Puget Sound Energy Inc. has filed with the Washington Utilities and Transportation Commission for a net $1.534 billion electric and gas rate increase and a related $8.836 billion capital plan over three years. The company said the rate increases are necessary to meet projected energy demand, maintain system safety, reliability, and resiliency, and to comply with state clean energy and decarbonization requirements.

➤ Puget Sound Energy (PSE) is seeking Washington Utilities and Transportation Commission (WUTC) authorization for $1.236 billion (30%) electric and $298.4 million (22%) gas rate increases over three years and higher returns on equity (ROEs) to attract capital to fund its clean energy plan. The company expects to spend $8.836 billion on capital expenditures during the multiyear rate plan (MYRP), $3.644 billion (43%) of which is for planned new resource acquisitions (Docket Nos. UE-260005 and UG-260006).

➤ PSE's application includes other ratemaking proposals, such as the recovery of construction work in progress (CWIP) in rate base for certain projects and acquisitions, the ability to earn its authorized rate of return on clean energy power purchase agreements, accelerated depreciation of PSE's natural gas infrastructure and changes to its Power Cost Adjustment.

➤ The WUTC has up to 11 months to review the general rate case filings and issue a decision. PSE's applications follow a Jan. 16 application from Avista Corp. seeking a four-year electric and gas MYRP.

➤ The regulatory environment in Washington is, on balance, somewhat more restrictive than average from an investor viewpoint, but recent rate case decisions point to an improving environment for authorized equity returns.

If approved, PSE first-year electric and gas rate increases would occur Feb. 1, 2027, with subsequent incremental increases on Feb. 1 of 2028 and 2029.

PSE is operating under two-year electric and gas rate plans authorized in a January 2025 WUTC decision, which also granted ROEs slightly above then-prevailing industry averages. Notably, the order rejected PSE's proposed rate trackers for new wind project and electric and gas decarbonization costs, and for annual power cost updates associated with new energy resource acquisitions.

PSE is Washington's largest electric and gas utility, serving more than 2 million customers. It is a subsidiary of Puget Energy Inc., which is owned by a global consortium of long-term infrastructure investors. The utility notified the WUTC in January of its pending rate case applications.

Overview of rate requests

Electric

PSE's application requests a $1.968 billion total electric base rate increase over the three-year rate plan. After accounting for approximately $732.3 million in expected changes to certain existing price schedules and the revenue requirement proposed for several new riders, the total three-year net rate increase request is approximately $1.236 billion.

For the first rate year, PSE seeks a net $625.3 million (15.15%) electric rate increase effective Jan. 1, 2027. In rate year 2, the request totals $178.7 million (3.74%), effective Jan. 1, 2028; the rate year 3 request is $431.9 million (8.70%), effective Jan. 1, 2029.

Planned rate base investments ($449.2 million), power costs ($309.1 million) and plant depreciation and amortization ($237.9 million) are among the primary drivers of the request, with amounts related to operating expenses and other items accounting for the remainder.

PSE also provided information on its forecast for power supply costs, including the cost of natural gas for thermal plants and related Climate Commitment Act (CCA) emissions allowance costs, purchased power and transmission capacity, wholesale market purchases and other costs. PSE proposes to continue its approved method for recovery of CCA compliance costs for electric operations.

The company expects power costs to rise 6% in 2027 to $2.060 billion from 2026 levels, primarily due to the planned addition of new power supply resources and the termination of certain existing resources. Power costs are expected to fall 5% in 2028 to $1.960 billion, before increasing 13% in 2029 to $2.213 billion as PSE acquires additional resources to meet state clean energy requirements.

By way of background, the Clean Energy Transformation Act (CETA) requires Washington electric utilities to eliminate coal-fired generation from their in-state electric supply by Dec. 31, 2025; be carbon-neutral for the four-year compliance period beginning Jan. 1, 2030, through a combination of non-emitting electric generation, renewable generation, and/or alternative compliance options; and by 2045, supply 100% of electric generation and retail electricity sales from renewable or non-emitting resources.

The CCA established a greenhouse gas emissions cap-and-invest program that requires electric and gas utilities to purchase allowances to cover their emissions, with a cap on available allowances beginning Jan. 1, 2023, then declining annually through 2050. Though PSE receives emission allowances from the Washington Department of Ecology at no cost through 2050 for direct emissions associated with electricity and natural gas supplied to customers, it also purchases CCA allowances in Department of Ecology auctions and on secondary markets to meet its compliance obligations.

As part of the application, PSE is seeking WUTC prudence determinations for 14 utility-scale resources, including investments in wind, solar and transmission projects, that are expected to come online during the MYRP and contribute to the company's CETA objectives. PSE also intends to monetize associated federal investment tax credits generated by the projects to offset some costs to ratepayers.

