Overview

29

Alberta

Investment

Management Co.

(AIMCo)

Macquarie(1)

Canada Pension

Plan Investment

Board

(CPPIB)

British Columbia

Investment

Management Co.

(bcIMC)

Puget Energy

Puget

Sound

Energy

FSS

Infrastructure

Trust(2)

Ownership Structure

(1) Interest in Puget Energy is held through Macquarie Infrastructure Partners I, Macquarie Infrastructure Partners II. entities indirectly managed within the Macquarie

Infrastructure and Real Assets division of Macquarie Group Limited.

(2) FSS Infrastructure Trust formerly a part of the Macquarie Group Limited, now managed by IFM Global. FSS ownership interest carries no voting interest

Puget Equico

Puget Intermediate Holdings

Puget Holdings

Puget LNG

Puget

Western

Through their support of the Company’s ongoing mission and strategy, Puget Energy’s owners

are committed to the long term success and financial viability of the business.

Investment portfolio of approximately $70 billion

Manages capital for 28 pension, endowment and

government funds in the Province of Alberta

$465 billion of assets under management

Invests on behalf of the Canada Pension Plan and is the

largest single-purpose pension fund in Canada

Approximately $102.8 billion of assets under administration

Oversees funds for clients that include public sector pension

plans, the Province of British Columbia, publicly administered

trust funds and public bodies

$103.4 billion of assets under management across

25 countries

Leading global alternative asset manager

specializing in infrastructure funds, other real asset

funds and customized accounts

Alberta Investment Management Corporation

7.1% of Capital Contribution

British Columbia Investment Management


Canada Pension Plan Investment Board


Macquarie Infrastructure and Real Assets(1)


First State Super Infrastructure Trust(2)


$46 billion of assets under management, more than

775,000 members

Australia’s largest non-profit superannuation fund

Seasoned Equity Consortium

(1) Interest in Puget Energy is held through Macquarie Infrastructure Partners I, Macquarie Infrastructure Partners II, entities indirectly managed within the Macquarie

Infrastructure and Real Assets division of Macquarie Group Limited.

(2) FSS Infrastructure Trust, formerly a part of the Macquarie Group Limited. FSS ownership stake carries no voting interest.

30

31

Mission & Goals

Washington state’s oldest local

energy company

100% regulated, engaged in

business of electric generation,

transmission, distribution and natural

gas distribution

6,000 square mile service area in

Puget Sound region of Western

Washington

- 1.1 million electric customers

- 814,593 gas customers

PSE Service Territory

(1)

Combined electric and natural gas service

Electric service

Natural gas service

Public Utility Districts

32 (1) Puget Energy Annual Report on Form 10-K filed for 2016.

(1)

(1)

g

Residential 52.8%Commercial

40.5%

Industrial 5.3%

Others 1.4%

33

Customer Base

PSE primarily serves residential and commercial customers with limited

industrial exposure

- 2016 Electric Retail Revenue by

customer class

Total = $2.2B

- 2016 Gas Retail Revenue by

customer class

Total = $855M

Residential 67.7%

Commercial 27.6%

Industrial 2.3% Other 2.4%

(1) (1)

(1) Puget Energy Annual Report on Form 10-K filed for 2016.

Electric/Gas Resource Needs

34

Latest Integrated Resource Plan filed on Nov 30, 2015. Next IRP to be

filed in 2017

Electric

PSE has effectively met its resource needs until 2021

Gas

PSE has effectively met its resource needs until 2016-17

The capacity need presented in PSE’s 2015 IRP shows an increasing resource shortfall over time:

2016 2017 2018 2019 2020 2021 2022 2023 2024

Capacity Need/(Surplus) (in MW) (160) (28) (43) (44) (71) 275 316 358 400

2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24

Deficit/(Surplus)

(MDth/day) 25 52 73 87 103 119 135 151

Purchased Power 25.4%

Natural Gas 39.4%

Wind 16.0%

Coal 14.0%

Hydro 5.2%

Power Portfolio

2016 Peak Power Resource Capacity (MW)

2016 Energy Production Sources (GWh)

PSE is committed to providing safe

and reliable electric service to

customers in its territory while being a

steward of clean energy.

Puget has a diverse portfolio of

resources to meet customer needs:

- Natural Gas

- Wind

- Hydroelectric

- Coal (low % relative to other

utilities)

- Purchased Power Agreements

As a national leader in wind power,

PSE has 773 MW of wind resources

and has met its Renewable Portfolio

Standard mandates through 2021.

Total = 24,607 GWh

35

PSE owns and manages a diverse power generation portfolio

Total = 4,844 MW

Purchased Power 52.9%

Coal 18.4%

Natural Gas 16.9%

Wind 8.0%Hydro 3.8%

PSE’s Generation Resource Footprint

36

Ferndale

PSE’s generating resources cover 16 Washington counties and 2 states

British Columbia

60%

United States 24%

Alberta 16%

Gas Supply

2016 Peak Firm Natural Gas Supply (Dth/day)

2016 Peak Purchased Gas Supply Diversity PSE holds firm transportation capacity on

pipelines owned by Northwest Pipeline, Gas

Transmission Northwest, Nova Gas

Transmission, Foothills Pipe Lines, and

Westcoast Energy.

- Firm direct connect pipeline capacity provides

reliable gas supplies during peak times

- Upstream pipeline capacity for direct access to gas

production areas

- Provides firm access to several natural gas supply

basins which enables PSE to achieve savings from

price spreads

Storage facilities in Washington and Utah

provide supply reliability and reduce portfolio

costs through off-peak injection for peak winter

heating season withdrawal.

37

PSE has a diverse portfolio of gas resources including direct-connect

pipelines, storage, and peak supply

Purchased Natural Gas Supply 482,300

Purchased Storage Capacity 112,500

Owned Storage Capacity 351,200

Peak Firm Natural Gas Supply 946,000

Other Commitments and Third Parties (5,700)

Net Peak Firm Natural Gas Supply 940,300

Pacific Northwest Gas Supply

38

PSE is perfectly situated near two

plentiful natural gas-producing

regions: the Western Canadian

Sedimentary Basin (WCSB) and the

US Rockies.

This close proximity benefits both PSE

gas customers and power customers

due to the increasing demand for

natural gas to generate electricity.

Puget co-owns and operates the

Northwest’s largest natural gas storage

reservoir, Jackson Prairie.

In addition to Jackson Prairie, PSE

stores up to 12.9 billion cubic feet of

natural gas in Questar’s Clay Basin

storage facility in Utah.

Current Electric Rate Recovery Mechanisms at PSE

39 * Numbers are based on 2017 GRC Test Year Financials as of Sep 30, 2016 and are rounded to the nearest 5%.

Current Gas Rate Recovery Mechanisms at PSE

40 * Numbers are based on 2017 GRC Test Year Financials as of Sep 30, 2016 and are rounded to the nearest 5%.

Appendix

41

CAPEX Plan

Capex is focused on customers, core operations, and system reliability

42

$ in

mill

ion

s

($ in millions) 2017 2018 2019 2017 - 2019

2016 Plan CAPEX Spend (PSE & Puget LNG) $816 $665 $626 $2,107

Plus: Net Incremental Spending $276 $307 $183 $766

2017 Plan CAPEX Spend (PSE & Puget LNG) $1,092 $972 $809 $2,873

$92 $79 $87

$99 $55 $60

$271 $253 $257

$631

$585

$404

$0

$200

$400

$600

$800

$1,000

$1,200

2017 2018 2019

2017-2019 CAPEX Spend (PSE & Puget LNG)

Strategic & RiskMitigation Initiatives

T&D OperationalPrograms

Generation OperationalPrograms

IT / Corporate SharedServices / Environmental

48% of the requested capex funds our core operations

43

$53 $51 $45

$6 $10 $17 $32 $18 $26

$99

$55 $60

$271

$253 $257

$0

$100

$200

$300

$400

$500

2017 2018 2019

2017-2019 Core Operations CAPEX

T&D Operational

GenerationOperational Programs

Corporate SharedServices

Environmental

IT

$ in

mill

ion

s

($ in millions) 2017 2018 2019 2017 - 2019

T&D Operational Programs $271 $253 $257 $781

Generation Operational Programs $99 $55 $60 $214

Corporate Shared Services $32 $18 $26 $75

Environmental $6 $10 $17 $33

IT $53 $51 $45 $150

Core Operations CAPEX $461 $388 $405 $1,253

New Capex plan funds our strategic agenda and risk mitigation initiatives

44

($ in millions) 2017 2018 2019 2017 - 2019

Strategic and Risk Mitigation Initiatives (PSE & Puget LNG) $631 $585 $404 $1,620