"PSE has secured several new long‑term, utility‑scale energy and capacity resources that will be operational during this MYRP. These include a mix of PSE‑owned generation and storage projects and long‑duration PPAs or tolling agreements with contract terms generally ranging from 20 to 30 years. These resources support PSE's clean energy requirements and need for capacity to continue providing reliable electric service for the long term," the company said. "Changes in federal policies require PSE to invest quickly in clean energy projects to capture the benefits of expiring tax credits, while simultaneously making it more difficult to site and permit those projects."

For certain projects, PSE requests to recover CWIP in rate base to allow it to recover costs on an ongoing basis during construction, rather than accruing an allowance for funds used during construction (AFUDC) for later recovery. PSE also proposes to earn a return on PPAs for clean energy resources at the full authorized rate of return established by the WUTC in this case, as allowed by state law.

"Earning a return on PPAs is an important tool to improve cash flow and PSE's credit 15 metrics, which benefits customers by keeping borrowing costs as low as possible. This is particularly important given the significant capital expenditures PSE must incur to comply with legislative mandates," the company said.

The company is also seeking to roll into base rates amounts collected through several electric and gas rate riders and trackers including its Power Cost Adjustment ($744.9 million); Greenhouse Gas Emissions Cap and Invest Adjustment ($233.3 million, offset by proposed credits for CCA allowance costs that are already included in PSE's power cost forecast for each rate year); Energy Charge Credit Recovery Adjustment ($42.8 million); Distribution Pipeline Provisional Recovery Adjustment ($2.8 million); and electric and gas Targeted Exception Rate Adjustment ($14.1 million).

PSE is seeking to discontinue the Energy Charge Credit and Distribution Pipeline Provisional recovery riders and to terminate other obsolete rate schedules as part of the application. It also proposes to add a time-of-use pricing component to its Power Cost Adjustment, and several adjustments to its electric and gas decoupling mechanisms to standardize implementation for certain rate classes, adjust its line extension compensation framework and better reflect underlying costs and service characteristics. It also proposes to increase funding for income-qualified energy assistance programs.

Natural gas

The proposed gas base rate increases are $191.8 million (14.16%) for rate year 1, $48.8 million (3.16%) for rate year 2 and $57.8 million (3.64%) for rate year 3.

Principal factors necessitating the gas rate increase request include safety and reliability capital investments in PSE's existing infrastructure and a proposed methodology for accelerated gas infrastructure depreciation methodology to limit the risk of stranded assets due to increasing electrification and declining gas demand. Legislation enacted in 2024 in Washington requires large combination utilities to recover gas capital costs by 2050; the measure and a related ballot initiative that briefly overturned the law are under review by the Washington Supreme Court.

"PSE is seeking accelerated depreciation of the natural gas rate base so that existing customers who receive the full benefits of that system do not leave future customers, or the most energy-burdened customers, with an inequitable and burdensome share of the already approved prudently incurred costs of the system," the company said. "As PSE continues to implement programs and pilots that reduce gas use and associated GHG emissions and enable customer choice, it is appropriate for the Commission to shorten depreciation lives now, so as not to leave an insurmountable challenge for future regulators and customers."

Cost of capital

The proposed electric and gas rate increases are premised on returns on equity of 10.80% for each rate year (50% of a hypothetical capital structure), and escalating returns on rate base of 8.09%, 8.15% and 8.18% for a modified, adjusted test year ended June 30, 2025. PSE proposes average electric rate base valuations of $9.782 billion for rate year 1, $10.955 billion for rate year 2 and $11.425 billion for rate year 3. For natural gas, PSE proposes average rate base valuations of $3.143 billion for rate year 1, $3.283 billion for rate year 2 and $3.408 billion for rate year 3.

In testimony, PSE's ROE witness said an authorized equity return in a range of 10.50% to 11.50% is reasonable and that the utility's requested 10.80% ROE for the MYRP "is reasonable if not conservative considering the business and financial risks of PSE" compared to a group of similar utilities.

"Maintaining PSE's financial strength is critical to achieving access to capital on reasonable terms for PSE's customers throughout the energy transition," the witness said.

According to data gathered by RRA, the average return on equity authorized for electric utilities in rate cases decided in the first nine months of 2025 was 9.66%, below the 9.74% average for full year 2024. The average ROE authorized for gas utilities was 9.73% in rate cases decided in the first nine months of 2025, largely in line with the 9.72% average for full year 2024.

Wash. regulatory environment

The regulatory environment in Washington is somewhat more restrictive than average from an investor viewpoint. The state's electric utilities remain vertically integrated and are regulated under a traditional regulatory paradigm. Utilities are required to file MYRPs from two to four years in length, with performance-based ratemaking encouraged. Utilities filing a rate plan of three or four years have the option to file a new rate plan for the third and fourth years. The WUTC's recent orders in gas and electric utility rate cases point to an improving ROE environment in the state, which RRA views as favorable from an investor perspective.

Prior to rate cases filed in the state in early 2024, authorized equity returns were typically below prevailing industry averages when established. The state's electric and gas companies utilize various regulatory mechanisms that provide for revenue decoupling, and the deferral and recovery of the majority of power and natural gas supply costs, wildfire and insurance costs and environmental compliance costs.

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