$57 $57 $57

$20 $21 $21

$85 $126

$86

$14

$12

$11 $4

$36

$31

$40 $11

$77 $61

$36

$78 $85

$92

$62 $73

$67

$165 $100

$27

$0

$100

$200

$300

$400

$500

$600

$700

2017 2018 2019

2017-2019 Strategic Initiatives CAPEX (PSE & Puget LNG)

LNG (includesdistribution upgrades)AMI

Electric CRM

GTZ

New Data Center *

FTIP

Lower Baker *

New Products

Major System Projects

Reliability Roadmap

Pipeline Integrity - CRM

$ in

mill

ion

s

* Risk mitigation initiative

Capex spend is in line with peers

45

(A) (B) (C) (D)

Puget Capex vs Peer Median Proxy Peer Group (excl. PSE)

1 Implied Capex (based on Proxy Peer Group Median) 1,004$ Minimum 16%

2 PSE 2017 Capex 1,092$ Median 43%

3 Average 44%

4 Maximum 78%

Proxy Peer Group (including Puget)

Book

Depreciation &

Amortization

Book Depr. &

Amort. as a

Percentage of

Capex

5 Vectren 94$ 78%

6 Portland General Electric 344$ 58%

7 Great Plains Energy 369$ 54%

8 Pinnacle West Capital 568$ 53%

9 Wisconsin Energy 442$ 51%

10 Eversource Energy (Northeast Utilities) 622$ 43%

11 Avista 165$ 43%

12 Alliant Energy 394$ 42%

13 Puget (2017 Plan) 435$ 40%

14 NiSource 270$ 36%

15 Integrys Energy Group* 115$ 35%

16 SCANA 340$ 34%

17 Pepco Holdings* 321$ 28%

18 MDU Resources Group 56$ 16%

Note: Source: SNL: FY2015 unless otherwise noted

* FY2014 used as FY2015 represented abnormal level of Depreciation & Amortization and/or Capex

1,009$

1,139$

350$

1,436$

381$

940$

1,092$

749$

326$

Capex

120$

595$

683$

1,078$

871$

Note: CAPEX on this page includes capital expenditures at both PSE & Puget LNG.

Appendix

46

Strategic Capital Projects Details

Major Strategic Capital Projects

47

Get-to-Zero

Enable customers with self-service options & reduce customer calls

Automated Meter Infrastructure

Current meter reading technology is becoming obsolete, replace by 2023

Improve operational capabilities

Electric Reliability Program (Electric CRM)

Replace old cables & worst performing circuits

Improve reliability & reduce outage

Energize Eastside

Upgrade 18 miles of existing electric transmission lines to serve homes/business

Improve Customer

Experience

New Data Center

Mitigate seismic risk & disaster recovery risk

Lower Baker Dam

Grouting & crest improvement to reduce leakage rate & foundation erosion

Address FERC compliance requirements

Risk Mitigation

Tacoma Liquefied Natural Gas Project

WUTC order approving regulatory structure in Nov 2016: 43% regulated at PSE;

57% unregulated at Puget LNG

Unregulated capacity: 50% TOTE & 50% open

Growth

Tacoma Liquefied Natural Gas (“LNG”)

LNG Project serves two purposes

- 43% regulated at PSE: natural gas peaking

facility to meet peak demand

- 57% unregulated at Puget LNG (subsidiary

under PE): transportation fuel for TOTE and

other maritime end-users

WUTC order on October 31, 2016 approving

regulatory structure

Construction started in Q4 2016, completion

expected in late 2019

Quarterly update can be found on the new

investor relations website:

http://pugetenergy.com/pages/lngUpdate.html

48

Tacoma LNG Facility in Tacoma, Washington




New Data Center

49

Why we are doing this project

- PSE’s ability to recover IT systems in the event of a disaster is a risk to

the company

- Two primary risk factors:

Data Center Facilities

Single point of failure

2 outages

Seismic risk

Leased office space

Investment need to keep

operational

Disaster Recovery

134 IT applications categorized

as critical

27 critical IT applications have

disaster recovery gaps

- $13M to remediate

New Data Center

50

Project details

- To mitigate risks we are investing in two new Data Centers facilities

- Mitigates both risks and improves capabilities to recover in the event of a

disaster

Modular Data Centers

High Availability

Always on

Geographic diversity (seismic)

Eastern/Western WA state

Facility resiliency

Eliminate single point of failure

Disaster Recovery

End-to-end recovery validation

All critical IT applications always on

Business impact analysis

Validate critical IT applications

Update disaster recovery plans for all

759 IT applications

Lower Baker Dam Background

Lower Baker Dam is 90 years old – built

in 1925

285-foot-high concrete structure and

regulates the 7-mile long Lake Shannon

reservoir

115 megawatts of power-generating

capacity

51

Lower Baker Dam Risk Mitigation Project Overview

52

Objectives

Reduces leakage rate

Mitigates foundation erosion (rock abutments)

Reduces risk of uncontrolled release of reservoir water

Addresses FERC compliance requirements

Addresses aging infrastructure

Program Consists of Two Interrelated Projects

Addresses abutment leakage and foundation erosion

Raises the left and right abutments and directs flood waters

over the center of the dam

Addresses required infrastructure upgrade and modernization

Improve flood passage and reduce spillway blockage by

debris

Lower Baker Dam

Grouting Project

Lower Baker Dam

Crest Improvements

Project

Get-to-Zero

53

Future State:

Get-to-Zero will

dramatically transform

the way we operate so

we can improve the

customer and

employee experience.

Our goal is that PSE

will become so good

at what we do that our

customers won’t have

a reason to call.

Current State:

4 million customer

calls each year:

• 2 million are cleared

through our

Interactive Voice

Response Unit

• 2 million calls are

handled by a live

agent

Transformation

Identify Root Causes

Top 5 (SUPER 5) Reasons Customers Call:

Explain My Bill 33%

Service Event 33%

Pay My Bill 10%

Financial Assistance 9%

Service Interruption 11%

Fix the Problem

Guiding Principles:

Know our customers and anticipate their needs

Provide easy self-service

Provide proactive information through preferred channels

Follow-through on commitments

Provide accurate and consistent information

5% call reduction

achieved in 2016

(96,000 calls saved)

Get-to-Zero

54

Enter Text Here

Project Overview

Automated Start/Stop/Transfer

Enhancement to the Interactive Voice Response (IVR)

Customer Interface

Automated Start/Stop/Transfer

Billing, Payment & Credit

Email notification to customers that bill is due within 5 days

Internal behavioral scoring & risk segmentation dunning tool

Bill enhancements

Data Quality

Deliver customer analytics to provide better visibility as to why customers call

Integrated Work Management

Develop long term strategic plan to inform the overall GTZ program plan

Automated Meter Infrastructure (“AMI”)

55

PSE’s Automated Meter Reading (“AMR”) platform was installed between

1998-2001 and was designed for a 15-year life. PSE needs to replace existing

technology with newer technology (“AMI”) over the next 5-10 years to address

the following:

~300,000 gas modules are projected to have expiring batteries in

2016-2020, based on a 10-year battery life. Conversion to AMI

minimizes AMR battery and other maintenance costs

Industry is moving to AMI. Equipment and support providers for

PSE’s AMR platform are limited

AMR is nearing end-of-life and has increasing reliability issues

with the communication network and meter modules which may

result in billing impact to customers

Billing Performance

To efficiently meet requirements of a billing performance

standard that took effect on March 25, 2016, PSE will need to be

able to remotely disconnect meters when customer “move-outs”

occur in order to avoid unauthorized energy usage

Maintenance

Obsolescence

Performance

AMI Benefits

56

Advanced outage reporting and functionality

Real time accurate outage notification and status reporting Helps address outage calls - GTZ call rank #5

Prepayment

Enables budget and energy management for multiple

customer types. Provides options for traditional deposits and

prior obligation Helps address collection payment calls - GTZ call rank #1

Billing exception reduction

Reduces estimated and retroactive bills Helps address billing calls - GTZ call rank #3.

Remote disconnect and reconnect

Scheduled disconnects and near-instantaneous

reconnection upon payment Helps address collection payments, start/stop service, and

disconnect calls - GTZ call ranks #1, 2, and 7

Improved operational capabilities • Increase energy conservation through conservation voltage reduction

• Facilitate the integration of distributed generation

• Increase reliability through distribution automation

• Enable remote diagnosis of power quality problems

• Reduce energy theft and meter tampering safety concerns through

energy diversion notifications

The transition from AMR to AMI will lay the foundation for improved

operational and customer capabilities

Electric Reliability Program (Electric CRM)

Why we are doing this project

Electric Reliability Program is designed to improve reliability to customers

served from PSE’s worst performing circuits and underground distribution

cable through implementation of location-specific projects that reduce the

number and length of power outages. An Electric Cost Recovery

Mechanism will align regulatory strategy with this reliability priority.

Project Details

The mechanism will be modeled after the gas CRM and consists of two

parts:

- Reliability Program Plan, and

- Cost Recovery Mechanism (“CRM”)

57

Electric Reliability Program Details

58

The plan will consist of a portfolio of specific projects that will deliver

the greatest reliability benefits for the dollar to customers served from

worst performing circuits/assets

Cable Replacement

Target the replacement of 1970s vintage high-molecular-weight

underground distribution cable

There are 2300 miles of cable in the target population and

approximately 120-180 miles will be replaced each year

Replacement is prioritized based on failure trend of the cable

Worst Performing Circuits

Improvement targets circuits that are in the 3rd and 4th quartile of

IEEE benchmark for multiple years

Annual work will improve performance on 20-30 circuits per year

Improvement is prioritized based on number and length of outage

CRM process would recover the return on the prior year’s plan

investment and recover depreciation expense through annual rate

increases

Reliability Program

Plan

Cost Recovery

Mechanism

+

Energize Eastside

Build a new electric substation and upgrade

approximately 18 miles of existing

transmission lines from Redmond to Renton

Combined with continued electric

conservation, Energize Eastside will keep

the lights on for homes and businesses in

our Eastside communities for years to come

The project is in environmental review

stage. Construction is expected to begin

after the environmental review and

permitting process are complete, currently

planned for early 2018

59

Existing Conditions

Conceptual Project

Appendix

60

Financial Policy

Credit Ratings

Credit Ratings

- On December 3, 2013, Standard & Poor’s raised its corporate rating on

PE to ‘BBB-’ from ‘BB+’ and affirmed PSE ‘BBB’ corporate rating

- On January 30, 2014, Moody’s raised its corporate rating on PSE to

‘Baa1’ from ‘Baa2’ and PE to ‘Baa3’ from ‘Ba1’

- Standard & Poor’s, Moody’s and Fitch affirmed the ‘stable’ outlook for

PSE & PE

- Fitch ratings added in June 2017

61

Liquidity

Liquidity - Strong liquidity position, manageable debt profile & access to capital

62

Puget Energy Consolidated 10-year Maturity Profile(1) Puget Energy Consolidated Liquidity Profile(1)

$66

$1,800$1,734

0

500

1,000

1,500

2,000

2,500

PE & PSE LiquidityFacilities

Drawn Amount Available Liquidity

$ millions

PSE PE

(1) Puget Energy Annual Report on Form 10-Q, filed for June 30, 2017.

as of Jun 30 2017

$200$300

$450 $500 $450 $400

0

200

400

600

800

1,000

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

$ millions

PSE PE

$17 at PSE

Dividends

63

- Extraordinary items

Treasury Grants

(2013&2014)

JPUD (2013& 2014)

Bonus Depreciation

- Dividends from PSE to PE

include interest on $1.8B in

debt at PE (i.e. Holdco)

Dividend Policy Considerations

- Maintain equity ratio to authorized capital structure, currently proposed 48.5% equity ratio in

2017 GRC

- Comply with dividend restrictions and covenants

Annual Dividend Breakdown

$104 $117 $89 $171

$223 $263

$149

$82 $95

$87

$105 $100

$109

$108

$51

$135

$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

2010 2011 2012 2013 2014 2015 2016 Jun-2017

Annual Dividend Breakdown

PE Dividends Paid PE Debt Service

PE Revolver Paydown PE 4-yr moving average

2017 q2 fixed income investor call - puget energy€¦ · puget energy and puget sound energy 2017...

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